Egypt suffers $8bn outflow due to conflict, Moody’s says

The US-Israeli war with Iran has so far led to an estimated $8 billion in foreign portfolio outflows from Egypt, according to global ratings agency Moody’s.

The escalation of the conflict has begun to affect the North African nation through higher energy prices, crude supply disruptions and confidence-sensitive capital flows, posing risks to recent improvements in macroeconomic and credit metrics. 

Sharply higher oil prices, compounded by a roughly 10 percent depreciation in the pound, have led to a significant increase in domestic fuel costs. 

Although energy-saving measures announced by the authorities will help contain fiscal pressures, the price increase threatens to disrupt disinflation and delay a further easing of domestic borrowing costs. 

At the same time, disruptions to natural gas imports from Israel have increased reliance on pricier liquefied natural gas, raising the energy import bill and risking a partial reversal of the recent narrowing of the current-account deficit. 

Despite the risks, Moody’s reaffirmed Egypt’s sovereign rating and positive outlook, citing a reduction in the debt service burden and fiscal surpluses since 2024.

The positive outlook has been in place since March 2024, as fiscal and external improvements achieved to date continue, underpinned by a sustained heightening of government debt affordability and a reduction in gross financing needs. 

The long-term foreign- and local-currency issuer ratings were maintained at Caa1, the agency said.

Primary surpluses are predicted to average 4 percent of gross domestic product, excluding one-off revenue from asset sales, in the next few years, up from 3.5 percent of GDP in 2025. 

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While the central bank has prioritised disinflation and external rebalancing to restore macroeconomic stability, reforms to the business environment are slated to strengthen medium-term growth prospects and reinforce the improving macroeconomic backdrop.

Moody’s says higher energy costs may weigh on fiscal consolidation by dampening domestic demand and tax collection, challenging the government’s plan to reduce subsidies further and increasing pressure for additional social spending.

Cairo’s debt and external vulnerabilities continue to constrain the credit profile, leaving the country particularly exposed to the oil price shock and the associated risks of tighter global financing conditions and capital outflows, which could reverse the credit-positive trend achieved so far, it said.