(The following statement was released by the rating agency)
LONDON, October 10 (Fitch) The decision by the US government to suspend part of
its military aid to Egypt has limited overall impact on the country's external
finances, and is therefore not significant for its credit profile, Fitch Ratings
says. US military aid is predominantly given in the form of hardware or grants
to the Egyptian military to spend on US weapons, and therefore does not have a
major effect on the sovereign's external finances or the Egyptian economy.
A reduction in military aid from a key international ally is symbolically
important, but will not affect key indicators of creditworthiness such as FX
reserves. We do not anticipate any knock-on effect on other sources of direct
fiscal support. A cash transfer of USD260m to the government is being withheld
as part of the US move, but this has been dwarfed by bilateral transfers from
the Gulf that have eased pressure on reserves and the Egyptian pound in recent
months, in line with our expectations.
Saudi Arabia, Kuwait, and the United Arab Emirates have committed around USD14bn
in cash grants, five-year interest-free deposits and grants of oil products to
Egypt since the overthrow of President Morsi in July. By end-September USD7bn of
these commitments had been disbursed, boosting Egypt's FX reserves to USD18.9bn,
from just over USD14bn at the time of the coup. These grants have enabled Egypt
to repay more expensive loans from Qatar made during the Morsi administration.
Last month Egypt repaid USD2bn, and it will repay a further USD1bn in two equal
instalments in November and December, which we think will probably be covered by
more assistance from the other three GCC members if necessary.
The greater availability of FX has almost eliminated the black market exchange
rate, although FX shortages persist, hampering economic activity.
The US will continue to provide military support deemed necessary for
counter-terrorism and border security, and aid for education and health,
indicating that it remains engaged with the Egyptian authorities.
The US government said on Wednesday it is suspending a USD260m cash transfer to
the Egyptian government, and a USD300m loan guarantee for military purchases,
and deliveries of some jets, helicopters, tanks and missiles. The decision was
made 'pending credible progress toward an inclusive, democratically elected
civilian government through free and fair elections,' the State Department said.
We rate Egypt 'B-' with a Negative Outlook.
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London E14 5GN
+44 20 3530 1588
Media Relations: Peter Fitzpatrick, London, Tel: +44 20 3530 1103, Email:
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