Egypt’s PMI hits 5-month low, signaling non-oil sector downturn: S&P

Egypt’s economic landscape faced fresh challenges in October as the North African country’s Purchasing Managers’ Index dropped to a five-month low, standing at 47.9.

The S&P Global Egypt PMI report reflected a 0.8-point decline from the previous month’s 48.7, signaling a deterioration in the non-oil private sector.

Furthermore, new order intakes plunged deeper into negative territory, with an increasing number of companies reporting a decrease in new work, as indicated in the report.

Concurrently, employment numbers experienced a modest decrease, the fastest rate of decline since February, while inventory levels fell.

On a more positive note, backlogs of work increased in October, though to a lesser degree than in the previous month. In September, backlogs of work rose at the fastest rate on record. Work-in-hand has now seen growth for four consecutive months.

“Expectations towards the year-ahead outlook for activity improved to their highest in 2023 so far in October, after reaching record lows earlier this year. Firms were moderately hopeful of a recovery in economic conditions, with 13 percent of respondents predicting growth for the next 12 months,” the report added.

Additionally, Fitch Ratings downgraded Egypt’s long-term foreign-currency issuer default rating from “B” to “B-” while maintaining a stable outlook.

According to the firm’s report, the downgrade is attributed to increased risks in Egypt’s external financing, macroeconomic stability, and government debt.

Slow progress on key reforms, such as transitioning to a flexible exchange rate regime and delayed International Monetary Fund program reviews, has eroded confidence in exchange rate policies and intensified external financing challenges.

Nevertheless, Fitch anticipates that reforms will gain momentum following the presidential elections in December, potentially leading to a larger IMF program and increased support from the Gulf Cooperation Council.

The report elaborated: “GG (General Government) debt to GDP (gross domestic product) jumped to about 95 percent in FY23, from nearly 87 percent in FY22, mostly due to the weaker currency.”

Fitch Ratings forecasts that the general government debt-to-GDP ratio will decrease to 90 percent in the financial year 2024 and further decline to 87 percent in the financial year 2025. This positive trend is expected to be bolstered by primary surpluses, negative real interest rates, and an average GDP growth rate of 3.8 percent.

“This is considerably above Fitch’s 2023 ‘B’ median of 56 percent. A 10 percent currency depreciation above our forecast would increase debt by about 3pp of GDP, in our projections. We forecast interest-to-revenues will exceed 50 percent in FY25, one of the highest among the sovereigns we rate and pointing to marked solvency pressure,” the report revealed.