Suez Canal expansion likely to have small but positive impact, says ratings agency
Courtesy: New Suez Canal Facebook page
 

Credit rating agency Moody’s said in a Thursday statement that the newly opened Suez Canal expansion will likely boost Egypt’s credit quality in the long run, but cast doubt on government projections of rapid growth in revenue.

According to Egyptian officials, the Suez Canal expansion will more than double annual revenue from the canal, from around US$5.5 billion in 2014 to $13 billion by 2023.

The extension, inaugurated on August 6, added a new 35-kilometer lane parallel to a stretch of the original canal, as well as deepening 37 kilometers of existing shipping lanes.

The government also plans to develop the surrounding area as a special economic zone.

The extent to which Egypt benefits from the canal will depend on the acceleration of global trade, Moody’s said, adding that it expects only limited positive growth in the current fiscal year.

Echoing other analysts, Moody’s noted that canal receipts tend to correlate with global trade. In order for canal revenues to reach Egyptian official estimates, Moody’s calculated that global trade would have to grow by around 10 percent a year between 2016 and 2023.

The World Trade Organization predicts global trade will grow by 3.3 percent in 2015 and by four percent in 2016. The 25-year average for growth is five percent.

Moody’s predicts that the canal extension will have a positive impact on transit fees, tax and dividend payments from the Suez Canal Authority and Egypt’s current account balance, but at a much slower pace than the government anticipates.

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