(Bloomberg) --

Egypt’s credit rating was downgraded by Moody’s Investors Service as liquidity buffers and foreign reserves dwindle, leaving the nation vulnerable to shocks.

Moody’s lowered Egypt’s ratings to B3 from B2 on Tuesday, putting the nation’s credit score six levels above default and on par with Angola. The outlook on the country was also raised to stable from negative, according to a statement. 

The cut reflects “reduced external buffers and shock absorption capacity while the economy undergoes a structural change toward a more export- and private sector-led growth model under a flexible exchange rate regime,” Elisa Parisi-Capone and Matt Robinson wrote. “Liquid foreign exchange reserves have declined” and “FX liquidity buffers in the monetary system have dwindled.”

Even with the nation’s new International Monetary Fund program, Moody’s analysts warn that it’ll take time to tangibly reduce Egypt’s vulnerability to external risks — such as higher borrowing costs and inflationary pressures. 

There’s also still uncertainty about the government’s ability to address social stability as it commits to a fully flexible exchange rate, according to Moody’s. The country has devalued its pound at least three times in the past year amid high inflation.

The nation’s stable outlook comes as Moody’s eyes longer-term reforms that enhance the economy’s export base and support foreign direct investment inflows, improving Egypt’s debt capacity.

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