Moody's on Thursday downgraded Egypt's credit rating by a notch to 'Caa1' from 'B3', citing the country's worsening debt affordability.

Egypt has been facing an economic crisis with record inflation and a chronic foreign currency shortage, and a borrowing spree over the last eight years has made external debt repayments increasingly onerous.

"Moody's expects the materialization of asset sale proceeds at the central bank to help restore the economy's foreign currency liquidity buffer," the credit rating agency said, placing Egypt's outlook at 'stable'.

The outlook reflects the agency's expectation that Egypt will have continued access to official financial support from the International Monetary Fund under its $3 billion arrangement.

Egypt has imposed import restrictions to remedy the shortage of foreign currency, while at least two national banks have suspended the use of Egyptian pound debit cards outside the country to stop a drain on foreign currency.

The country, which is preparing for elections in December, devalued its currency by more than half in the year to March.

(Reporting by Sri Hari N S and Anandita Mehrotra in Bengaluru; Editing by Shinjini Ganguli)