Resilience Under Pressure: Egypt's Economy Defied Expectations

IMF News, September 21, 2026

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A swift policy response, strong macroeconomic buffers, and a flexible exchange rate helped Egypt absorb spillovers from the war in the Middle East.
More decisive reform implementation is needed to reduce vulnerabilities and unlock stronger private sector-led growth.
Findings discussed in the Seventh Review under the EFF and Second Review under the RSF.

Exchange rate flexibility absorbed external pressures.
Energy price adjustments, spending restraint, and expanded targeted support preserved policy discipline.
Nonresident holdings of local-currency government debt fell from US$39.1 billion in February to US$22.2 billion in early April.
The Egyptian pound depreciated by about 14–17 percent.
As pressures eased:
- Portfolio inflows resumed and non-resident holdings returned to near pre-conflict levels.
- The pound recovered much of its initial losses.
Sovereign spreads narrowed to below pre-war levels.
Egypt returned to international capital markets:
- A US$1 billion Social Eurobond issued in May was five times oversubscribed.
- A US$500 million Samurai bond was issued in June.
By August, Egypt’s sovereign risk premium had fallen to its lowest level since 2014.

Growth remained strong, reaching 5.0 percent in the third quarter of FY2025/26.
Tourism stayed resilient.
Remittances surged to record highs.
Suez Canal activity continued its gradual recovery after temporary disruption.
Fiscal pressures were contained through revenue mobilization and expenditure restraint.
Inflation rose due to currency depreciation and energy price adjustments, but the increase proved less severe than expected; the path back to the inflation target was pushed back by a year.
International reserves remained comfortably above adequate levels despite initial capital outflows, aided by exchange rate flexibility.

Public debt and gross financing needs remain high.
Financing relies heavily on short maturities; banks’ exposure to the government remains elevated.
Gross financing needs are expected to remain around 40 percent of GDP in the near term and decline only gradually to below 30 percent by 2030.
The state footprint in the economy remains excessively high.
These vulnerabilities increase exposure to shifts in global financing conditions and renewed external shocks, reinforce the sovereign-bank nexus, and raise the risk of fiscal dominance.
Large government financing needs can crowd out private sector credit and investment.

Preserve macroeconomic stability through:
- Exchange rate flexibility.
- An appropriately tight monetary policy.
- Fiscal prudence.
Reduce public debt and high gross financing needs by strengthening debt management, including:
- A shift toward longer-term, market-based financing.
- A broader investor base.
- Deeper domestic debt markets to reduce refinancing risks and strengthen debt sustainability.
Accelerate structural reforms to reduce the state footprint and boost private sector-led growth, including:
- More decisive implementation of the State Ownership Policy and divestment program.
- Stronger governance of state-owned enterprises.
- Greater competition to create conditions for stronger private sector-led growth.

Amine Mati, IMF mission chief for Egypt and an assistant director of the IMF’s Middle East and Central Asia Department.
Yevgeniya Korniyenko, senior economist, IMF’s Middle East and Central Asia Department.

IMF News — Resilience Under Pressure: Egypt's Economy Defied Expectations (September 21, 2026).