Arab Republic of Egypt

The policies implemented since 2024 within the framework of the IMF’s Extended Fund Facility (EFF) have contributed to macroeconomic stabilisation, thanks to greater exchange rate flexibility, monetary and fiscal tightening, and the recovery of foreign currency inflows. GDP growth picked up to 4.4% in 2025, supported by private consumption, investment, tourism, remittances and non-oil manufacturing.

The IMF anticipates growth of 4.2% in 2026 and 4.8% in 2027, although the outlook remains subject to the lagged effects of the conflict in the Middle East on costs, confidence and investment. Moreover, the recovery continues without generating enough employment to absorb the growth of the labour force and the medium-term outlook depends on an effective reduction in the state’s footprint in the economy.

The conflict in the Middle East is the main risk for recovery. As a net importer of energy, Egypt is exposed to rising oil and gas prices, and to possible disruptions in regional supply, with an impact on inflation, electricity production and the external balance. Risks also persist for tourism, capital flows and traffic through the Suez Canal, whose revenues remain well below pre-Red Sea disruption levels.

The increased flexibility of the exchange rate regime has reduced the foreign currency shortage and favoured the return of remittances and foreign capital, but the Egyptian pound continues to be subject to downward pressure due to the inflation differential, the external deficit and geopolitical uncertainty. The currency weakened again after the escalation of the conflict in the Middle East, although the increase in reserves, multilateral disbursements and high interest rates have limited more disorderly movements. Maintaining an exchange rate determined by the market is a central condition of the IMF’s Extended Fund Facility (EFF) and of investor confidence.

The risk outlook is tilted to the downside, with significant fiscal and external vulnerabilities, strong funding needs and direct exposure to regional instability. A prolonged conflict could increase energy and food prices, disrupt gas supplies, delay the recovery of the Suez Canal and tourism, cause capital outflows and prolong the restrictive nature of the monetary policy.

Additionally, we identified the following idiosyncratic risks:

• The banking system remains solid, profitable and liquid, but its high exposure to public debt and the domination of state-owned banks reinforce the sovereign-bank nexus and limit private financing. The IMF recommends reinforcing risk management at state-owned banks.
• Premature easing of the policies or a reduced commitment to exchange rate flexibility could reactivate the foreign currency shortage, inflation and capital outflows. Delaying privatisations would perpetuate competitive distortions and reduce private investment.
• The political situation remains stable, although limited political competition, institutional weaknesses and insufficient accountability weight on governance and the business environment.
• In the social sphere, cumulative inflation, reduced subsidies and high informality have eroded purchasing power. The population displaced by regional conflicts adds pressure to housing, public services and social protection.
• Egypt is highly exposed to climate risks, especially water stress, rising temperatures and sea levels, and the vulnerability of the Nile Delta. The resilience mechanism agreed with the IMF seeks to reinforce its management and mobilise climate funding.