The IMF: Egypt has absorbed the repercussions of the war... and debt and financing pose challenges

- The International Monetary Fund said that Egypt was able to absorb the repercussions of the war in the Middle East thanks to the rapid response of the authorities, the flexibility of the exchange rate, and the improvement of international reserves, but it warned of the continued weaknesses linked to the rise in public debt and financing needs, which requires continuing reforms to support stronger growth led by the private sector. The Fund explained that Egypt entered the recent regional conflict with a stronger economic position compared to previous periods of external pressure, after the reforms implemented within the framework of the program supported by the Fund contributed to enhancing growth, putting inflation on a downward path, rebuilding international reserves and improving the foreign asset positions of banks.

According to the IMF, the Egyptian authorities moved quickly to contain the shock through flexibility in the exchange rate, adjusting energy prices after the rise in global oil prices, controlling spending and expanding targeted support, which helped the economy absorb the pressures without extending them to economic activity to a greater extent. Economist Mustafa Badra said that the Egyptian economy showed an ability to deal with external shocks, pointing out that the exchange rate moved by about 5% to 6% during the war between the United States and Iran, coinciding with improved growth and the provision of more job opportunities.

The Egyptian economy recorded a growth of 5% in the third quarter of the 2025/2026 fiscal year, while the tourism sector maintained its resilience and Suez Canal activity began to gradually recover after temporary disturbances. This coincided with an improvement in foreign currency flows, as remittances from Egyptians working abroad increased during the first seven months of 2026 by 28.1% to about $29.7 billion, compared to about $23.2 billion during the same period of the previous year, while July remittances rose by 20% to about $4.5 billion, compared to about $3.8 billion during the same month last year, according to official data.

Badra said, in exclusive statements to Ofek News in Arabic, that there are challenges if the war continues for a longer period that may put pressure on Suez Canal revenues, as it is one of the sources of foreign currency. Also, high oil prices may increase the cost of energy support and push prices and inflation to higher levels, which may be reflected in interest rates and the cost of financing within the banking system. Annual urban inflation in Egypt recorded 14.5% in August 2026, compared to 14.9% in July, while core inflation reached 14.9%, compared to 14.7%.

The IMF said that the rise in inflation came as a result of the devaluation of the currency and energy price adjustments, but it was less severe than expected, with the return to the inflation target delayed by about a year. Egypt's net international reserves amounted to $57.2145 billion at the end of August 2026, and the Fund indicated that the reserves remained at comfortable levels despite capital outflows at the beginning of the war, which helped the economy deal with external pressures.

The Egyptian financial markets were subjected to strong pressure at the beginning of the war, as non-resident investments in Egyptian government debt instruments denominated in the pound declined from $39.1 billion in February to $22.2 billion in early April, while the pound fell by about 14% to 17%. As the pressures subsided, portfolio investment flows returned, non-resident investments approached pre-conflict levels, while the pound recovered a large portion of its initial losses, investor confidence improved, and the risk premium on sovereign debt fell to levels lower than those recorded before the war.

Egypt returned to international capital markets, issuing in May social Eurobonds worth one billion dollars, which were oversubscribed five times the value of the offering, then issued a Samurai bond worth $500 million in June, while the sovereign risk premium last month reached its lowest levels since 2014. Regarding the debt file, Mustafa Badra said that the debt file and financing needs represent one of the main challenges facing the Egyptian economy, especially since the high financing needs force the state to raise resources to pay obligations. The existing debt and debt service, in addition to providing the necessary financing for the next phase after the end of the International Monetary Fund program.

The Egyptian government aims to reduce public debt to less than 80% of GDP, at a time when the IMF estimates total financing needs at about 40% of GDP in the near term, to gradually decline to less than 30% by 2030. Central Bank data show the size of the external debt burden, as its balance increased from $163.71 billion at the end of the first quarter of the fiscal year 2025/2026 to $163.91 billion at the end of the quarter. Second, an increase of $198 million.

Banking expert, Hani Abu Al-Futouh, said that the Egyptian economy has become more able to withstand external pressures compared to previous crises, supported by exchange rate flexibility, financial discipline, energy price adjustments, and interest rates. However, he pointed out that public debt, both internal and external, remains one of the most prominent challenges due to the high burden of servicing it on the budget. Abu Al-Futouh believes, in exclusive statements to Ofoq News in Arabic, that increasing production represents one of the basic paths to enhancing the Egyptian economy’s ability to confront shocks, as it reduces dependence on imports and the use of foreign currency, and increases the supply of goods and services, which helps achieve a better balance between supply and demand and reduce inflationary pressures.

The IMF warned that Egypt's high dependence on short-term financing, in addition to the high banks' holdings of government debt instruments, represent additional sources of risk, and that the government's large financing needs may limit the private sector's ability to obtain credit and investment. The Fund called for improving debt management and moving to longer-term financing based on market mechanisms, expanding the investor base and deepening the domestic debt market, while implementing the state ownership policy and asset divestment program more decisively, improving the governance of state-owned companies and increasing competition.

Abu Al-Futouh said that enhancing foreign currency resources requires increasing exports, localizing industry, and increasing projects and job opportunities, in addition to supporting the resources of the Suez Canal, remittances from Egyptians working abroad, tourism, and investment, in a way that increases the economy’s ability to finance its needs from its own resources and reduces the need for external financing. The Egyptian government is preparing to prepare a national economic program for the period after the IMF program, which includes a road map until 2030, while it intends to hold an economic conference next October to present what has been achieved over the past years and discuss the current challenges and the future vision of the economy.