Egypt has weathered one of the region's largest recent economic shocks without a broader downturn, benefiting from improved international reserves, exchange rate flexibility, and a swift policy response.
However, the economy’s ability to remain resilient will continue to depend on addressing chronic weaknesses, including high public debt, large financing needs, the banking sector’s elevated exposure to the government, and the expanding role of the state in economic activity.
The findings were published in a country focus prepared by Amine Mati, IMF’s mission chief for Egypt, and Yevgeniya Korniyenko, a senior economist at the IMF’s Middle East and Central Asia Department.
Entitled ‘Resilience Under Pressure: Egypt's Economy Defied Expectations,’ the two economists found that policy reforms undertaken under the IMF-supported program had strengthened growth, put inflation on a downward path, and helped rebuild international reserves and improve banks’ foreign asset positions.
Also, the IMF’s latest assessments indicate that gross financing needs are expected to remain around 40% of GDP in the near term and decline only gradually to below 30% by 2030. More broadly, the state footprint in the economy remains excessively high.
Economy Absorbs Shocks
According to the IMF, Egypt entered the latest period of regional conflict in a stronger macroeconomic position than during previous episodes of external stress.
The Fund said policy reforms undertaken under its-supported program had strengthened growth, put inflation on a downward path, and helped rebuild international reserves and improve banks’ foreign asset positions.
Also, the Fund noted that financial markets reacted sharply.
“Nonresident holdings of local-currency government debt fell from $39.1 billion in February to $22.2 billion in early April, while the Egyptian pound depreciated by about 14–17%,” it wrote.
As pressures eased, portfolio inflows resumed, non-resident holdings returned to near pre-conflict levels, and the pound recovered much of its initial losses.
The IMF linked this performance to the fact that exchange rate flexibility absorbed external pressures, while energy price adjustments in the wake of higher international oil prices, spending restraint, and expanded targeted support helped preserve policy discipline.
Non-Stop Growth
In its country focus, the IMF found that the financial shock in Egypt did not spill over into a broader economic downturn.
“Growth remained strong, reaching 5.0% in the third quarter of FY2025/26, while tourism stayed resilient, remittances surged to record highs, and Suez Canal activity continued its gradual recovery following some temporary disruption amid the regional turmoil,” it wrote.
Also, fiscal pressures were contained through revenue mobilization and expenditure restraint.
As for inflation, it rose in response to the currency depreciation and energy price adjustments, but the increase proved less severe than expected, although the path back to the inflation target was pushed back by a year.
Crucially, the IMF said, international reserves remained comfortably above adequate levels despite initial capital outflows, reflecting exchange rate flexibility in absorbing external pressures—a key difference from past episodes.
Gross Financing Needs Still High
The latest shock demonstrated Egypt’s improved resilience, but significant vulnerabilities remain, the IMF found.
It said public debt and gross financing needs are still high, financing relies heavily on short maturities, and banks’ exposure to the government remains elevated.
The fund warned that these vulnerabilities—particularly amid heightened global uncertainty—leave Egypt exposed to shifts in global financing conditions and renewed external shocks, while reinforcing the sovereign-bank nexus and increasing the risk of fiscal dominance.
Large government financing needs can also crowd out private sector credit and investment, it said.
The report found that reducing public debt and high gross financing needs will require stronger debt management, with a shift toward longer-term, market-based financing, a broader investor base, and deeper domestic debt markets to reduce refinancing risks and strengthen debt sustainability.
Most importantly, it said, “more decisive implementation of the State Ownership Policy and divestment program, stronger governance of state-owned enterprises, and greater competition will be critical to reducing the state’s footprint and creating the conditions for stronger private sector led growth.”
