Arab News | Egypt’s economy proves resilient despite regional turmoil, IMF says

RIYADH: Egypt has weathered the latest regional conflict, with stronger economic safeguards and a swift policy response helping the country withstand external pressures, the International Monetary Fund said.

In a newly released statement, the IMF said reforms under its Egypt-supported program had strengthened economic growth, helped bring inflation down, rebuilt international reserves and improved banks’ foreign asset positions, leaving the country better equipped to withstand external shocks.

Egypt absorbs shock as reforms remain necessary

The conflict between Iran, Israel and the US that began in February triggered a sharp financial shock in Egypt.

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 around 14–17 percent.

As market pressures eased, portfolio inflows resumed, nonresident holdings recovered to near pre-conflict levels and the pound regained much of its initial losses, according to the IMF.

Despite the disruption, economic activity remained resilient, with real gross domestic product growth reaching 5 percent in the third quarter of fiscal 2025/26 and 5.2 percent over the first nine months.

The IMF expects growth to moderate to 4.4 percent in FY2026/27 as the lagged effects of the conflict weigh on investment, input costs and economic activity.

The newly released IMF statement said: “The Egyptian authorities responded quickly. 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.”

The IMF said further reforms are needed to reduce Egypt’s vulnerabilities, particularly high public debt and gross financing needs, while creating more space for private sector-led growth. It called for faster implementation of the State Ownership Policy and divestment program, alongside stronger governance of state-owned enterprises and greater competition.

Regional economies face varying spillover effects

The shock has also affected economies across the region, although the impact has varied. Jordan has faced higher energy costs and tourism disruptions, with the IMF projecting growth to ease to 2.7 percent in 2026 from 3 percent previously.

In the Gulf, five of eight directly affected oil exporters were projected to contract in 2026, while Saudi Arabia and the UAE were expected to continue growing, at 3.1 percent each, as higher oil prices partly offset lower export volumes and trade disruptions.