Unpacking the Egyptian story

Snapshot of the economy

After a decade marked by political unrest and successive external shocks – from the Russian invasion of Ukraine to regional conflicts affecting Gaza, Sudan and Red Sea shipping – Egypt entered 2024 facing its most acute foreign-currency crisis in a generation. A decisive policy reset, backed by IMF recommendations followed, enabling the authorities to secure a USD 57 billion (bn) global support package. The programme catalysed macro-structural reforms, notably the shift to a fully flexible exchange rate regime, which led to a near 40% devaluation in March 2024. Since then, confidence and FX liquidity have improved markedly. The parallel market has effectively disappeared, remittances and tourism receipts have surged, and portfolio inflows have resumed. Inflation has fallen sharply from its 2023 peak, allowing cautious rate cuts while preserving positive real yields. Gross reserves reached USD 52.6 bn in January 2026 (around 6.5 months of import cover), providing a significantly stronger buffer against shocks. While fiscal and geopolitical risks remain—particularly around the Suez Canal—the reform momentum has restored macro-stability and placed the economy on a firmer growth trajectory.

Source: Moody’s and Bloomberg

Positive developments fueling Egypt’s recovery

Remittances reach a historic high

Remittance inflows surged to a historic high of about USD 37.5 bn during the period January to November 2025, up 42.5% compared to the corresponding period last year, with more flows being redirected away from informal markets to official channels. Remittances remain the single largest and most stable source of foreign currency. Looking ahead, they are expected to remain structurally elevated. Their low volatility and limited sensitivity to domestic policy shocks make them a critical buffer against external financing volatility.

Tourism thrives despite regional challenges

Tourism delivered a record performance in 2025, with arrivals reaching around 19 million visitors, up by 21% y/y, and receipts increasing by 17%. This outperformance reflected improved infrastructure, expanded air connectivity, targeted marketing, and the opening of the Grand Egyptian Museum. Notably, tourism inflows remained resilient despite elevated regional tensions, underscoring Egypt’s diversified tourism base. For this year, the authorities are projecting a further 5–7% increase in visitor numbers, while targeting 30 million tourists by 2030, supporting the already sizeable services surplus.

Foreign investment and funding cements confidence

Investment and funding from abroad continue to improve, driven primarily by exceptional GCC-backed FDI inflows. The USD 35 bn Ras El-Hekma deal, followed by the USD 29.7 bn Qatari Diar investment agreement have delivered transformational FX inflows, strengthened reserves, and played a decisive role in meeting IMF asset-sale benchmarks. Beyond their immediate balance-of-payments impact, these deals reinforced investor confidence and policy credibility. At the same time, Egypt has strengthened its track record of accessing international capital markets, issuing a USD 1 bn private sukuk in June 2025 and USD 1.5 bn of international sukuk in October at lower yields than in previous years, signalling improved market sentiment and reduced external borrowing costs. Looking ahead, the authorities plan to issue USD 2 bn of international bonds in H2 of FY 2025/26 while pursuing reforms to double Egypt’s FDI. The country is likely to attract further GCC- investments, especially from Saudi Arabia and Kuwait over the coming years. Continued engagement with multilateral partners remains central to anchoring investor confidence and sustaining FX stability. Upcoming disbursements include USD 2.3 bn under IMF programmes expected by month-end, alongside a USD 7 bn World Bank facility and the EU’s USD 4 bn Macro-Financial Assistance package.

Things to watch

Fiscal pressures

Weak debt affordability remains Egypt’s most binding macro-financial constraint. In fact, Moody’s estimates the country’s interest-to-revenue ratio above 63% in FY 2024/25, among the weakest across rated sovereigns. This implies that a majority of government revenue is absorbed by debt service, severely limiting fiscal flexibility. At the same time, Egypt’s large stock of foreign-currency-denominated debt and build-up of non-resident holdings of T-bills (around 43% as at July 2025) expose the sovereign to sudden sentiment shifts and global risk-off episodes, heightening vulnerability to FX shocks.

Progress on asset sales programme

Egypt’s privatisation agenda remains a key area to monitor, particularly as a signal of reform credibility under the IMF programme, though execution has so far been uneven. Since 2022, around USD 12 bn has been raised, largely driven by a handful of large, one-off transactions, while broader momentum has slowed amid weak market conditions and valuation concerns. Progress has also been tempered by entrenched vested interests and the implicit contract between the military and wider public sector entities, which continues to shape the pace and scope of asset sales. That said, the IMF has thus far afforded some flexibility as regards the privatisation of government assets, in light of the authorities’ ability to mobilise alternative FX inflows and plug financing gaps. Looking ahead, given the importance of the asset sale programme for the structural transformation of the economy, the authorities have reiterated plans to revive the pipeline through new IPOs and strategic sales, including assets held by the sovereign wealth fund, and set a target of raising at least USD 10 bn from asset sales by mid-2027. Timely and sustained progress would strengthen private-sector confidence, support FX inflows and reinforce medium-term reform momentum while further slowdown would erode investor sentiment.

Geopolitics

Suez earnings deteriorated sharply in 2024–25 due to Red Sea shipping disruptions. That said, while receipts remain well below the levels prior to the disruptions (earnings dropped by 59% from 2023 to 2025 as per Fitch), recent data suggest phased normalisation, as shipping routes partially adjusted and firms that had avoided the Red Sea are returning. This year, a gradual recovery is expected, offering a mild upside to the current account and reserve accumulation. However, given the high sensitivity of transit volumes to geopolitical developments, Suez receipts will remain a volatile swing factor in the external balance and are unlikely to resume their pre-crisis role as a dependable FX anchor, with regional tensions still elevated. On the upside, a durable Gaza ceasefire would reduce regional risk premia, accelerating the recovery in Suez Canal receipts.

Outlook for the Egyptian pound and bond market

Source: Central Bank of Egypt

Egyptian pound set to appreciate throughout the year

The March 2024 shift to a more flexible exchange-rate regime marked a clear inflection point for Egypt’s FX dynamics, eliminating the parallel market premium and clearing long-standing FX backlogs. Interbank liquidity has rebounded sharply and the Egyptian pound has strengthened, in light of the dynamics mentioned earlier, by 6.6% last year and by 1.6% year-to-date, trading within a narrow EGP 47–48/USD range since October 2025. Looking ahead, while elevated current account deficits and still-double-digit (though declining) inflation would continue to weigh on the external position, improving external liquidity and sustained policy coordination should keep the pound broadly supported. Under our baseline scenario — where Egypt continues to secure IMF and multilateral fundings while gaining momentum on its asset sale programme — additional portfolio inflows and FDI should reinforce FX liquidity. In this context, the pound could strengthen towards EGP 43 /USD by end-2026, barring intensifying geopolitical tensions. Upside is likely to be capped by the Central Bank of Egypt’s easing cycle, after the CBE delivered a 100 bps policy rate cut on February 12 2026, with an additional 400 bps of easing anticipated by end-2026. As inflation continues to decelerate toward the CBE’s 7% ±2 pp target and policy easing gains traction, real interest rates and yield differentials will gradually narrow, yet remain attractive enough to sustain portfolio inflows and contain FX depreciation risks

Source: Bloomberg and Central Bank of Egypt

Bonds with 1-2 years tenor stand out as the most attractive in 2026

Given our expectation of a further 400 bps of monetary easing over the coming quarters, we see a strong case for gradually extending duration along the Egyptian government curve. As disinflation gains traction and policy rates move lower, bonds with slightly longer maturities are likely to benefit more from price appreciation. In particular, the 1–2 year segment tends to react more meaningfully to rate cuts than very short-term bills, while still avoiding the higher volatility associated with longer-dated bonds. Indeed, longer tenors like the 3-5 year segment tend to exhibit thinner liquidity in Egypt and greater volatility, with the 2029 election cycle likely to add policy uncertainty and elevate risk premia. Meanwhile, shorter-dated instruments, especially 6-month T-bills, remain important from a liquidity perspective, offering flexibility to reinvest as conditions evolve. We therefore recommend maintaining exposure to 6-month bills for liquidity while gradually increasing allocations to 1–2 year tenors to better capture the upside from the expected easing cycle, while keeping overall risk at manageable levels.

MCB Research