- The Executive Board of the International Monetary Fund (IMF) completed the seventh review under the Extended Fund Facility (EFF) arrangement and the second review under the Resilience and Sustainability Facility (RSF) arrangement, allowing the authorities to draw the equivalent of about $1.8 billion.
- Egypt's economy has remained resilient to spillovers from the war in the Middle East, supported by the authorities' timely and decisive policy response, including exchange rate flexibility, fuel price adjustments, and measures to contain budget spending.
- An appropriately tight monetary policy, continued fiscal discipline, and decisive implementation of the state ownership policy and divestment agenda will be essential to preserve macroeconomic stability and strengthen resilience.
Washington, DC: The Executive Board of the International Monetary Fund (IMF) completed the seventh review under the 48-month Extended Arrangement under the Extended Fund Facility (EFF) and the second review under the Resilience and Sustainability Facility (RSF) arrangement for the Arab Republic of Egypt. Completion of the reviews allows the authorities to immediately draw the equivalent of SDR 1.11 billion (about US$1.5 billion) under the EFF and SDR 200 million (about US$272 million) under the RSF, bringing total purchases and disbursements under the two arrangements to about SDR 5.4 billion (about US$7.3 billion).
Egypt has faced the implications of the war in the Middle East in a stronger macroeconomic position than during previous episodes of external stress, with robust growth, inflation on a downward trend and rising gross international reserves. The economic impact of the war in the Middle East on the Egyptian economy has remained relatively contained, reflecting the authorities' timely and decisive policy actions, including exchange rate flexibility, energy price adjustments, and measures to contain budget spending.
Economic activity has continued to recover, with real GDP growth reaching 5 percent in the third quarter of FY2025/26, bringing growth over the first nine months of the fiscal year to 5.2 percent. This performance is expected to help keep growth in FY 2025/26 at about 4.6 percent, only 0.1 percentage points lower than at the time of the 5 th and 6 th Reviews.
Headline inflation declined steadily until March 2026, when it increased to 15.2 percent-about 1.4 percentage points above staff expectations-mainly due to exchange rate depreciation and higher energy prices. Headline inflation subsequently eased to 14.3 percent in June, while core inflation rose to 14.3 percent, with IMF estimates indicating seasonally adjusted month-on-month core inflation remaining elevated at 1.5 percent.
The current account came under pressure in March following higher oil and gas prices. However, record remittance inflows, robust tourism receipts and a gradual recovery in Suez Canal revenues helped contain the impact, with the current account deficit estimated at 4.5 percent of GDP in FY 2025/26. Oil hedging contracts and long-term gas supply agreements further cushioned the impact of higher energy prices. Gross international reserves remained strong, reaching 119 percent of the ARA metric by end-June, including through recent purchases by the central bank amid renewed inflows.
Fiscal performance has remained strong. By end-March 2026, both the primary balance and tax revenue targets had been exceeded, reflecting strong revenue mobilization and expenditure containment efforts. At the same time, the authorities have made progress in reducing GFNs, which declined by 5 percent of GDP in FY2025/26. The tax-to-GDP ratio is projected to rise by 1.2 percentage points in FY 2025/26, while continued revenue mobilization is expected to increase the primary surplus from 4.8 percent of GDP in FY2025/26 to 5 percent of GDP in FY2026/27.
Progress on structural reforms has been uneven. The recently adopted State Ownership Policy (SOP) remains an important step towards strengthening the state ownership framework. The authorities have also taken steps to improve the business environment and enhance competition, including by streamlining customs clearance and tax administration procedures. However, efforts to reduce the state's role in the economy and create greater space for private sector investment, including through the divestment program, have progressed more slowly than anticipated and need to be accelerated. The authorities have recently finalized the Gabal El Zeit deal, alongside MoF sales of shares in selected publicly traded companies, bringing divestment proceeds to around $520 million.
Heightened uncertainty continues to weigh on the near-term outlook. The lagged effects of the war-including weaker investment, higher input costs, and persistent uncertainty-are projected to moderate growth to 4.4 percent in FY2026/27. Inflation is expected to rise to 16.7 percent in the second half of 2026, reflecting higher energy prices, exchange rate depreciation, and unfavorable base effects, with convergence to the CBE's inflation target range delayed by about one year. The current account deficit is projected to narrow, driven by an improving trade balance as oil prices normalize, together with a larger services surplus and strong remittance inflows. Gross international reserves are expected to remain broadly in line with previous projections and well above 100 percent of the ARA metric.
Substantial downside risks remain. A renewed escalation of regional tensions could weigh on growth, raise global inflationary pressures, tighten financial conditions, and put additional pressure on the fiscal and external positions. Domestic risks include difficulties in sustaining tight policies amid rising social pressures, elevated rollover and refinancing needs, and slower-than-expected progress in reducing the state's role in the economy. On the upside, a renewal of the US-Iran ceasefire agreement may help lower energy prices and improve investor sentiment. A recovery in Suez canal activity and accelerated implementation of structural reforms could also help boost growth and foster private sector development.
Following the Executive Board discussion, Mr. Nigel Clarke, Deputy Managing Director and Acting Chair, made the following statement:
"Egypt entered the period of the war in the Middle East from a solid macroeconomic position, reflecting substantial progress in restoring stability and rebuilding buffers under the Fund-supported program. A timely and proactive coordinated policy response-including exchange rate flexibility, energy price adjustments, and targeted support-helped contain the impact of the shock.
"However, important vulnerabilities remain, reflecting elevated public debt, large gross financing needs, and a sizable state footprint. Continued fiscal discipline and accelerating structural reforms, notably decisive implementation of the State-Ownership Policy and divestment agenda, will be essential to preserve macroeconomic stability and strengthen resilience.
"An appropriately tight monetary stance, supported by clear communication, is important to anchor expectations, return inflation to target, and reinforce the credibility of the inflation-targeting framework. Maintaining exchange rate flexibility while continuing to build reserves remains important to absorb shocks and strengthen buffers.
"The authorities' commitment to prudent fiscal discipline is welcome. Continued fiscal consolidation and stronger revenue mobilization-including through a broader tax base-remain essential to strengthen debt sustainability and rebuild fiscal buffers. The announced resumption of the automatic fuel pricing mechanism is important to reduce untargeted energy subsidies and advance toward energy cost recovery. Strengthening public financial management and mitigating fiscal risks, including those arising from SOEs and EGPC, remain critical.
"Sustained primary surpluses, voluntary liability management operations, and maturity extension remain key to reducing gross financing needs and rollover risks. Priorities include continuing to reduce reliance on short-term and non-market financing, limiting the use of one-off measures, broadening the investor base, mobilizing concessional financing, and strengthening debt management.
"Continued vigilance is needed to safeguard financial stability. The banking sector remains sound, and stronger contingency planning would enhance resilience to downside risks. The completion of governance diagnostics of state-owned banks is welcome, and timely implementation of corrective actions should strengthen risk management.
"Progress on structural reforms has been uneven. More decisive implementation of structural reforms is needed to support private sector-led growth and strengthen resilience. Accelerating divestment, implementing the State Ownership Policy, and strengthening SOE governance will be critical to reducing the state's footprint and improving competitive neutrality. Continued reforms to the business climate, trade facilitation, and competition policy will help attract investment and boost productivity, while sustained progress on macro-critical climate reforms will further strengthen resilience and support sustainable long-term growth."
