Crises do not ask whether an economy is comfortable. They test whether it is ready.
The current aggression against Iran has raised that question sharply for Egypt, and the answer is more serious, and more encouraging, than either the optimists or the pessimists admit. Egypt is not insulated. But it is not where it was. That distinction matters. It is the difference between an economy that panics at the first shock and one that can absorb pressure without losing its bearings.
This crisis is different from previous ones because it strikes through several channels at once. The shock after the Ukraine war came mainly through food and fuel. The turmoil of 2022-2024 was also a crisis of exchange-rate rigidity, foreign-currency scarcity, and capital outflows.
Today, however, the pressure is broader, being mainly higher oil prices, disrupted shipping, rising insurance costs, weaker investor appetite for emerging markets, and renewed pressure on the pound. Foreign investors have pulled an estimated $5 billion to $8 billion from Egypt’s treasury market since the conflict intensified, while the pound has weakened to around LE52 to the dollar.
That is not a passing tremor. It is a reminder that in a dangerous region, economics and geopolitics are never far apart.
Yet, Egypt enters this test with stronger defences than before. Banking-sector net foreign assets recorded $29.54 billion in January 2026, and net international reserves reached about $52.75 billion at the end of February. Remittances hit a record $41.5 billion in 2025. These figures are not abstract. They mean the financial system has more hard-currency depth, more room to smooth volatility, and less need to fall back on the desperate improvisations that defined the worst phase of the recent foreign-exchange crisis. The country is meeting this shock with a thicker shield.
The inflation story is one of progress, but not yet comfort. Headline inflation slowed to 11.9 per cent year-on-year in January 2026, a sharp improvement from the peaks of 2023, reflecting tighter monetary and fiscal policy and a more stable foreign-exchange environment.
But February showed how fragile that progress remains: urban inflation rose to 13.4 per cent year-on-year, with monthly prices jumping 2.7 per cent. The message is clear. Disinflation has been taking hold, but it is now being tested by a new wave of cost pressures driven by higher oil prices, rising freight and insurance costs, and the pass-through from domestic fuel price hikes of 14 per cent to 17 per cent.
These are not abstract pressures. They feed directly into transport, food distribution, manufacturing inputs, and electricity-related operating costs, which means businesses are once again facing margin compression, tougher pricing decisions, and weaker consumer demand. That, in turn, makes the outlook for interest-rate cuts more cautious than markets had hoped.
This matters because the private sector is still too fragile to absorb repeated external shocks with ease. New orders have softened, output has slipped, and businesses remain hesitant to expand. Stabilisation has undoubtedly improved the macro picture, and that should be recognised. But macro stability is not the same as durable growth.
An economy may rebuild reserves and strengthen its balance sheet, yet still leave firms exposed to imported inflation, volatile input costs, and uncertain demand. The risk now is not that inflation has spun out of control, but that a renewed energy and logistics shock could slow the path down, delay monetary easing, and keep the private sector operating in a climate of caution rather than confidence.
It is only fair to acknowledge what has been done well. The government’s reforms, however incomplete, have created more room to act. The International Monetary Fund’s (IMF) completion of the fifth and sixth reviews of its loan arrangements with Egypt unlocked about $2.3 billion more in financing and described Egypt’s macroeconomic conditions as improved, with real economic growth above four per cent year on year in fiscal year 2024-2025.
The Central Bank of Egypt (CBE), after bringing rates down in February, said inflation was on track to move towards its target range in late 2026. These are not trivial gains. They reflect effort, discipline, and a degree of policy realism that was missing in earlier phases.
But this is precisely why the next step matters so much. Egypt should not use stronger buffers to defend old habits. Exchange-rate flexibility must be preserved, because suppressed pressure is usually more dangerous than visible pressure. Reserves and net foreign assets should be used to calm disorder, not to finance denial. Fiscal policy should become more selective, protecting social stability while shifting resources towards export capacity, logistics, and energy resilience.
Even the emergency actions now under way, such as fuel-price adjustments, hedging part of the petroleum bill, and efforts to avoid a return to power cuts, should be seen not as a substitute for reform, but as time bought for reform.
Egypt today is stronger than it was, but not yet strong enough to relax. It needs steady judgement, disciplined policy, and the self-confidence to keep reform moving when the region is at its most unsettled. That is how resilience stops being a slogan and becomes a national asset.
* A version of this article appears in print in the 26 March, 2026 edition of Al-Ahram Weekly
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