Over the five months following the outbreak of the US–Iran war in 2026, interrupted by a pause of no more than 20 days, the Egyptian pound lost around 7% of its value against the dollar, including 4% in July alone. The regional tensions triggered rapid outflows of hot money, exposing an economic fragility that experts attribute to the state’s reliance on monetary policy tools rather than the real economy.
On February 28, the day the US–Israeli war against Iran began, the Central Bank of Egypt’s exchange rate stood at EGP 47.99 to the dollar. By July, it had jumped to EGP 51.42 in the wake of the war.
This coincided with preparations to complete the IMF credit program Egypt signed in late 2022 for $3 billion, subsequently expanded to $8 billion, of which it has received $5.5 billion so far. Egypt also announced work on a “comprehensive national economic program” for the period after the IMF program. Speaking at the opening of the state’s Strategic Command headquarters in the New Administrative Capital, President Abdel Fattah al-Sisi said it would move the economy from stabilization to sustainable growth that directly improves living standards.
The war brought waves of volatility in hot-money inflows and outflows. After fighting began in late February, foreign holdings of Egyptian Treasury bills and bonds fell by around $11 billion in March to $27.1 billion, their lowest level since September 2025, according to the Finance Ministry. As tensions temporarily eased, $8.76 billion flowed back in during June. Renewed military tensions prompted another exit in the first half of July: net outflows reached approximately $1.92 billion in two weeks, including $1.46 billion in a single week.
Financial analyst Marianna Azmy, a board member of McKinsey Financial Consulting, says relying on foreign investment in government debt instruments, or hot money, means building economic policy around resources the state neither owns nor controls. Investors decide when to enter and leave according to surrounding conditions, leaving Egypt dependent on decisions made in their own interests.
“The pound’s value should reflect the size of the economy, rather than the availability of foreign currency through attracting hot money,” she told Zawia3. Egypt has faced this problem for ten years, she added, yet the state continues to depend on these investments for dollar inflows.
Hot money consists of short-term foreign investments in government debt instruments, such as Treasury bills and bonds, or in equities. Egypt no longer counts it in its foreign exchange reserves, which reached $55.07 billion at the end of June, because it represents a liability that can leave quickly rather than funds fully owned by the state.
Nonetheless, hot money has several economic roles: increasing foreign currency liquidity, supporting the exchange rate by expanding the supply of foreign currency in Egypt’s market, and stimulating financial market trading through stock-market investment.
A report in the Egyptian Initiative for Personal Rights’ (EIPR) “Eye on Debt” series says Egypt has offered some of the highest real returns on hot-money investments among emerging markets in recent years. This sustained the appeal of sovereign Treasury bills. Such investments stood at around $10 billion at the end of 2023 and rose to $42 billion by the end of 2025, equivalent to a fifth of domestic debt.
The report argues that keeping interest rates high enabled hot-money investors to make substantial profits in 2025. With hot money accounting for 20% of debt, it becomes a source of structural fragility that complicates economic stability and heightens exposure to external shocks, as the outbreak of the US–Iran war demonstrated.
A fragile economy built on monetary policy
Economist and finance expert Medhat Nafei says historical data show the pound losing value against the dollar almost regularly. Over the past fifteen years, its average annual depreciation approached 16%, accelerating markedly during the past five. That raises a persistent question: what supports periods of exchange-rate stability?
In a Facebook post, Nafei argues that currency strength rests on an economy capable of producing, exporting and attracting real investment. Stability unsupported by higher productivity, exports and value added remains temporary.
In the past, he says, the pound’s stability was maintained by drawing down foreign exchange reserves. Today, reserves are not depleted at the same pace, and reliance on hot money in their composition has diminished. This does not necessarily mean the pound has become sustainably stronger.
If maintaining the exchange rate does not entail reserve depletion, Nafei explains, the price may instead be higher external liabilities or dependence on capital seeking high interest rates. Assessing the pound’s strength therefore requires more than monitoring reserves: it must also consider external debt, the scale of foreign liabilities, and improvements in the real economy’s ability to generate foreign currency sustainably. The real economy remains the lasting guarantor of any currency’s strength.
The Planning and Economic Development Ministry’s outline of the 2026/2027 economic and social development plan projects GDP of EGP 24.5 trillion. Real-economy sectors contribute more than 62% of output: agriculture accounts for 16.7%, industry 16.2%, construction 15.3%, and wholesale and retail trade 14.2%.
Despite their substantial contribution, these sectors do not determine how the economy is managed more than monetary policy does. Banking, accounting for just 3.4% of GDP, directly influences the cost of growth in the sectors representing 62%. The real economy depends on imports and continuous access to foreign currency, while export earnings and dollar returns remain weak relative to urgent financing needs.
Egypt’s 2025 foreign trade indicators reveal a gap between exports and imports: non-oil exports were approximately $48.5 billion, while imports reached around $83 billion.
According to the Planning Ministry, external debt reached $164.78 billion at the end of March 2026, up around 0.5%, or approximately $868 million, from the final quarter of 2025. Net external borrowing inflows increased by around $2.8 billion, partly offset by the depreciation against the dollar of currencies in which Egypt had borrowed.
Economist Rashad Abdo agrees with Nafei. He says the government has neglected manufacturing, asking how many factories opened over the last thirty years and under Prime Minister Mostafa Madbouly’s governments. When the real economy is neglected, citizens pay the cost of the resulting shortfall.
Abdo told Zawia3 that rapid pound depreciation reveals economic fragility. He contrasted Egypt with Russia, which has been at war for three years and is ranked among the world’s largest economies. Egypt, he said, is affected by every crisis: COVID-19, the Russia–Ukraine war and now the Iran war. Its foreign currency comes from a limited set of sources exposed to regional developments, including Suez Canal revenue, remittances affected by Gulf states’ involvement in the war, and trade disrupted by the closure of the Strait of Hormuz. The economy thus remains reactive to surrounding crises.
Suez Canal revenue is vulnerable to regional tensions. It suffered a severe blow in 2024–2026 following Houthi attacks on shipping, before recovering during the first nine months of fiscal year 2025/2026 to around $3.2 billion, compared with $2.6 billion in the same period a year earlier.
Central Bank figures show remittances from Egyptians abroad reaching approximately $34.9 billion in the first nine months of fiscal year 2025/2026, through March 2026. March alone recorded $5.5 billion, before monthly flows returned to $3.9 billion in May. The Iran war affected Egyptians in the Gulf, prompting many to transfer funds as a precaution against the crisis.
In the war’s early days, the closure of the Strait of Hormuz and rising global energy prices prompted Egypt to increase fuel prices by approximately 17% on average, affecting economic activity across sectors. The Institute of International Finance (IIF) warned that higher oil prices could intensify pressure on Egypt’s public finances: each $1 increase in the price of a barrel adds between EGP 4 billion and EGP 4.5 billion to the budget’s burden.
The 2026/2027 budget assumes an average oil price of $75 a barrel, while Brent futures were trading around $100. As regional tensions escalated, major banks and investment firms revised their projections toward as much as $150 if the Strait of Hormuz crisis worsened, or $80 if tensions eased.
EIPR’s “Eye on Debt” report concludes that the government is failing to address structural problems: expensive debt, fragile sources of foreign currency, weak productive investment and declining social protection. Instead, the government and the IMF continue managing the crisis through monetary and fiscal measures: exchange-rate flexibility, high interest rates, cuts in subsidies, public services and investment, asset sales, and primary-surplus targets.
Half an economy
In another Facebook post, Nafei notes that Egypt paid more than $8 billion in interest alone on its external debt in 2025. Total external debt payments amounted to $33.4 billion: $25.36 billion in principal and $8.06 billion in interest. Interest therefore accounted for approximately 24% of the total.
He asks what reducing or avoiding part of these interest payments could achieve: how many schools could be built, hospitals improved and jobs created? How much fiscal space could become available to invest in people rather than service debt? The central challenge, he argues, is reducing dependence on expensive borrowing so that state resources fund development instead of interest payments.
Under the 2026/2027 budget, repayments of principal and interest on domestic and external debt account for 63.9% of total allocations of EGP 5.2 trillion. Only around 36.1% remains for wages, subsidies, education, healthcare, investment and purchases of goods.
According to EIPR, 68% of the new borrowing planned for the fiscal year is directed toward repaying principal on earlier domestic and external loans.
The “Eye on Debt” report explains that the government continuously rolls over debt, borrowing anew to repay older obligations, instead of reducing debt by stopping borrowing for major infrastructure projects or slowing borrowing until the economic crisis subsides.
Azmy says reliance on monetary policy alone means operating with only half of the economy’s real strength. Structural economic policies should form the foundation and drive monetary policy.
She describes monetary policy as a rapid, powerful, short-term treatment that can be used until economic policies bear fruit over the medium or long term. It cannot serve as a permanent solution to economic crises: that would mean moving indicators of improvement or stability without a solid underlying economy capable of withstanding shocks.
