Egypt’s Record Reserves Strengthen Financial Stability Amid Reform Push

Vijay Valecha, February 26, 2026, Forbes Middle East

Egypt’s record foreign currency reserves are now translating into tangible economic gains, reinforcing monetary stability, strengthening the pound and enhancing the country’s ability to weather external shocks. The unprecedented buildup has given policymakers greater room to manage inflation, finance essential imports, and reassure investors, marking a decisive shift from crisis containment to macroeconomic consolidation.

By the end of January 2026, reserves had risen 9.4% year-on-year to a record $52.6 billion. The steady increase has been supported by multilateral financial assistance, higher remittances from Egyptians working abroad and a sharp rise in gold holdings.

The buildup, underway since March 2024, has also been aided by monetary policy reforms, including a 16% interest rate hike aimed at curbing inflation, alongside measures to stimulate private-sector growth.

“These reserves include gold and major currencies like the US Dollar, Euro, British Pound, Japanese Yen, and Chinese Yuan. They help Egypt pay for essential imports, settle foreign debts, and provide a safety net during tough times,” Vijay Valecha, CIO, Century Financial, told Forbes Middle East.

From currency pressure to reform momentum

According to Valecha, Egypt accelerated reserve accumulation in early 2024 after facing severe foreign exchange shortages, a sharp depreciation of the pound and mounting economic pressures that unsettled investors and disrupted trade. The central bank responded with urgent reform measures to stabilise the economy.

The country’s structural vulnerabilities were already significant as it depends heavily on imports, particularly food and energy, while export earnings lag behind import bills, placing persistent pressure on foreign currency demand and widening the trade deficit.

“The Russia-Ukraine war added to these pressures, especially since Egypt imports a lot of wheat from those countries and relies on them for tourism. As a result, Egypt’s net foreign reserves dropped sharply from $40.99 billion in February 2022 to $37.08 billion in March,” added Valecha.

To shore up its external position, Egypt secured a $35 billion agreement in February 2025 with Abu Dhabi’s ADQ to develop the Ras El-Hekma peninsula. The following month, the country received an $8 billion package from the International Monetary Fund (IMF) to support fiscal and structural reforms.

“Egypt’s IMF-supported reform program is helping to improve its foreign reserves and secure financing from a range of multilateral institutions,” Valecha said, adding that these reforms include increasing private-sector participation through the divestment of state assets, improving public financial management, and substantial financial support from Gulf countries, the IMF, and the World Bank.

All else being equal, a stronger reserve position boosts confidence in the existing exchange rate system and reduces the risk of a sharp currency sell-off. This, combined with high yields, has helped sustain resilient foreign inflows into Egypt’s debt market.

Why reserves matter

Analysts view the sustained rise in Egypt’s net international reserves as a sign of deeper structural adjustment and improved crisis management capacity. Strong reserves enhance the country’s ability to meet short- and medium-term obligations, stabilise the currency and manage external shocks, particularly amid volatility in global financial, energy and supply chain markets.

Larger reserve buffers allow Egypt to finance critical imports such as wheat and fuel without resorting to abrupt currency restrictions or rationing. This reduces the immediate transmission of global price shocks into domestic consumption.

The diversified composition of reserves, including the US dollar, euro, British pound sterling, Japanese yen and Chinese yuan, reflects a strategy to mitigate currency risk and improve flexibility in responding to exchange rate fluctuations. Gold reserves alone rose nearly $2.6 billion to $20.73 billion by the end of January, compared with $18.17 billion a month earlier.

A more stable pound, analysts note, also helps contain inflationary pressures in an import-dependent economy and narrows the gap between official and parallel market rates.

Egypt’s reserves have now risen for more than 40 consecutive months, supported by tourism, manufacturing, exports, ICT and remittances, rather than short-term speculative capital.

Whenever the Egyptian pound comes under pressure, the central bank can intervene by selling its foreign exchange reserves, helping stabilise the domestic currency and avoid devaluation. It also helps to reassure international institutions as well as all investors of the country’s economic steadiness and reform progress resulting in high FDI and capital inflow. This would in turn strengthen the currency, noted Valecha.

Trade imbalance, structural pressures

The importance of reserves becomes clearer against Egypt’s trade profile. In 2024, imports reached $95 billion, of which $17 billion (18%) was energy and $7 billion (7.4%) was cereals, mainly wheat. The country has recorded a trade deficit since 2004, underscoring its position as a net importer.

“As a net importer, the country would want its currency to be strong, and therefore having high amounts of FX reserves would help strengthen the Egyptian pound and help the country to meet their essential import requirements,” said Valecha.

External debt, however, remains a constraint. It rose to about $163.7 billion by September 2025, with debt servicing absorbing a significant share of government revenues — limiting fiscal space for infrastructure, education and healthcare.

Growth outlook improves, but cautious approach needed

Despite the challenges, Egypt’s macroeconomic outlook is gradually stabilising. Inflationary pressures are easing, structural reforms are progressing and exchange-rate unification has improved foreign exchange availability.

“The government projects growth to increase to 5.2% for the 2025-26 fiscal year, higher than the earlier 4.5% projection highlighted in the budget. Even the IMF revised its projections upwards to 4.7% for the 2025-2026 fiscal year and 5.4% for 2026-2027,” noted Valecha. The World Bank projects growth of 4.3% in 2025-26 and nearly 4.8% in 2026-27.

Tourism is benefiting from recovering global travel and improved security perceptions, generating foreign exchange earnings and employment. Manufacturing is gaining traction as foreign exchange constraints ease and export-focused industrial policies begin to take effect. Financial services and telecoms continue to expand, supported by Egypt’s young and growing population.

Meanwhile, inflation is showing signs of moderation. Core CPI fell to 11.2% year-on-year in January 2026, down from 11.8% in December and 12.5% in November. If commodity price pressures ease and dollar inflows persist, inflation could average between 8% and 10% this year. Reflecting this trend, the Central Bank of Egypt cut interest rates by 100 basis points to 19%, with scope for further reductions if disinflation continues.

“This improvement alone does not solve deeper structural issues,” he said. Egypt’s heavy reliance on imports continues to strain foreign currency needs. “Although price pressures have eased from previous highs, core inflation was still around 11.2% in January 2026, which continues to hurt household purchasing power and limits a strong recovery in consumer demand,” added Valecha .

The road ahead

Recent policy measures have helped restore macroeconomic stability. The government posted a primary surplus of 3.5% of its gross domestic product (GDP) in the 2025 fiscal year, reflecting tighter fiscal management. Easing foreign exchange controls and IMF-backed reforms have reduced external pressures and attracted foreign funding.

Sustaining the recovery will require deeper structural reforms — strengthening private-sector participation, broadening the tax base, improving governance and boosting exports.

Egypt’s record reserve levels provide a stronger foundation. The challenge now is translating that financial buffer into durable, broad-based economic growth.

Source

Forbes Middle East