Fitch Ratings has said Egypt’s flexible exchange rate policy is helping the country manage external shocks, including foreign investor outflows and rising geopolitical tensions. The agency confirmed Egypt’s sovereign rating at “B” with a stable outlook.
In its latest report, Fitch noted that the Egyptian pound has weakened by around 10 percent against the US dollar since late February. This decline came after more than $10 billion in foreign portfolio investments left the market. Importantly, the Central Bank of Egypt did not intervene to defend the currency.
According to Fitch, this approach has helped preserve foreign exchange reserves and maintain stability in the currency market. It also prevented a wide gap between the official exchange rate and the parallel market rate, which has been a challenge in previous years.
Egypt’s foreign exchange reserves stood at about $53 billion at the end of April, the agency said. While net foreign assets held by the central bank and commercial banks fell to $22 billion, Fitch noted that this level remains stronger than before Egypt’s last sovereign rating upgrade in November 2024.
The report suggests that Egypt’s policy of allowing market-driven currency adjustments has become a key factor in stabilizing its macroeconomic environment. Analysts say such flexibility can help absorb external shocks more effectively than fixed exchange systems.
Fitch also provided a cautious outlook for the coming years. It expects Egypt’s reserves to decline slightly to around $50 billion by the end of the 2026–2027 fiscal year. This projection assumes that tensions affecting global trade routes, including the Strait of Hormuz, ease by July.
However, the agency warned that a prolonged conflict or continued regional instability could place renewed pressure on Egypt’s external finances. Higher global energy prices would increase import costs and could feed inflation within the country.
Despite these risks, Egypt has benefited from strong inflows of remittances from citizens working abroad. These transfers rose by about 30 percent, reaching $22 billion in the first half of the current fiscal year, providing an important source of foreign currency.
Fitch also expects continued financial support from Gulf countries. This support could come in the form of direct investments or deposits in Egypt’s banking system, helping to stabilize liquidity and support economic reforms.
Economists say Egypt’s reliance on external funding and remittances remains a key feature of its economic structure. However, improvements in currency flexibility and reserve management are seen as positive steps toward greater resilience.
Overall, Fitch’s assessment highlights a balance between risk and stability, with Egypt’s exchange rate policy playing a central role in maintaining investor confidence during a period of global uncertainty.
