Egypt will continue to rely on a flexible exchange rate regime as a first line of defense against global shocks, central bank Deputy Governor Ramy Aboul Naga told global investors gathered in Dubai for the EFG Hermes One on One.

The FX market is now acting as a “shock absorber” for the economy, Aboul Naga said, helping prevent the build-up of structural imbalances and insulating Egypt from volatility in global trade and capital flows. Aboul Naga made the remarks in a wide-ranging conversation on monetary policy and the Madbouly government’s ongoing reform process.

More than 675 institutional investors and fund managers are at the EFG Hermes gathering as US President Donald Trump sets out to reshape the global economic order. Some 252 global institutions will meet through Thursday with top execs from more than 220 companies hailing from a dozen countries.

No guidance on interest rate decision next week: Aboul Naga signaled that the central bank will cut interest rates when it’s convinced inflation won’t pick up again. While the Central Bank of Egypt (CBE) is committed to its 7% (±2 percentage points) inflation target for 4Q 2026, the Trump turmoil adds uncertainty to the background when the bank’s monetary policy committee meets a week from Thursday to discuss rates. The bank has no interest in “choppy” policy shifts if it moves to cut too early.

KEY TAKEAWAYS-

  • Egypt’s flexible exchange rate now serves as a built-in shock absorber — the EGP’s dip against the greenback this week is healthy and a sign the central bank is not defending the currency;
  • FX policy is no longer a crisis-management tool. A flexible rate will allow us to avoid building up imbalances like those that have plagued the system for the past decade;
  • If global uncertainty is here to stay for a while, the best way for Egypt to deal with exogenous shocks is to stay the course on economic reforms, the FX regime, and monetary policy;
  • Interest rate cuts are on the table provided the CBE is convinced of sustained disinflation and a stable macro backdrop;
  • Egypt’s reform program has largely been institutionalized to protect against short-term policy shifts;
  • The UAE’s blockbuster Ras El Hekma transaction has reset how the government looks at FDI to help monetize and add value to investments;
  • NFAs and reserves are strong: Net foreign assets have swung from a USD 29 bn deficit a year ago to a USD 10 bn surplus; reserves are up to USD 47.8 bn;
  • Diversification is the name of the game: Egypt is seeking deeper integration with a broader range of trading partners beyond the US.

SOUND SMART- News follows the EFG Hermes One on One. Last year’s gathering coincided with the CBE devaluing the EGP and moving to a floating currency regime.

Select highlights from Aboul Naga’s on-stage remarks (lightly edited for clarity):

There’s a “new world order” taking shape that will definitely have wide-ranging implications, and it’s natural that this is accompanied by nervousness and uncertainty. The only way forward is to be well-prepared and well-buffered with the right policies. You have no control over when an external crisis hits, so the key is to be in a position in which you’re well-prepared when they hit. Egypt is at the center of a combustible region. We’ve learned that we need to adopt policies that give us shock absorbers so we can minimize the damage created by exogenous events.

What’s happening now may be best likened to when the pandemic broke: Something that none of us have seen in recent history. That’s why our focus is on maintaining policies that ensure we remain seen as investable and that we avoid a cacophony of policy changes that wouldn’t be well-received by the market. It’s about pressing forward with the right policies.

We’ve embarked on a reform program with a lot of conviction and believe firmly that the only way to immunize ourselves against what’s happening is to stay the course. Yes, there are risks to global growth. There is the risk of more inflation — globally. And Egypt is not immune. And, of course, a slowdown or changes in global trade patterns could have an impact on revenues at the Suez Canal.

Investor appetite may also be impacted, but I think the fact that Egypt has been in a reform mode for quite some time — and the fact that our economic performance has been improving — is key. Staying the course with our package of economic reforms is key to keeping ourselves on the radar with investors, whether they’re FDI or portfolio investors.

Our FX policy is not managed. Some countries may react to tariffs by devaluing, but we don’t wake up each morning and say, “You know, we’ll use FX as a tool.” We have a flexible policy that has become deeply entrenched in the economy. Simply put: The economy has been positioned in a way to allow the FX market to serve as a shock absorber.

We had some capital outflows overnight (Sunday night into Monday), and it was unsurprising given the global uncertainty that continues to linger. But our economy is now in a position that allows it to adjust on a real-time basis.

We saw how the market sold off yesterday, and the FX market’s reaction allows us to avoid the accumulation of the structural imbalances that we’ve previously suffered from. That kind of flexibility in the FX market is key, and what we’re seeing now is very healthy and very sustainable. It’s about not taking one-off hits going forward.

The market is adjusting and responding to real-time dynamics with no involvement from the central bank — we see no merit in doing that. I don’t make trade policy, but I don’t think retaliatory tariffs would be on the table. It’s important to keep things in perspective. Our trade with the US is about 7% of Egypt’s total trade by volume — our exports there are about 5.5% of total exports, and US imports to Egypt are about 11% of imports.

Strategically, it is important to maintain open channels with your major trading partners, and the US is clearly one of them. But it’s also important to remember that policymakers like diversification. From a macro point of view, we need to press for more integration with a wider variety of economic blocks. Our geographical location supports our ability to do that and there’s vested interest in other regional players and among global players in being involved with Egypt.

The central bank and cabinet have been focused on institutionalizing reform policies and ringfencing them from change so they’re not subject to transient changes in view. We’ve been put to the test more than once in the last year, and the market has been watching. We’ve proven that we’re staying the course. Again, the key here has been to allow the currency to act as a shock absorber rather than as something that amplifies the impact of events that are unfolding around us. Had we not pursued these kinds of policies and built these buffers to minimize the impact of shocks, we wouldn’t be speaking with this much confidence about the sustainability of our policies.

We looked at vulnerabilities in net foreign assets, in external debt, and at policy sustainability and then set out to address that. We’ve seen a complete turnaround in the NFA position over the past year. It has gone from negative USD 29 bn to a surplus of USD 10 bn. At the same time, we have seen reserves grow to more than USD 47 bn from USD 35 bn a year ago. Our nominal external debt stock has declined to a bit over USD 155 bn from USD 168 bn.

On the issue of asset monetization, Egypt has proven over the past decade that it is comfortable going to debt capital markets to address its financing needs, but the truth is that we can do a lot more, especially when it comes to FDI, where the numbers fall far short of what it could potentially be.

There has been a paradigm shift in how we think about this. Stakeholders at all levels have the conviction that FDI can unlock a lot of potential — it’s not only about money that’s going to come in. It’s about bringing in the private sector, it’s about improving governance, it’s about improving the marginal utility of assets and adding value in the process.

In that respect, Ras El Hekma was a landmark transaction, paving the way for others across a variety of sectors. The significance of that transaction was, yes, obviously it was quite sizeable, but more importantly it is the amount of attention the transaction got at different government and stakeholder levels. It sets a precedent that we can unlock a lot of potential in assets across sectors that can be brought to the surface and realized in a way that is not debt-accumulating. This will allow us to push forward with an aggressive reform program without accumulating new debt.

What we’re seeing today is a new chapter in Egypt’s history where FDI is taking a complete turn — the government is creating an investor-friendly environment that is attractive to both domestic and cross-border investors who want access to the type of significant potential that Egypt has.

Egypt will continue to be a player in global debt markets, sure. But we’re going to see a blend of FDI and debt being raised through a variety of vehicles, and I think concessional loans and concessional financing from our development partners will always be an important part of the mix.

Is Egypt still looking to raise USD 2 bn from the asset monetization program? We’ve reconfigured the program. Obviously, the circumstances in which we discussed it with the IMF two years ago were in a completely different environment and world than we see today. But there’s a two-way belief that we can achieve all of our targets, including our FDI target. We have a fifth review coming up, and the IMF has been very understanding that we’re navigating through unique global circumstances.

Short-term appetite on the part of investors will obviously be a factor and is impacted by global sentiment. Egypt will present itself as a very tangible investment environment for investors.

Look at what’s happening at a structural reform level with, for example, the government’s emphasis on tax policies. It’s a determination to change not just perception, but to deliver a new experience. To widen the tax base, yes, but to make it easier to do business. And, of course, we want to level the playing field and see more private sector integration in the economy.

Will there be Saudi, Kuwaiti, or Qatari conversion of deposits to back investments? I don’t have any information that I can share about potential transactions or transactions in the pipeline, but I think what matters is that the government is quite keen and that we have an Investment Ministry that is taking strides to enhance the overall investment environment. The message everyone has taken from Ras El Hekma is that we should pursue additional investment in local assets not just for the monetary value, but to unlock better governance and practice for those assets across a range of sectors. The modality and mix of those are yet to be seen.

Inflation is at the heart of everything we do as a central bank where our mandate is price sensitivity. The message is clear that we will do what needs to be done to bring down inflation that had previously soared to unprecedented levels. We’ve used both conventional and unorthodox policies to curb inflation, and we’ve started to see that bear fruit — February inflation figures surprised pleasantly to the downside, and we see inflation continuing to trend generally lower.

Our target of 7% (±200 bps) continues to be our target for the last quarter of 2026. But when we consider inflation dynamics, we do so on an ex-ante, not ex-post basis. We want to make sure that we have enough of a buffer to ensure that we continue to see disinflation on a forward-looking basis.

The policy rate needs to bring inflation down over the medium term. Nothing is keeping us from doing that except seeing more and more data points and numbers that would perhaps suggest we need to reverse that stance. There are more uncertainties now that are going to factor in the next meeting, which will take place in a couple of weeks. At the end of the day, it is a decision that is made collectively by both independent members and members from the central bank.

The important thing is that to make a decision to start unwinding, we need to have the conviction that whatever position we take can be sustained and won’t be reversed or put on hold as a result of recent events. We aim to see a measured pace of unwinding rather than choppy interactions that could confuse the market. We will be very vigilant on this as we navigate this new world order.

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