The EGP slid to a record low of EGP 52 against the greenback yesterday, driven by a fresh wave of hot money outflows as regional tensions escalate. This comes as global oil prices surge, creating a double-sided squeeze on Egypt’s fiscal targets and the sustainability of its economic reform program.

At the banks: The greenback was trading at EGP 52.11-52.21 at state-owned banks and the CIB yesterday.

Behind the outflows: Hot money “is inherently sensitive to any political or economic variables […] Once investors feel anxious, they move to liquidate EGP assets and convert to USD,” former banker Maged Fahmy tells us.

We saw USD 505 mn in total interbank volume yesterday, compared to USD 710 mn on Thursday. A banking source told EnterpriseAM that while Egypt has seen approximately USD 3.7 bn in portfolio outflows since the start of the conflict, the situation remains within “safe limits.”

We could see the local currency dive further: If geopolitical tensions continue to mount, the USD could “reach levels of EGP 54 by the end of this week,” according to the source.

It was more than just hot money outflows that pushed the currency to fresh lows, with banking expert and EG Bank board member Mohamed Abdel Aal pointing to rising risk premiums, exchange rate flexibility, and a surge in precautionary hedging from importers.

Gold rush: The weakening EGP pushed investors towards gold, with prices surging and 21-karat gold hitting EGP 7.5k per gram yesterday.

The way ahead: Abdel Aal sees three potential paths ahead: a scenario where the EGP stabilizes if tensions cool; another where further exits drive more temporary depreciation; and a third and final “gradual stability” scenario if global flows eventually return.

Fahmy’s prescription for the EGP: To break the cycle of hot money reliance, Fahmy calls for a national strategy focused on sustainable revenue — primarily exports. “Building a strong economy requires deep structural reforms […] which will only be achieved by empowering the private sector and loosening the state's grip on economic activities,” he said. He also called for a decisive approach to external debt — “stop new borrowing and immediately begin negotiating with creditors to extend payment terms and restructure debt to ease current pressures.”

Oil spike threatens reform trajectory: Brent crude surged over the past week and surpassed the USD 100 per barrel mark today, putting the government’s plan to reach cost recovery under immense pressure. Officials are looking into potential temporary adjustments to fuel prices, a government source told us, adding that the move depends on the state’s capacity to absorb the shock and the expected duration of the crisis.

Could this mean a hike to electricity prices? While the government originally planned to keep electricity prices unchanged until the new fiscal year, the surging cost of natural gas has changed the plan, another source told us. “If the crisis persists, the government is considering a temporary hike to prices, raising them by 10-15%, but only for the highest consumption brackets,” the source added.

As things stand: The government is conducting a final review of the next fiscal year’s draft budget to account for rising interest payments. “Interest payments and debt obligations continue to constitute one of the fundamental risks facing the new budget and the completion of economic reform targets,” our sources noted.

What does this mean for our long-awaited debt strategy? This may require a revision of the national debt strategy, which was finalized but is now being re-evaluated ahead of its planned 2Q launch, they added.

We could be getting a lending hand: We could secure an emergency support program from the IMF and the World Bank to help cushion the fiscal impact of the crisis.

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