Egypt’s public finances remain vulnerable to external shocks given the government’s limited fiscal space though external support, increased foreign direct investment and progress on reforms are improving resilience.

Egypt has improved its near-term finances by attracting foreign investment, devaluing the pound and securing more IMF support, but converting those gains into more sustainable long-term economic policy remains central for reversing the rating trajectory.

The escalation of the Israeli-Palestinian conflict increases credit risks for Israel in the first instance but there are potentially longer and deeper implications if the conflict spills over to the wider Middle East.

A curtailed currency devaluation and slower-than-expected privatisation of state enterprises cloud the outlook for stabilising Egypt’s external finances as meeting IMF conditions is critical for shoring up international reserves and investor confidence.

Policy reversal or consolidation? Turkey needs the former while Egypt needs the latter if the two middle-income countries are to avoid deeper balance-of-payments problems amid elevated global interest rates.

Egypt’s staggered approach to exchange-rate liberalisation is possibly a safe political option before next year’s presidential election, but it is delaying other reforms integral to execution of the IMF programme and regaining market access.

Egypt’s shift toward a flexible exchange rate promises multiple benefits but creates difficult tradeoffs for government. Narrow policy options and less forthcoming external support put near-term capacity to service debt at risk.

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Egypt faces growing balance-of-payments pressures as US monetary policy tightens, leaving it more reliant on external financial help, just as the cost of food and other imports rises, a double-shock that is impacting many low- and middle-income countries.

From energy inflation in Germany and Georgia to food prices in Nigeria and Turkey, tourism in Egypt and Estonia and industrial disruption in Hungary and Slovakia, the list is long of the multiple economic ramifications of Russia’s war in Ukraine.