Egypt

Growth sustained by investment despite regional tensions

Despite the repercussions of the conflict in the Middle East, growth is expected to remain robust during FY2026-2027 (1 July 2026 to 30 June 2027). Foreign private investment will continue to be a key driver of economic activity despite a slowdown in capital inflows from Gulf countries. The decline should be partly offset by China's growing presence, notably through the renewal of the Egypt-China currency swap agreement (equivalent to USD 4.5 billion) in June 2026. Primarily directed towards the Suez Canal Economic Zone, these investments support the development of the manufacturing sector, including textiles, chemicals, automotive production and electronics. Foreign investment is also targeting mining, energy and tourism infrastructure. In June 2026, Egypt completed the clearance of arrears owed to international oil and gas companies, which had reached as much as USD 6.1 billion in 2024, thus removing a major obstacle to reviving the gas sector. This is a particularly important milestone as domestic gas production continues to decline while consumption keeps rising. At the same time, the gradual commissioning of the El-Dabaa nuclear power plant (USD 30 billion), scheduled to begin in 2028, together with the expansion of renewable energy capacity (solar and wind), should reduce the country's reliance on gas, which has been increasingly imported since 2024 to meet electricity demand. Large-scale UAE and Qatari projects are also expected to support private investment, stimulate construction activity and expand tourism capacity. The Ras El-Hekma project, backed by the UAE, has already brought in USD 35 billion and could attract up to USD 150 billion by 2050, while the Alam Al-Roum project, supported by Qatar, is valued at USD 30 billion. Export diversification and upgrading, supported by the development of the manufacturing sector and enhanced competitiveness following the depreciation of the Egyptian pound, should result in a positive contribution of net exports to economic growth.

Private consumption is the main driver of the Egyptian economy and accounted for more than 90% of GDP in 2025. However, it is expected to be damped by persistently elevated inflation, mainly on back of rising energy and food prices. The gradual removal of fuel subsidies is amplifying these pressures. Against this backdrop, the Central Bank of Egypt (CBE) is expected to maintain a cautious monetary stance and postpone further monetary easing until late 2026 or early 2027. Households should nonetheless benefit from substantial remittance inflows from the Egyptian diaspora (10.1% of GDP in FY2025/26) and record tourism revenues. The tourism sector accounts for nearly 15% of domestic employment and, together with increases in the minimum wage and favourable agricultural harvests, should provide support to household incomes and spending.

Despite significant progress, notably the introduction of a more flexible exchange rate regime, the achievement of a sizeable primary fiscal surplus and the reduction of external imbalances, implementation of the reform programme agreed with the IMF, which includes a USD 8 billion Extended Fund Facility running until December 2026, remains uneven. While fiscal and monetary targets have been broadly met, structural reforms aimed at reducing the state's footprint in the economy and accelerating privatisations are advancing more slowly than expected due to political and institutional resistance.

Despite fiscal consolidation, persistent refinancing and external vulnerabilities

Fiscal consolidation measures implemented with IMF support since 2022 have enabled Egypt to maintain a substantial primary surplus for several consecutive years (4.8% of GDP in FY2025/26). Nevertheless, the high interest burden on public debt (56.6% of government expenditure and 14.2% of GDP) continues to weigh heavily on the overall fiscal balance, which is expected to remain significantly in deficit in FY2026-2027. The fiscal deficit should nonetheless narrow slightly, reflecting a combination of slower implementation of major public projects (new cities, roads, etc.), higher tax revenues, primarily resulting from a broader tax base and a reduction in interest costs following the monetary easing cycle initiated by the CBE in 2025. The adjustment will remain restricted by the persistence of sizeable subsidies (3.4% of GDP), as the full implementation of automatic fuel and electricity pricing mechanisms has been delayed by the impact of the conflict in the Middle East. In addition, the 15% increase in the minimum wage (from EGP 7,000 to EGP 8,000) will mechanically raise the government wage bill (3.2% of GDP).

Egypt is expected to continue financing most of its fiscal deficit through domestic borrowing in local currency in order to limit its exposure to exchange-rate risk. This debt, which accounts for roughly 75% of the total public debt stock, is largely composed of short-term instruments, requiring frequent refinancing through commercial banks in an environment of still-elevated interest rates. The CBE continues to closely manage banking-sector liquidity, indirectly facilitating the absorption of sovereign debt issuance by domestic banks. This mechanism reinforces the interdependence between the state, the central bank and the banking sector while contributing to the crowding-out of private-sector credit. To reduce refinancing risk, the authorities have pursued a strategy aimed at lengthening debt maturities, although results have so far been limited, while gross financing needs are exceptionally high (around 40% of GDP as of June 2026). To support this objective, the government plans to allocate 50% of privatisation proceeds to debt reduction, including through the monetisation of selected coastal assets, while diversifying its investor base through greater reliance on sukuk issuances and retail bonds. Regarding external financing, Egypt continues to favour concessional and semi-concessional borrowing from multilateral and bilateral partners, while also expanding issuance in yen- and yuan-denominated instruments as part of its broader diversification strategy. Together with sustained primary surpluses, these measures should help place the public debt-to-GDP ratio on a declining trajectory in FY2026-2027.

Despite the progress achieved since the severe balance-of-payments pressures experienced during 2022-2024, Egypt’s external accounts are expected to remain fragile in FY2026/27 and are characterised by a persistent current account deficit. This reflects a durably large – albeit gradually narrower – trade deficit linked to an insufficient domestic manufacturing base and sustained imports of liquefied natural gas (LNG) and food products. At the same time, revenues from the Suez Canal are below their pre-crisis levels (0.9% of GDP in FY2025-2026). A gradual recovery in canal traffic remains uncertain given ongoing regional instability, including the Middle East conflict and Houthi attacks in the Red Sea. These weaknesses should be partly offset by resilient remittance inflows from Egyptian expatriates, strong tourism revenues and continued growth in manufactured exports. Meanwhile, tighter monitoring of imports through the ACI (Advanced Cargo Information) system has improved control over import flows. The current account deficit is expected to remain largely financed by foreign direct investment, portfolio inflows attracted by high real interest rates, and disbursements from multilateral and bilateral development partners. However, given its substantial external financing needs, Egypt remains vulnerable to a reversal in investor sentiment and to the economic consequences of regional instability. Moreover, the improvement in foreign exchange reserves, which reached a record USD 57 billion in June 2026, should be interpreted with caution. A significant share of this increase can be attributed to appreciation in the value of Egypt’s gold reserves rather than a fundamental strengthening of external liquidity.

Stable regime in an unstable regional environment

Re-elected for a third, and theoretically final, term in December 2023 following an election marred by irregularities, President Abdel Fattah al-Sisi is expected to remain in power until at least 2030. However, it is likely that a further constitutional amendment could enable him to seek a fourth term, with the continued backing of the security apparatus. As political freedoms are heavily restricted, the regime derives its legitimacy primarily from maintaining economic stability and projecting diplomatic influence abroad. The government will need to continue balancing the reform requirements promoted by the IMF against the interests of state actors, particularly the military, whose footprint in the economy remains substantial. Against the backdrop of the lingering cost-of-living crisis, persistently high inflation and the gradual reduction of subsidies, the authorities will also seek to preserve social cohesion while selectively implementing the measures needed to maintain the confidence of international lenders. Uncertainty nevertheless is expected to prevail beyond December 2026, as a failure to renew the IMF programme would likely send a negative signal to investors.

On the international stage, Egypt is expected to continue pursuing a flexible foreign policy, independent of formal alliance systems in order to preserve its strategic autonomy. This approach is particularly consistent given the country's ability to attract investment from actors whose interests are sometimes divergent, if not outright competing. In this context, Cairo's decision not to join the "Mecca Pact", a military alliance formed in August 2026 by Pakistan, Saudi Arabia and Turkey, can be interpreted as a preference for strategic non-alignment. At the same time, Egypt is likely to maintain its role as a mediator in the Israeli-Palestinian conflict while preserving security and energy cooperation with Israel, despite tensions related to Gaza. Moreover, severing ties with Jerusalem would jeopardise Egypt's relationship with the US, which provides approximately USD 1.3 billion in military assistance annually.

Additional challenges stem from attacks by Yemen's Houthi rebels in the Red Sea, the Gulf of Aden, and against Saudi Arabia, which continue to severely disrupt traffic through the Suez Canal. More broadly, the region has been highly unstable since the outbreak of conflict between the US, Israel and Iran in February 2026, the outcome and long-term consequences of which are uncertain. Should hostilities persist or intensify, economic pressures on Egypt could increase significantly, potentially influencing the country's economic policy choices. Diplomatic tensions with Ethiopia also remain a concern following the completion of the Grand Ethiopian Renaissance Dam (GERD) on the Blue Nile in July 2025. As a downstream country, Egypt could face disruptions to its water supply. With negotiations over a water-sharing agreement at a standstill, Cairo has strengthened its commercial and military ties with Somalia and Eritrea, regional rivals of Addis Ababa, in an effort to bolster its strategic and diplomatic position in the Horn of Africa.

Last updated:September 2026