Egypt

Economic recovery is gaining momentum, supported by consumption and investment.

Economic growth is expected to continue its recovery during fiscal year 2025-26. Its momentum will be primarily driven by private consumption (around 90% of GDP in 2024-25), supported by increases in civil servant wages and in the private sector minimum wage, sustained social protection, and rising remittance inflows from expatriates. The flexibilisation of the Egyptian pound’s exchange rate should help maintain export competitiveness (petroleum products, gold, chemicals and fertilisers, cables, screens, fruits and vegetables, garments and construction materials). However, non-price competition from Morocco, Tunisia, and Turkey, as well as Egypt’s dependence on imported gas, will weigh on the contribution of net exports to growth. The economy will continue to benefit from the development of the coastal city of Ras El-Hekma, west of Alexandria, which is set to become a major tourism and economic hub, with planned investments of USD 150 billion by 2040. In addition, the authorities are channeling foreign direct investment – notably from the Gulf, China and Turkey – towards port infrastructure (six ports already are operational) and the four existing industrial zones (for textiles, chemicals, automotive, and energy, among others) within the Suez Canal Economic Zone (SCZONE). Renewable energy will be another growth driver, with investments planned for solar and wind power. The government aims to add 12 gigawatts of capacity by 2026 and plans to double its investments in the electricity and renewable energy sector in 2025-26, to reach USD 2.8 billion. In addition, four new gas exploration agreements signed in September 2025 will mobilise USD 343 million in investments. The private sector will also be stimulated by tax incentives for small and medium-sized enterprises introduced in early 2025. Last, cultural tourism is expected to receive a boost with the inauguration of the Grand Egyptian Museum scheduled for November 2025.

The government is also striving to give the private sector a greater role in the economy. In this regard, it published a strategic document in 2022 outlining a timeline for the state's withdrawal from certain economic sectors. In the same vein, in August 2025, the government proposed a series of incentive measures such as tax relief for investors to encourage companies to list their shares on the stock exchange. This is expected to support a resumption of public asset sales from late 2025 and help restore investor confidence. However, the process remains slow: of the 35 privatisation candidates announced since 2022, only nine have been sold. The slow pace of reforms (reducing the state's role in the economy, aligning fiscal treatment between the public and private sectors, etc.) has also led to the merging of the IMF’s fifth and sixth reviews, scheduled for the end of the year.

Inflation has declined sharply since its peak of 38% in September 2023. The expected drop in imported food and energy prices — which are driven by global prices — along with the stabilisation of the Egyptian pound following its 40% plunge in March 2024 on back of exchange rate liberalisation, contribute opportunely. The pound’s stabilisation can be largely explained by the gap between real interest rates in Egypt and the US, as well as by the decline in inflation. However, service inflation remains persistent, and fuel, electricity, and bread prices are expected to continue rising due to the gradual reduction of public subsidies as part of fiscal tightening. The slowdown in overall inflation has encouraged the Central Bank of Egypt (CBE) to make three rate cuts since the beginning of 2025, thereby lowering the policy rate from 27.25% to 22% by August. Further rate cuts are expected by the end of 2025 and into 2026, as real rates remain abnormally high and disinflation continues. This should stimulate private consumption and investment.

On the path to fiscal consolidation

Egypt’s large public deficit is expected to narrow slightly during fiscal year 2025-26. Subsidies and the wage bill continue to weigh heavily, and the authorities remain reluctant to align taxation of the vast public sector with that of the private sector. The budget for the fiscal year sets a clear objective: increase the primary surplus (i.e., excluding interest payments) to reduce the debt-to-GDP ratio. Revenues are projected to rise by 19%, driven by a broader tax base, improved collection, and customs procedure reforms. On the expenditure side (+18%), priority has been given to health spending (+31%), subsidies, aid, and social benefits (+15%). The budget for the Takaful and Karama social protection programmes will increase by 35%. Energy subsidies (fuel and electricity) remain substantial, but the government aims to eliminate fuel subsidies by December 2025, although delays are likely owing to political sensitivities. This decision is supported by favourable trends in global prices and inflation. The budget also includes a 10% salary increase for civil servants under the public service law, and a 15% increase for others. As the state borrows mainly short-term on the domestic market, the interest rate cuts by the Central Bank of Egypt (CBE) will help reduce the interest burden. The primary surplus will help lower the debt-to-GDP ratio. Domestic commercial banks are the main holders of public debt. External debt accounts for 30% of public debt and is mostly held by multilateral creditors (IMF, World Bank). The IMF considers public debt sustainable but assesses the risk of a sovereign crisis as high.

Structurally in deficit due to the trade deficit and investment income balance, the current account is expected to improve slightly in 2025-26. Despite regional tensions, tourism revenues should remain strong, hence supporting the services surplus. However, tourism can only partially offset the sharp decline in Suez Canal traffic, which continues to stand at about 70% below 2022 levels due to disruptions caused by Yemen’s Houthi rebels. Canal fees accounted for around 10% of Egypt’s current revenues before the Israel-Hamas war. Remittances from expatriates in the Gulf and the UK continue to flow in, boosting the surplus in the secondary income balance, and have returned to official channels now that the exchange rate reflects market conditions. In addition, US tariffs are expected to have a limited impact as exports to the US accounted for only 0.8% of GDP and 5% of total exports in 2024. Egypt could even benefit from the trade war: with relatively low tariffs (10%), the country could capture part of US demand — particularly for garments and apparel — at the expense of Asian countries facing higher duties. Nevertheless, exports are expected to remain well below their 2022 peak due to a halt in liquefied natural gas (LNG) exports. Imports, meanwhile, are likely to remain strong, as Egypt depends on gas imports amid sluggish exploration investment and aging fields. Infrastructure projects such as Ras El-Hekma will also drive imports of intermediate and capital goods. The current account deficit is financed by foreign direct and portfolio investment, as well as multilateral and bilateral funding. The return of foreign capital was made possible by the agreement signed with the IMF in late 2022. Thanks to inflows from the Ras El-Hekma project, including an initial USD 35 billion payment in exchange for land and development rights, foreign exchange reserves will cover just over six months of imports.

At the intersection of regional geopolitical tensions

On the domestic front, President Abdel Fattah al-Sissi was re-elected by a wide margin in December 2023, failing any real opposition. The constitutional amendment of 2019 allowed him to begin his third — and in principle, final — six-year term. However, the political and social situation remains fragile, and the authorities are reluctant to accelerate reforms for fear of sparking social unrest. Despite social protection measures, households have faced a rising cost of living, compounded by fiscal consolidation efforts. Moreover, regional geopolitical tensions, particularly the humanitarian crisis in Gaza, have triggered protests that the government has suppressed, fearing they might evolve into broader expressions of discontent. Restrictions on civil liberties increase the risk of a sudden and violent public outcry, as the authorities may be unaware of the true level of popular support. Nevertheless, the President enjoys the backing of the armed forces, which is sustained by their continued control over large segments of the economy and tax exemptions. The ruling party, Mostaqbal Watan, is expected to win the upcoming legislative elections scheduled for late 2025.

On the international front, the project to build a humanitarian city in Rafah in the southern Gaza Strip near the Egyptian border has strained relations with Israel. It would imply an influx of refugees near Egypt’s northern Sinai coast. However, relations are expected to remain stable as the two countries are closely linked in the areas of trade, security, and intelligence. Egypt recently signed a USD 35 billion contract with Israeli gas company NewMed Energy for the supply of 130 billion cubic meters of natural gas from the Leviathan field by 2040. Moreover, severing ties with Israel would jeopardise Egypt’s relationship with the US, which provided an estimated USD 1.3 billion in military aid in 2024 (which has not been reduced, unlike other American aid programs).

In addition, attacks by Houthi rebels from Yemen in the Red Sea and the Gulf of Aden are forcing major shipping companies to avoid the Suez Canal. Diplomatic tensions with Ethiopia also persist after the Grand Ethiopian Renaissance Dam (GERD) on the Blue Nile was completed in July 2025. Located downstream, Egypt could see its water supply disrupted. While negotiations over a water-sharing agreement continue to stall, Egypt has signed commercial and military deals with Ethiopia’s regional rivals (Somalia and Sudan) in an effort to strengthen its military and diplomatic position in the Horn of Africa.

Last updated: August 2025