Arab Finance: Egypt’s economic growth is projected to soften to 4.3% in the current fiscal year (FY) 2025/2026, slowing to 4% in FY 2026/2027 before accelerating to 4.6% in FY 2027/2028, according to the World Bank’s latest Macro Poverty Outlook report.

Sectoral gross domestic product (GDP) is expected to remain uneven, with agriculture expanding by 1.7% in FY 2025/2026, rising to 2% in FY 2026/2027, and 3.5% in FY 2027/2028. Industry is projected to grow by 3.8% in FY 2025/2026, before moderating to 2.8% in FY 2026/2027 and 4.1% in FY 2027/2028. Services are expected to remain the main driver, growing by 5% in FY 2025/2026 and stabilizing at 5.1% in the following two FYs.

As for inflation, the World Bank projects it to decline to 13.6% in FY 2025/2026, edge up slightly to 13.7% in FY 2026/2027, and then fall sharply to 6.7% in FY 2027/2028.

 

External balances are expected to improve gradually, with the current account deficit projected at 4.2% of GDP in FY 2025/2026, narrowing to 4% in FY 2026/2027 and 2.6% in FY 2027/2028. Net foreign direct investment (FDI) inflows are forecast at 2.6% of GDP in FY 2025/2026, declining slightly to 2.3% in FY 2026/2027 and 2.2% in FY 2027/2028.

On the fiscal front, the budget deficit is expected to narrow from 7.6% of GDP in FY 2025/2026 to 6.9% in FY 2026/2027 and 5.6% in FY 2027/2028. Government revenues are projected to rise from 15.5% of GDP in FY 2025/2026 to 16.2% in FY 2026/2027 and 16.7% in FY 2027/2028.

Government debt is forecast to decline from 82.9% of GDP in FY 2025/2026 to 79.2% in FY 2026/2027 and 78% in FY 2027/2028, while external government debt is expected to fall from 21.2% to 19.9% and 18.3% over the same period. The primary surplus is projected at 3.1% of GDP in FY 2025/2026, increasing to 3.2% in FY 2026/2027 and 4% in FY 2027/2028.

The report also showed that poverty reduction is expected to remain limited in the near term, with the lower middle-income poverty rate projected at 12.5% in both FY 2025/2026 and FY 2026/2027, before easing marginally to 12.4% in FY 2027/2028.

Labor market conditions in Egypt are expected to gradually improve, with the employment rate rising to 43.2% in FY 2025/2026, 43.8% in FY 2026/2027, and 44.4% in FY 2027/2028.

The report noted that spillovers from the regional conflict are already evident, driven by rising global oil and gas prices and capital outflows, which are placing additional strain on Egypt’s external and fiscal accounts while fueling inflation. A prolonged escalation could further impact key foreign currency sources, including tourism revenues, remittances, and Suez Canal receipts, while also complicating efforts to secure affordable energy supplies for power generation.

Authorities have responded to these pressures by maintaining exchange rate flexibility, tightening fiscal policy, expanding social safety nets, securing concessional financing, and increasing fuel and electricity prices to contain macroeconomic imbalances while offering targeted social support.

Egypt had begun addressing structural constraints to growth prior to the recent escalation in regional tensions. Fiscal consolidation efforts, tax reforms, and improvements in infrastructure reliability supported a recovery in economic activity and labor force participation, including among women. However, deeper reforms remain necessary to sustain long-term growth and job creation, particularly through reducing the state’s economic footprint, strengthening revenue mobilization, and improving the business environment alongside continued investment in human capital.