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Egypt nears return to economic stability

9 February 2026

 

After a torrid few years characterised by seismic exogenous challenges – from the collapse in traffic through the Suez Canal through to spiralling inflation – the mood in Cairo heading into 2026 is notably more relaxed over its economic prospects.

Policymakers have reason to be satisfied with the turn of events. Inflation in late 2025 slipped to its lowest level in four years, at 12.3%, amid falling food prices. More good news is likely this year, as the Central Bank of Egypt (CBE) anticipates inflation halving to just 7% in late 2026.

One straw in the wind, indicative of a more confident economic disposition, came with the settling of long-standing arrears owed to international oil companies active in Egypt. A receivables bill that once stood at $6bn has been reduced to just over $1bn as the government moves to incentivise investment in its upstream oil and gas sector.

GDP growth is on course to reach around 5% this year, and tourism numbers are surging – bringing with them much-needed hard currency. Meanwhile, non-oil exports increased 17% to almost $49bn in 2025, supporting a slimming of the trade deficit by 9 percentage points to $34.4bn.

Analysts see stronger growth dynamics in play this year.

“Even the Central Bank is saying we are very close to full throttle for the economy. Inflation is cooling, and we expect it to reach single digits by Q4 of this year. That should give the CBE scope for another 500 basis points of monetary easing for this year,” says Pieter du Preez, senior economist at Oxford Economics.

The current deposit rate stands at 20%, leaving plenty more room for growth-supportive interest rate cuts to come.

By 2027, says Du Preez, Egypt should be witnessing the return of monetary policy stability.

“Fiscal stability is the big question,” he says. “The latest figures show the fiscal deficit is a bit narrower, but the biggest drag on the fiscal side is still interest payments, which are about 50% of expenditures and 75% of revenues. Most countries seeing that would go into default immediately.”

Dodging default

There are solid reasons why Egypt has not gone into default mode. The IMF noted an impressive 35% increase in tax revenues in the July-November 2025 period, through reforms to widen the tax base, improve voluntary tax compliance, and streamline exemptions. Ratings agency Moody’s noted that this was the result of IMF-backed reforms stimulating tax collection. The net result was a record fiscal surplus of 3.3% of GDP in the financial year ending June 2025.

Debt reduction targets are also being met, with a debt-to-GDP ratio of 80% anticipated by June 2026 – a reduction from 96% two years prior.

Cairo has been further helped by some lucrative land sales in recent years, including Abu Dhabi’s landmark $35bn Ras El-Hekma real estate project, and the Qatar-backed Alam Al-Roum real estate project, which could involve investments of up to $29.7bn.

The reaching in late December 2025 of a staff-level agreement with the IMF on the fifth and sixth reviews under the Extended Fund Facility arrangement, part of an $8bn loan agreement, came as another confidence booster.

That still leaves some major challenges that need to be overcome if Cairo is to attract investment beyond big-ticket Gulf projects.

“The questions start flagging for 2027, post the IMF deal. We’ve seen this before. After the IMF programme ends, they revert back to old ways, managing the exchange rate and borrowing,” says Du Preez.

Some support will come from a stronger pound and weaker dollar, and a subsiding in the regional conflict that led to Egypt losing some $20bn through disruption to Suez Canal traffic. Tourism income is set to reach $17.8bn this year. 

A recharging of the flagging Egyptian privatisation programme, something the IMF in particular is keen to see progress on, would add substance to the government’s efforts.

“There will probably be a pickup again in privatisation this year, given that it will be given much more emphasis in the up-and-coming reviews. And we’ll probably see a few more subsidy cuts,” says Du Preez.

Banking bonus

The more supportive macro picture should have positive impacts on Egypt’s banking sector. Ratings agency S&P released in early February a banking outlook that envisaged increased private sector investment, along with sustained momentum within the tourism sector, and a loosening monetary policy. These would provide tailwinds to lending expansion, which it sees reaching about 25% in 2026.

Bank lending has increased by 30% annually since March 2025, though that reflects inflationary impacts and currency fluctuations.

The ratings agency warned that the strong lending growth will not be sufficient to compensate for the impact of declining interest rates on profitability. S&P warned the sector’s return on equity will decline to about 20% in 2026 – from a peak of 39% in 2024, attributable to the adverse impacts of lower interest on banks’ income statements.

Despite the strong credit growth, analysts warn it is also fuelling the “crowding out” effect that has seen state-linked companies absorb too high a proportion of bank loans, leaving less credit to spare for private businesses. 

That situation may be changing. “There’s less need for banks to buy government debt directly. And with the overall debt burden falling as a share of GDP, there’s less need to actually buy debt in general, and that should free up more resources as well,” says James Swanston, Mena economist at consultancy Capital Economics.

The upside for Egyptian banks is that their higher exposure to the government is better for their overall risk dynamic than exposure to equivalent private sector borrowers.

“Certainly capital buffer-wise, banks are in a better place than they have been in recent years. Non-performing loans (NPLs) have come down,” says Swanston, although changes in the definition of what constitutes an NPL might change this.

“At the same time, there is an economy that is improving, so even if the NPL ratio does rise, it’s not going to spell disaster for the Egyptian banking sector,” says Swanston.

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James Gavin

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