Despite notable progress on structural reforms and continued international support, the revision reflects mounting concerns over Egypt’s external financing vulnerabilities and debt sustainability.
Key pressures: Global tariffs and domestic debt
In its latest report, S&P cited the impact of new global trade restrictions, including recent US tariff hikes, as a key factor behind the outlook downgrade.
Egypt now faces a minimum 10 percent tariff on exports to the United States.
Although direct exports to the US account for just 6 percent of Egypt’s total goods exports, the rating agency warned of broader market volatility and spillover effects on Egypt’s fiscal and external financing environment.
Domestically, government debt remains elevated. Rising borrowing costs — exacerbated by the Central Bank of Egypt’s (CBE) tight monetary policy — have pushed Treasury bill rates higher, with the benchmark interest rate currently at 27.25 percent.
S&P projects that interest payments will consume approximately 58 percent of government revenue in FY2024/25, underscoring persistent debt sustainability challenges.
Reform momentum acknowledged
Despite the external headwinds, S&P noted Egypt’s renewed commitment to reform, particularly the move to liberalise the exchange rate in March 2024.
The currency adjustment helped restore external competitiveness, boost foreign reserves, and attract foreign investment — including a landmark $35 billion agreement with Abu Dhabi’s ADQ to develop the Ras El-Hekma coastal project.
Egypt continues to benefit from strong multilateral and regional backing.
The IMF has expanded its support through an $8 billion programme, with over $3 billion already disbursed.
The EU has also pledged €7.4 billion in aid, alongside financial commitments from Gulf partners such as Saudi Arabia and the UAE.
Outlook: Reform path and risks
S&P’s stable outlook is contingent on Egypt maintaining the pace of fiscal and structural reforms under the IMF-supported programme.
The agency warned, however, that setbacks in key areas could lead to further adverse action. These include:
- A slowdown in reform momentum, particularly around exchange rate flexibility.
- The re-emergence of currency shortages or macroeconomic imbalances.
- Escalating geopolitical tensions or trade barriers affecting external market access.
On the upside, a rating upgrade could be considered if Egypt demonstrates sustained economic growth, improves debt metrics, attracts higher levels of foreign direct investment (FDI), or successfully advances the privatisation of state-owned enterprises.
Growth prospects and structural constraints
Egypt’s real GDP growth slowed to 2.4 percent in 2024 but is projected to rebound to an average of 4.1 percent annually from 2025 to 2028.
Key growth drivers include tourism, construction, IT, agriculture, and healthcare.
Nonetheless, structural impediments remain.
These include a large informal sector, dominance of state and military-owned enterprises, and limited private sector competitiveness.
Egypt has initiated legislative reforms to boost private sector participation, with privatisation efforts targeting significant entities such as Banque du Caire and CID Pharma.
Inflation, energy crunch, and external position
In 2024, Egypt faced rolling electricity shortages due to declining domestic gas output, prompting increased energy imports that added strain on fiscal and external balances.
Inflation peaked at 34 percent during the fiscal year but is now on a downward trajectory—expected to average 21.6 percent in 2025 and fall further to 12.3 percent by 2028.
Despite ongoing pressures, S&P projects that Egypt’s foreign reserves will rise to $53 billion by 2028, buoyed by stable remittances, enhanced competitiveness, and an improving trade outlook.
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