In its Fiscal Monitor report released Wednesday, the IMF forecast that Egypt’s gross debt-to-GDP ratio will fall from 90.9 percent in FY2023/2024 to 87 percent in FY2025/2026 and then continue dropping to 85 percent, 82.4 percent, 79.5 percent, 76.3 percent, and 72.5 percent until FY2029/2030.
Although these projections signal a contraction of the country’s debt, they are above the fund's previous estimates in its reports. They are in line with the first version of the Medium-Term Debt Management Strategy for Egypt, which expected the debt-to-GDP ratio to decline to 84.5 percent, 79.1 percent, 73.9 percent, 69.2 percent, and 64.5 percent from FY2024/2025 till FY2028/2029.
Egypt is expected to hit its lowest debt-to-GDP ratio by 2030, in response to the action plan outlined in the country’s new Narrative for Economic Development, launched in September. This narrative presents a new economic model for Egypt through 2030, according to Prime Minister Mostafa Madbouly.
Egypt’s external financing needs are expected to climb to $30.4 billion before easing to $27.5 billion, reflecting the economic impact of ongoing regional tensions.
The fund had previously estimated Egypt’s external requirements at $25.9 billion for both FY2025/2026 and FY2026/2027.
In tandem, Egypt’s financing gap in the current FY2025/2026 is projected to increase from $5.2 billion to $8.2 billion.
For FY2026/2027, the gap is expected to nearly double to $6.1 billion, up from an earlier estimate of $3.2 billion.
The widening gap underscores the pressures facing Egypt’s balance of payments amid geopolitical uncertainty, even as the country pursues reforms to stabilize its macroeconomic framework and attract external support.
On the government net debt-to-GDP ratio, the report expected it to drop from 86.2 percent in 2024 to 82.3 percent in 2025 and to keep the downward path through 2030, posting 67,9 percent.
The government's general net debt refers to the total amount of debt owed by the general government, excluding its financial assets. It provides a clearer picture of a government’s actual indebtedness by accounting for what it owns as well as what it owes.
Meanwhile, the report expected Egypt’s government general overall balance to increase to 12.4 percent of GDP, the highest in almost nine years, up from 7.1 percent in 2024.
However, the report expected it to drop to 10.7 percent in 2026 and maintain the downward trajectory through 2030 to register 3.5 percent.
The report expected the same for the country’s general government cyclically adjusted balance, with the same ratios to GDP.
The government's overall balance, also known as the fiscal balance or budget balance, is the difference between a government’s total revenues and its total expenditures over a given period.
If revenues exceed expenditures, the balance is a surplus; if expenditures exceed revenues, the balance is a deficit.
Meanwhile, the general government cyclically adjusted balance is the government's fiscal balance — its revenues minus expenditures — adjusted to remove the effects of the economic cycle.
It reflects the budget balance if the economy were operating at its full potential or at its long-term average output.
Global debt pressures mount
The report called on governments to rethink how they spend, not just how much, as global public debt climbs toward historic highs.
It warned that without decisive reforms, rising debt and inefficient public spending could undermine growth, stability, and social progress.
The report, titled “Spending Smarter: How Efficient and Well-Allocated Public Spending Can Boost Economic Growth,” argued that governments can achieve stronger and more inclusive growth by reallocating existing resources toward productivity-enhancing areas such as infrastructure, education, and research and development.
Crucially, these gains can be realized without increasing overall spending.
“Fiscal policy is structural policy,” the report stated. “Deploying fiscal structural reforms improves growth prospects and reinforces complementarities with the private sector.”
Debt at crossroads
The report expected global public debt to exceed 100 percent of GDP by 2029, reaching its highest level since 1948.
In a downside scenario, debt could surge to 123 percent of GDP, driven by persistent deficits, rising interest rates, and mounting spending pressures.
The report noted that while some advanced economies, such as the United States, Japan, and several European countries, have deep bond markets and broader policy options, many emerging and low-income countries face tighter constraints and higher risks of distress.
Currently, 55 countries are either in debt distress or at high risk, despite having debt ratios below 60 percent of GDP.
The fund emphasized that timely debt restructuring is essential to contain damage when countries falter. However, the best strategy is prevention: maintaining safer debt levels and building fiscal buffers before crises hit.
The cost of inaction
The report highlighted a stark shift in debt dynamics since the pandemic.
For years, rising debt was offset by falling interest rates, keeping debt service costs manageable, but that era is over.
Interest rates have risen sharply, and their future path remains uncertain. Combined with stretched financial asset valuations and looming fiscal-financial feedback risks, the pressure on public budgets is intensifying.
Governments are also facing new and growing demands: defence spending, climate adaptation, demographic shifts, and the disruptive effects of emerging technologies. Yet political resistance to tax increases and limited public awareness of fiscal constraints make the challenge even harder to navigate.
“The conclusion is inescapable,” the report warned. “Starting from too high deficits and debts, the persistence of spending above tax revenues will push debt to ever higher heights, threatening sustainability and financial stability.”
Efficiency gaps and reform potential
Despite decades of reform efforts, the report found that public spending efficiency gaps remain substantial.
These gaps, defined as the difference between actual outcomes and the best possible outcomes with the same resources, stand at 31 percent in advanced economies, 34 percent in emerging markets, and 39 percent in low-income developing countries.
The report drew on a new global dataset and model simulations to show that reallocating just one percent of GDP from current spending, such as administrative overhead, to infrastructure investment could boost long-term output by 1.5 percent in advanced economies and 3.5 percent in emerging markets.
Increasing education spending yields even larger gains: up to three percent in advanced economies and six percent in developing ones.
Closing efficiency gaps could further amplify these benefits. The report estimated that improving spending efficiency could raise output by an additional 1.5 percent in advanced economies and between 2.5 and 7.5 percent in emerging and developing economies over the long term.
Policy recommendations
To unlock these gains, the report urged governments to prioritize institutional reforms that enhance transparency, accountability, and public trust.
Key recommendations include improving project appraisal, ensuring maintenance funding, and aligning strategic plans with annual budgets through multiyear frameworks.
It also recommended improving procurement systems by making public procurement more competitive and transparent, especially in advanced economies where it accounts for a large share of GDP.
Additionally, leveraging digital tools is essential by using digitalization to streamline public finance operations and improve service delivery.
Engaging the private sector through outsourcing non-core government functions and collaborating on investment projects are also important factors, alongside careful management of fiscal risks.
The report also called for reforming pensions and healthcare to ensure long-term sustainability and free up resources for growth-enhancing spending.
In parallel, it urged governments to align public wages by bringing public-sector wages in line with private-sector benchmarks to reduce distortions and manage wage bills and to target social assistance by consolidating fragmented programmes and improving targeting, especially in low-income countries.
The report also encouraged the use of spending reviews — structured evaluations of existing expenditures — to identify inefficiencies and reallocate resources.
Countries with limited capacity can benefit from simplified frameworks that include benchmarking and performance indicators.
No trade-off between growth and equity
The report rejected the notion that pro-growth spending must come at the expense of equity. On the contrary, it said public investment in education and infrastructure can reduce income inequality while boosting long-term growth.
“Governments can and should pursue spending strategies that are both growth-friendly and inclusive,” the report concluded.
As global debt pressures mount and fiscal space narrows, the IMF’s message is clear: the time to act is now.
By spending smarter, not necessarily more, governments can strengthen resilience, restore sustainability, and deliver better outcomes for their citizens.
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