The launch of the report came on the sidelines of the AfDB’s 2026 Annual Meetings, which started in Brazzaville on Monday under the theme “Mobilising Africa’s Development Financing at Scale in a Fragmented World.” The meetings are scheduled to conclude on Friday.
The report warned that prolonged instability around key shipping corridors, particularly the Strait of Hormuz and Red Sea routes, could intensify inflationary pressures, disrupt supply chains, weaken tourism flows, and increase fiscal vulnerabilities across oil-importing countries in North Africa, including Egypt, Morocco, and Tunisia.
Against this backdrop, Egypt emerged in the report as one of Africa’s most closely watched economies, balancing stronger growth momentum and record foreign investments against persistent inflation, elevated debt levels, and external risks linked to regional instability.
Egypt’s growth rebounds on tourism, manufacturing, and investment
According to the AfDB, Egypt’s economy rebounded strongly in FY2024/2025, with real GDP growth accelerating to 4.4 percent from 2.4 percent in the previous fiscal year, supported by expanding non-oil manufacturing activity, construction, tourism, telecommunications, and stronger private consumption.
The bank expects growth to remain resilient at around 4.3 percent in FY2026/2027, which begins on 1 July, driven by continued infrastructure spending, a recovery in private investment, rising tourism revenues, and structural reforms aimed at increasing private sector participation in the economy.
However, the report cautioned that continued geopolitical tensions could shave between 1.5 and 2.5 percentage points off Egypt’s projected growth in FY2025/2026 through lower Suez Canal revenues, weaker tourism receipts, reduced remittance inflows, and declining investor confidence.
The AfDB noted that Egypt remains highly exposed to regional trade and shipping disruptions, given the strategic importance of the Suez Canal to the country’s foreign currency earnings.
Ras El-Hekma deal drives record FDI inflows into Egypt
The report highlighted Egypt’s position as one of Africa’s largest recipients of foreign direct investment in 2024 after attracting approximately $46.6 billion in inflows, largely boosted by the landmark UAE-backed Ras El-Hekma development agreement on the Mediterranean coast.
The deal, described by the bank as one of the largest investment agreements in the region’s history, significantly strengthened Egypt’s external liquidity position and contributed to record foreign direct investment (FDI) inflows into North Africa during the year.
The report noted that Egypt’s broader infrastructure expansion, urban development projects, and growing investor appetite for tourism and logistics assets continued to support capital inflows despite global financial tightening.
Inflation eases, but debt and fiscal pressures persist
Inflation, while easing from previous peaks, remains one of Egypt’s most pressing economic challenges.
According to the report, Egypt’s inflation rate declined to 20.9 percent in FY2024/2025 from 33.6 percent a year earlier due to tighter monetary policy, improved foreign exchange availability, easing food supply pressures, and stabilization of the exchange rate.
The bank projects inflation to continue slowing to 14.6 percent by FY2026/2027 as monetary tightening and improved macroeconomic stability help contain imported inflationary pressures.
The report noted that the Egyptian pound averaged around EGP 49 per dollar in 2025 compared to EGP 45 in 2024, while international reserves climbed to a record $51.4 billion, up from $47.1 billion the previous year.
AfDB analysts said the Central Bank of Egypt's (CBE) restrictive monetary stance played a key role in stabilizing the currency market and anchoring inflation expectations following the exchange rate adjustments implemented over the past two years.
On the fiscal side, Egypt’s budget deficit stood at 7.3 percent of GDP in FY2024/2025 despite improved tax revenues, reflecting continued spending pressures linked to wages, subsidies, social protection programmes, and infrastructure investments.
Interest payments remained among the government’s largest fiscal burdens, nearly 11 percent of GDP, due to elevated domestic borrowing costs and the country’s sizable public debt stock.
Egypt’s public debt ratio remains high at around 84 percent of GDP, although authorities aim to reduce it to nearly 80 percent by mid-2026 through fiscal consolidation measures, asset sales, and stronger revenue mobilization.
The AfDB expects Egypt’s fiscal deficit to narrow gradually to 6.4 percent of GDP by FY2026/2027 as reforms improve public financial management and expand the tax base.
External balances improve as the banking sector remains resilient
The report also pointed to gradual improvements in Egypt’s external position.
The current account deficit narrowed to 4.3 percent of GDP in FY2024/2025 from 5.4 percent a year earlier, supported by stronger tourism receipts, higher remittances, and improving exports.
Nevertheless, the bank warned that the deficit could widen slightly again over the coming two years if geopolitical tensions continue to affect trade routes and shipping activity.
The banking sector, meanwhile, remained resilient despite macroeconomic pressures, with a capital adequacy ratio of 19.2 percent and non-performing loans remaining relatively low at around 2 percent by September 2025.
On the social front, the report highlighted Egypt’s efforts to mitigate the impact of inflation through expanded social protection measures.
The government raised the monthly minimum wage to EGP 7,000 and expanded the Takaful and Karama cash support programme to nearly 4.7 million households.
Egypt’s unemployment rate also declined to 6.1 percent in the second quarter of 2025, approaching pre-pandemic levels as economic activity recovered across several sectors.
AfDB urges deeper reforms and innovative financing tools
The AfDB stressed that Egypt’s economic outlook remains closely tied to the success of ongoing structural reforms aimed at increasing private sector participation, improving governance, strengthening industrial productivity, and expanding export competitiveness.
The report urged Egypt to deepen local capital markets, strengthen public-private partnerships, accelerate financial inclusion, and expand the use of innovative financing tools such as green bonds, diaspora bonds, blended finance, and sustainable infrastructure funds.
It also placed Egypt among Africa’s leading markets for local currency debt issuance and institutional capital mobilization, alongside South Africa, Morocco, Kenya, and Nigeria.
Despite persistent vulnerabilities, the bank said Egypt remains one of the continent’s key growth engines due to the scale of its domestic market, diversified economic base, strategic geographic location, and ongoing infrastructure transformation.
For North Africa as a whole, however, the report warned that the region’s outlook remains vulnerable to external shocks, geopolitical instability, climate-related pressures, and tightening global financial conditions, factors that could continue constraining growth and investment flows over the coming years.
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