The report projects lingering spillovers from regional geopolitical conflicts weighing on manufacturing, industrial output, and private investment.
The report, detailing the seventh review under Egypt’s Extended Fund Facility (EFF) arrangement, highlights that despite strong momentum in the third quarter of FY2024/2025, where growth reached 5.0 percent, the full-year projection for FY2025/26 was revised down slightly by 0.1 percentage points due to elevated input costs and ongoing uncertainty in the Middle East.
However, the Fund expected a robust medium-term recovery, with economic growth accelerating to 5.0 percent in FY2027/28 and peaking at 5.5 percent in FY2028/29, before stabilizing at 4.8 percent by FY2030/31.
Macroeconomic outlook at a glance
On the price stability front, headline inflation is expected to temporarily accelerate during the second half of 2026, averaging 16.7 percent, driven by recent domestic energy price adjustments, base effects, and residual exchange rate pass-through.
Consequently, the convergence of inflation toward the Central Bank of Egypt’s (CBE) target range of seven percent (±2 percentage points) is now anticipated to be delayed by approximately one year, reaching the target band by December 2027.
Nevertheless, the IMF anticipates a steady disinflation path over the coming years, with end-of-period inflation declining to 14.3 percent in FY2025/26, 13.2 percent in FY2026/27, and falling sharply to 7.3 percent in FY2027/28 before settling at 5.3 percent by FY2030/31.
External sector and financing gap
- Current Account Deficit: Projected at 4.5 percent of GDP in FY2025/26 due to higher energy import bills, narrowing steadily to 4.3 percent in FY2026/27 and 2.8 percent by FY2030/2031 as trade deficits shrink and Suez Canal receipts recover.
- Foreign Direct Investment: Net FDI is forecast at $12.4 billion in FY2025/26 and $11.8 billion in FY2026/27, a 13 percent decline from pre-war estimates, before resuming upward momentum in subsequent years.
- Gross International Reserves: Projected to rise from $58.6 billion in FY2025/26 to $67.5 billion in FY2026/27, comfortably exceeding 100 percent of the IMF's Assessing Reserve Adequacy (ARA) metric.
- Financing Gaps: Gross external financing needs stand at $32.7 billion for FY2025/26 ($6.6 billion gap) and $32.6 billion for FY2026/27 ($2.1 billion gap), both fully covered by identified disbursements from official partners, including the IMF, EU, World Bank, and state asset sales.
Fiscal consolidation and public debt reduction
The Egyptian government is set to deepen its fiscal consolidation measures, targeting a primary surplus of 4.8 percent of GDP in FY2025/26 and 5.0 percent in FY2026/27. The primary surplus is anchored at 5.0 percent through FY2030/31 to keep public debt on a firm downward path.
Revenue mobilization remains a key pillar of the program. The tax-to-GDP ratio is projected to rise by 1.2 percentage points in FY2025/26, achieving a cumulative 2.0 percentage point increase between June 2025 and June 2027 through comprehensive tax administration and policy reforms.
General government gross debt is projected to fall from 85.6 percent of GDP in FY2025/26 to 82.8 percent in FY2026/27, eventually dipping to 75 percent by FY2030/31. Meanwhile, Gross Financing Needs (GFNs), which peak at 42.0 percent of GDP in FY2025/2026, will be curtailed through proactive liability management and maturity extensions, aiming for a 5 percent of GDP reduction in both FY2025/26 and FY2026/27 to bring GFNs below 30 percent by 2030.
Divestment and structural reforms
Under the updated State Ownership Policy (SOP) spanning 2026–2030, the government is accelerating its privatization program. Total state asset sale proceeds designated for direct public debt reduction are projected at US$4.7 billion over the program duration.
At least $500 million in proceeds were slated for collection by July 2026, including stakes in Gabal El Zeit wind farm, Ministry of Finance shareholdings, and a 20 percent sale of Misr Life Insurance. Total asset sale proceeds across FY2025/26 and FY2026/27 are expected to reach $1.5 billion, with at least 50 percent directly allocated to paying down public debt.
Downside risk scenario analysis
The IMF report included a formal adverse scenario evaluating potential geopolitical escalation in the Middle East. Under this shock, assuming international oil prices jump to US$103/barrel, Suez Canal transit remains flat, tourism declines by five percent, and sovereign spreads widen by 150 bps:
- Growth would slow to three percent in FY2026/27 and 4.4 percent in FY2027/28.
- Inflation would spike by 4 percentage points, averaging 19.9 percent in FY2026/27.
- Fiscal Deficit & Debt: The deficit would widen by 0.8 percent of GDP, driving debt up to 84.3 percent of GDP in FY2026/27.
- Reserves would drop to $58 billion (98 percent of the ARA metric) absent further policy interventions.
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