The Finance Ministry is signaling a turning point in Egypt’s fiscal health as the primary surplus — which excludes interest payments — rose to EGP 383 bn (1.8% of GDP) in 1H FY 2025-2026, up from 1.3% of GDP a year earlier, according to a statement. The primary surplus stood at EGP 306.8 bn during the first five months of the current fiscal year, signaling a rapid acceleration in fiscal consolidation between November and December.

The key drivers: The improvement was driven by a 32% y-o-y jump in tax revenues during the period, which helped keep the overall budget deficit stable at 4.1%. Total revenue rose more than 30% in 1H, outpacing the growth rate of expenses during the same period, according to the statement.

More importantly for investors, the ministry flagged a significant drop in risk premiums. Egypt’s five-year credit default swaps (CDS) — the cost of ins. against sovereign default — dropped below 270 bps on 6 January, marking its lowest level since 2020. At the same time, yields on international bonds fell by 300-400 bps y-o-y. The shift suggests that the market is finally pricing in a “lower-for-longer” risk profile for the state, which will eventually translate into lower borrowing costs.

Beyond the numbers: Revenue growth outstripped the growth in spending, which has effectively lowered the debt-to-GDP ratio and net borrowing requirements. The Finance Ministry expects even stronger performance in the second half of the fiscal year (ending June 2026), as the January-June window typically sees peak tax inflows.

The outlook: With the conclusion of our IMF program due by year-end, the figures suggest the Finance Ministry is still on track to hit its 4% annual primary surplus target without needing to make any sharp policy changes.

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