World Bank sees Egypt’s budget deficit widening to 7.6% of GDP in FY 2025-26 as interest payments squeeze fiscal space

Egypt’s budget deficit is expected to widen to 7.6% of GDP in FY 2025-26 from an estimated 7.1% in the previous fiscal year, according to the World Bank’s latest Macro Poverty Outlook report (pdf). Meanwhile, the current account deficit is expected to remain stuck at 4.2% of GDP through the end of the fiscal year. The report underscores that the government’s reliance on external financing and its constrained fiscal space will continue to dictate the terms of the business environment well into 2026.

Our fiscal space remains severely constrained by interest payments, which consumed about 10.6% of GDP and 87.1% of tax revenues in FY 2024-25, the report indicates. While debt fell to 82.5% of GDP last fiscal year, the Bank warns that contingent liabilities — standing at about 27% of GDP — pose a significant risk to the fiscal outlook. The Bank expects debt to rise to 82.9% of GDP this fiscal year, before shrinking to 79.2% next year and 78% in FY 2027-28.

The World Bank projects that inflation will cool to 13.6% by the end of FY 2025-26, a sharp decline from 20.9% in the previous fiscal year. Even as the country grapples with conflict-induced volatility, this reading comes as more optimistic than BMI’s latest inflation forecast of 14.6%.

IN CONTEXT- The Bank sounds optimistic about Egypt, as we’ve also seen it maintain its FY 2025-26 growth forecast at 4.3% y-o-y — significantly outperforming the projected global growth average of 1.8% as the world grapples with war-induced economic headwinds.