A slower reform momentum and a strained geopolitical environment have dampened the IMF’s outlook for Egypt’s 2025 growth prospects, the Fund said in its latest Regional Economic Outlook (pdf), adding that “economic activity is expected to pick up but remain modest” this year. The cascading effects of the war on Gaza and a heavier debt service burden have further “complicated” Egypt’s post-pandemic fiscal consolidation efforts, the report noted.

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REMEMBER- The IMF has revised up its growth forecast for Egypt this fiscal year to 3.8%, up 0.2 percentage points from its January outlook. The fund’s projection for the coming fiscal year also rose by 0.2 percentage points to 4.3%.

Regional spillovers produced an unfortunate twin deficit. A pronounced slowdown in Suez Canal receipts — driven by regional geopolitical tensions — significantly impacted the state’s fiscal revenues. The same tensions also contributed to suppressing exports, which widened the current account deficit, which has been partially offset by the landmark, one-off USD 35 bn Ras El Hekma agreement.

IN CONTEXT- Egypt lost around USD 7 bn (c. EGP 350 bn) in Suez Canal revenues in 2024, contributing to a drop in non-tax revenues. Receipts from the vital trade route are expected to partially recover to USD 6.3 bn in FY 2025-26 in the draft budget — up from an estimated USD 3.7 bn this year.

Investor confidence was further dented by contractionary monetary policy and a persistent FX crunch, the report said. At the same time, soaring debt service costs — exceeding 9% of GDP — widened the fiscal deficit, while tighter spending controls helped deliver a higher primary surplus; the figure, nonetheless, fell short of projections.

Egypt is among a group of countries that will likely need to refinance maturing debt at higher yields, alongside Tunisia, Jordan, and Pakistan, the Fund warned. Gross public financing needs across the region for emerging markets and middle-income countries (plus Pakistan) are set to rise to USD 263 bn in 2025 — up from USD 249 bn in 2024 — and balloon to USD 303 bn by 2029. The IMF flagged this as a key debt sustainability risk, particularly in light of heightened global uncertainty and investor sensitivity.

So, what is to be done? The IMF wants Egypt to move faster on fiscal reforms, meaning broaden the tax base and rein in state-owned enterprise risks. On the monetary front, it recommends keeping the rates high until inflation is clearly under control while continuing to lay the groundwork for inflation targeting.

But the Fund also had some optimistic forecasts, singling out Egypt as a potential beneficiary of an improved regional security environment over the medium term. A gradual recovery in exports, Suez Canal activity, and tourism inflows is expected to help narrow the country’s current account deficit, the IMF said.

ON A REGIONAL BASIS- The Fund notes strengthened economic activity across the region, albeit at a slower pace than anticipated in October of last year — amid spillovers from escalating global trade tensions, prolonged regional conflicts, and a more gradual recovery in oil production. Regional growth is now projected at 2.6% in 2025, sharply down from the 4.0% forecast in October, and at 3.4% in 2026.

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