Although Egypt’s economy has seen several improvements over the past year, namely a fall in the inflation rate and an infusion of external financing, it is still in real trouble. High debt payments, a sharp drop in Suez Canal tolls, dwindling gas production, large wheat imports to feed a burgeoning population, and the military’s outsized role in the economy continue to plague the country. President Abdel-Fattah el-Sisi has tried to deflect the public’s anger over the economic crisis by focusing on foreign policy issues where he feels he is on stronger ground. His approach may not work, however; Egyptians continue to seethe over rising costs as he tries to keep the military institution content by delaying the promised privatization of military-owned enterprises.
Seemingly Good News
Egypt’s inflation rate reportedly dropped to 14.9 percent in June 2025 after reaching a high of 38 percent in September 2023. For Egyptians who have been facing a staggering cost of living crisis, it is good news that the price of urban consumer goods registered a drop of 0.1 percent in June 2025 compared with an increase of 1.9 percent in May 2025. In addition, economic growth is forecast at 4.2 percent for Egypt’s fiscal year 2025, and the Egyptian pound has stabilized after losing more than two-thirds of its value against the dollar over the past few years.
Egypt has also benefitted from an $8 billion loan from the International Monetary Fund (IMF) in March 2024 and substantial investments from some Gulf Arab states. The United Arab Emirates (UAE), for example, has pledged $35 billion, most of which is for a large tourism project in Ras El Hikma on Egypt’s Mediterranean coast. Tourism and worker remittances have also seen an uptick over the past year. All this, plus fiscal tightening, has slightly improved the liquidity situation in Egypt’s commercial banks, allowing for more loans to the private sector, especially in industrial and service sector businesses.
But Ongoing Problems
Amidst this positive news, Egypt is facing at least three major economic challenges. One is a significant drop in Suez Canal revenue since Israel launched its current war on Gaza in October 2023. Historically, revenue from shipping tolls has accounted for about 15 percent of Egypt’s foreign exchange earnings, reaching a peak of $9.4 billion in 2023. But after Yemen’s Houthis began attacking alleged Israel-connected commercial shipping in the Red Sea to demonstrate solidarity with Gaza, commercial ships began to avoid the newly dangerous Red Sea-Suez Canal route, causing Egypt’s canal revenues to plummet by 60 percent, according to Sisi. Ongoing Houthi attacks in the Red Sea are continuing to divert international shipping from this route to a longer, more expensive, but safer one around the Cape of Good Hope in southern Africa. Until the Houthis stop their campaign, many international shipping companies will continue to bypass the Suez waterway, depriving Egypt of a major source of hard currency. Egypt has sought to diversify its canal income by expanding its dry dock maintenance business for commercial ships through its Suez Canal Authority, but such measures are unlikely to make up for the drop in canal tolls.
Egypt’s canal revenues plummeted by 60% due to the Houthis’ attacks on commercial shipping in the Red Sea.
A second economic challenge facing Egypt is the natural gas supply crisis, caused by a combination of rising domestic demand, inadequate domestic production, and import shortages. Once Egypt’s hope for producing enough to supply its huge domestic market and boost natural gas exports, the large Zohr field off its Mediterranean coast, where production started in 2017, has experienced declining output and technical problems since 2022. Compounding this problem, recent regional conflict has interrupted Egypt’s reliance on imports from Israel’s Leviathan gas field, which has supplied a portion of Egypt’s domestic consumption. On June 13, 2025, during the 12-day war between Israel and Iran, Israel shut down Leviathan (and a second gas field) and completely halted gas exports, including to Egypt. Although Israel has since resumed partial gas production and exports, the sudden shutdown of crucial Israeli gas was highly disruptive to Egypt, which had to impose electricity rationing. Egypt has been using diesel fuel instead of gas to generate electricity and trying to secure liquefied natural gas (LNG) cargoes. But as Ali Metwally, an Egyptian energy expert, has stated, “This solution is expensive, and Egypt needs to invest more in local gas production” to avoid more electricity shortages for businesses and households.
The third major challenge is Egypt’s continuing dependence on very costly imported wheat to feed its population of nearly 110 million people. Egypt remains among the top wheat importers in the world. International grain analysts forecast that the country will import 13 million tons in the fiscal year 2025/26 (which began on July 1, 2025), the same amount as in fiscal year 2024/25. Egypt continues to try to boost its domestic wheat production on its limited arable land. But grain analysts anticipate that its domestic wheat output will grow only by 1 percent in this fiscal year, to 9.3 million tons—not enough to make any appreciable dent in the country’s import needs. Egypt’s continuing dependence on wheat imports is a major drain on its foreign currency reserves. More than 70 percent of the Egyptian population relies on subsidized bread as part of their daily food intake, a situation that puts severe pressure on Egypt’s domestic budget. Under IMF pressure, Sisi has in recent years reduced bread subsidies, but has not fully removed them, in order to avoid provoking domestic unrest.
High Debt Payments and Costly Projects
Although Egypt has improved its overall fiscal situation to some extent, its external debt was roughly $153 billion as of the middle of 2024, equivalent to 40 percent of its GDP. Debt servicing continues to eat up a larger amount of the budget each year: for fiscal year 2025/26, Egypt’s government is projected to spend 65 percent of its annual expenditures on debt payments. To finance his expensive priorities—arms purchases and mega-projects—while failing to grow the economy adequately, Sisi has turned to borrowing and reducing spending on social programs. For example, the estimated cost of Sisi’s glitzy New Administrative Capital east of Cairo, a massive endeavor that many Egyptians see as a waste of scarce public resources, is $58 billion, while it is thought that one-third of Egyptians live in poverty.
IMF Concerns About the Military’s Role in the Economy
As part of its series of loans to Egypt since 2016, the IMF periodically reviews the country’s macro-economic reform progress. In its latest review, released in mid-July 2025, the IMF (gently) criticized the growing role of the military in Egypt’s economy. Due to the intentionally opaque nature of Egypt’s military-backed governance, it is not publicly known exactly how much of the economy the military controls, but the share is not insignificant and has grown under Sisi. In its recent report, the IMF identified 97 military-owned enterprises, 73 of which are in the industrial sector. According to the IMF, these companies account for some 36 percent of the market share of products like marble, granite, cement, and steel. The IMF review said that the government had made no efforts to sell shares in some of these companies, despite Egypt’s pledges to do so. The large presence of such military-owned companies in many sectors of the economy may, the IMF warned, “deter private investors given the privileges military-companies enjoy,” stating bluntly that this issue “needs to be corrected.”
It is not publicly known exactly how much of the economy the military controls, but the share is not insignificant and has grown under Sisi.
The IMF also reportedly concluded that despite some progress in selling other government-owned businesses in 2023, the process stalled in 2024. The July 2025 review cited in particular the Egyptian General Petroleum Corporation (EGPC), whose outstanding deficits are estimated at between $3 to $4 billion and which has stayed afloat through government loans. The lack of progress on privatization has not only hurt the accumulation of government revenues that are needed to reduce public debt. And the government’s continuing subsidization of unprofitable state-owned firms diverts resources from other needs.
Political Considerations and Calculations
It is likely that Sisi has been reluctant to privatize military-owned companies due to concerns that making such changes would threaten regime survival. As a ruler who comes directly from the military and who relies on the institution as the pillar of his authoritarian system, Sisi is undoubtedly sensitive to the need to keep the Egyptian officer corps and leadership content so that they will not become unhappy with his stewardship. One way to achieve this is to grant the institution a significant stake in the economy, in addition to other privileges, such as appointments in the state’s administration.
Another political consequence of Egypt’s economic mismanagement has been the squeeze on the middle class. Inflation has eroded salaries and the sharp fall of the Egyptian pound against the dollar (the rate is now 49 pounds to the dollar compared with 16 pounds in early 2022) has resulted in the cost of food and other imported consumer goods becoming much more expensive for the average Egyptian family. Although Sisi initially promised the Egyptian people that, under his presidency, their economic situation would improve, most Egyptian families have seen their purchasing power erode significantly over the past decade. As one foreign bank stated in a February 2025 report, “Household disposable income continues to be affected by persistently high inflation.”
Playing the Foreign Policy Card
With his popularity seemingly having fallen largely over economic stresses, Sisi has tried to divert public attention from the economy to foreign policy issues. The Israel-Hamas war in Gaza has provided the Egyptian government with an opportunity to show that it is helping the long-suffering Palestinian population by trying to bring about a cease-fire in Gaza as it sharply criticizes Israeli Prime Minister Benjamin Netanyahu’s draconian policies. The Egyptian government has also been cautiously critical at times of US policy, particularly of President Donald Trump’s proposal to move Palestinians out of Gaza to nearby countries (one of which would presumably be Egypt) to make way for his bizarre “Middle East Riviera” real estate development idea. With Egypt already dealing with refugees fleeing Sudan’s conflict, the Egyptian people believe any large influx of Palestinian refugees would be a burden on their economy. Perhaps more important, Egyptian public opinion does not support succumbing to US and Israeli designs to permanently remove Palestinians from their homeland. Furthermore, US participation in support of Israeli strikes against Iran’s nuclear facilities has revived the notion of a US double-standard, as Washington remains silent over Israel’s nuclear arsenal.
Sisi’s focus on foreign policy and national security has its limitations. If the Gaza war ends without Palestinian displacement and if Gulf Arab money starts rebuilding Gaza, the Egyptian public will likely again focus on Sisi’s problematic stewardship of the economy. This is not to say that another popular uprising in Egypt is imminent. Some analysts have suggested that most Egyptians do not want a repeat of the chaotic years of 2011-2013, but political and economic stresses have a curious way of exploding when least expected. In the meantime, Sisi will continue to drag his feet over privatization of military-owned companies, knowing that the military establishment is his chief protector if people take to the streets.
Hence, over the short-term, Egypt’s economy is likely to continue to muddle through, experiencing neither substantial positive nor negative growth, while its hard-pressed people continue to suffer from the high cost of living over which they have no control.
The views expressed in this publication are the author’s own and do not necessarily reflect the position of Arab Center Washington DC, its staff, or its Board of Directors.
Featured image credit: Shutterstock/John Wreford
