The economic outlook for Egypt is looking brighter, according to a recent report by the World Bank. The institution’s projections indicate a steady increase in the country’s growth rate over the next few years.

In its semi-annual “Global Economic Prospects” report, the World Bank stated that it expects Egypt’s economy to grow at a rate of 4.2% in the fiscal year 2025/2026, up from 3.8% in 2024/2025. Furthermore, the bank anticipates that this growth will accelerate to 4.6% in the fiscal year 2026/2027.

The World Bank attributes this expected acceleration to several factors, including growth in the industrial sector, the implementation of the Ras Al-Hikma project (a major investment deal with the UAE), and a move towards a more flexible monetary policy aimed at supporting the private sector through interest rate reductions.

Drivers of Economic Expansion

The World Bank’s projections are based on the expectation of increased private consumption and investment, spurred by the UAE investment deal. The bank also anticipates that a more accommodative monetary policy and a gradual recovery in industrial activity will contribute to economic expansion.

The report also highlighted the continued growth of Egypt’s foreign reserves, supported by the Emirati investment and international financial assistance.

“The risks that threaten global expectations are still clearly tied to the downside.”

Potential Risks and Challenges

Despite the positive outlook, the World Bank cautioned that Egypt’s external accounts continue to face pressure, as reflected in the weak position of foreign assets held by commercial banks.

Regarding the external sector, the World Bank anticipates a decline in the current account deficit in the fiscal year 2025/2026. This is expected to result from lower oil and natural gas prices, sustained remittances from Egyptians working abroad, and a thriving tourism sector. A decrease in the non-oil trade deficit is also anticipated, driven by the accumulation of imports from the fiscal year 2024/2025.

Though, the bank warned that the situation coudl worsen if customs duties increase more than expected or if current policies persist. The report stated that “The risks that threaten global expectations are still clearly tied to the downside.” It also noted that “The growth might potentially be less than expected if commercial restrictions escalate or the political uncertainty continues, which may also lead to the accumulation of financial pressure.”

The report also noted the recent increase in sovereign bond yields in many major economies, driven by volatile customs policies and concerns about the sustainability of American public finances.

The World Bank estimates that over half of low-income countries are currently facing debt distress or are at high risk of it, a situation exacerbated by declining aid flows. The report mentions the UK’s important reduction in its aid budget to finance increased defense spending, as well as the dismantling of the USAID Agency (USAID).

Amid growing fears of a debt crisis, anti-poverty activists are urging governments to participate in a new process to review the debts of sovereign countries during the International Conference on Financing Advancement in Seville later this month.