Al-Watani: Egypt's economic growth accelerates to 5.3 percent in 2026-2027
- 6.8% decline in fiscal deficit
- 14% average inflation in the second half
- 16% decline in lending rate by 2027
- 3.2% current account deficit in 2026
- 2027
National Bank of Kuwait (NBK) pointed to an acceleration in Egypt’s real GDP growth to 5% year-on-year in the first quarter of 2026 (January–March 2026), compared to around 4.8% in the same period last year, according to the Ministry of Planning. The performance came in stronger than expected, despite the outbreak of the US-Iran conflict near the end of the quarter, which disrupted supply chains and pushed up global oil prices.
The NBK report forecast that real growth would accelerate from around 5.1% in fiscal year 2025–26 to 5.3% in fiscal year 2026–27, marking the strongest economic expansion rate since fiscal year 2021–22, despite the ongoing US-Iran conflict in the Gulf region casting shadows on economic conditions at the start of the fiscal year in July.
In light of the recent decline in inflation, the report projected that average inflation would reach around 14% during the second half, down from our previous forecast of 16%, thereby lowering the inflation forecast for fiscal year 2026–27 to 11.6%.
The report also forecast that the Central Bank would keep key interest rates unchanged throughout 2026, before resuming its monetary easing cycle with a 100-basis-point cut in the fourth quarter, followed by an additional 300-basis-point reduction in 2027, bringing the lending rate down to 16%. However, a faster-than-expected decline in inflation could allow the Central Bank to begin cutting interest rates sooner. Furthermore, a drop in inflation to a range of 12%–13% by year-end would increase the likelihood of an earlier and potentially broader monetary easing cycle.
The report considered the renewed escalation between the US and Iran as posing negative risks to fiscal outlooks, particularly as it coincides with the start of fiscal year 2026–27. Nevertheless, it forecast that the general government deficit would decline from around 7.5% of GDP in fiscal year 2025–26 to 6.8% of GDP in 2026–27. A reduction in debt servicing costs is expected to increasingly support public finance consolidation efforts once geopolitical risks subside and monetary easing resumes. Lower interest rates are also likely to quickly translate into lower government borrowing costs, given that 75% of public debt is domestically held and approximately 40% of local debt matures within one year.
Regarding revenues, the report expected that stronger economic activity and tax administration reforms would continue to support tax collections, although revenues are likely to remain below the government target of EGP 4 trillion, instead approaching EGP 3.9 trillion. Public debt is also expected to decline from around 87% of GDP in 2025–26 to 82.5% in 2026–27, continuing the downward trend since its peak of 95.7% of GDP in 2022–23.
Finally, the report forecast that the current account deficit would narrow from around 4.4% of GDP in fiscal year 2025–26 to 3.2% in fiscal year 2026–27.
The latest tranches from the International Monetary Fund ($1.6 billion) and the World Bank ($1 billion), alongside successful issuances of international bonds ($1 billion in social bonds and $500 million in Samurai bonds), have provided additional financing buffers that enhance the economy’s capacity to withstand shocks. Looking ahead, Egypt may seek to negotiate a new IMF program to succeed the current one upon its expiration in December.
Conversely, faster progress in privatization programs and the sale of strategic state assets, coupled with improved investor appetite and a more favorable regional environment, could support stronger capital inflows and yield better outcomes for both public finances and the external account.
