Egypt’s finances have been in the spotlight since the first major floating of the pound in late 2016 in exchange for a $12 billion extended fund facility from the IMF. The country has seen little reprieve since, as geopolitical fallout in Ukraine and the Middle East, and Red Sea freight disruptions increasingly pressure national finances.
In 2023, the government received significant support from abroad. According to Masaaki Yoshimori, an economist and professor at Georgetown University, the “IMF, EU and GCC countries [pledged] over $50 billion in financial commitments in 2023 alone, [allowing] Egypt to implement short-term critical measures,” he wrote in Fair Observer in November. Those include devaluing the pound, reducing subsidies on staples, and raising interest rates to cut inflation, which had reached record highs.
As the country enters 2025, inflation and interest rates, the pound’s exchange rate, and the need for wages to catch up will be critical to economic prospects.
Inflation and interest
According to the Central Bank (CBE), annual inflation rates (consumer price index — CPI) have been over 25% since January 2023, peaking at 38% in September 2023. Since February 2024, rates have been consistently declining, going from 35.7% to 25.6% in July. They have since inched up, reaching 25.5% in November.
Core inflation, which excludes food and energy, plateaued at 39% between February 2023 and September 2023, noticeably higher than CPI and lasting longer. Since February, core inflation has been decreasing, dropping below CPI in October at 24.4%.
In 2025, the IMF’s Regional Economic Outlook said inflation rates will be “attributed primarily to the unwinding of base effects [as they compare to 2024’s high inflation rates], coupled with the expected implementation of policy tightening measures.”
The report forecasts the CPI will end FY2024/2025 at 16% (June 2025). In July 2024, the IMF said the average annual inflation rate this fiscal year should reach 21.2%, dropping to 10.2% in FY 2026/2027. In its October Growth in the Middle East and North Africa report, the World Bank said Egypt’s inflation should “taper off to a manageable 17.2%” by the end of calendar year 2025.
Also in October, Fitch said 2025 will start with inflation rates at 28% due to fuel and electricity price increases” throughout 2024. By February 2025, inflation should fall to 16% year-on-year thanks to the high base effect from February 2024, Fitch said. In November, when the rating agency upgraded Egypt’s score from B- to B with a stable outlook, it said inflation should be 12.5% by the end of FY 2024/2025.
Morgan Stanley noted Egypt’s inflation would “drop to around 15% in early 2025 with month-on-month inflation returning to levels seen before 2022, [eventually] stabilizing at around 14%.” Data aggregator Statista used its AI algorithm to forecast inflation rates falling from 33.3% in 2024 to 21.9% in 2025 en route to 5.29% by 2029.
In November, the CBE was vague about 2025, saying inflation will “ease appreciably … as the cumulative impact of monetary policy tightening and favorable base effect materializes.”
The bank stressed no drop in interest rates before the second quarter of 2025. In October, Fitch said it expects rates to decline by 900 basis points throughout 2025, down from 1,200 in an earlier forecast, blaming “prolonged geopolitical risks.” The rating agency added the CBE is unlikely to cut rates until national inflation drops below 20%.
Going up
A strong pound has always been central to Egypt’s economic health, as the nation’s import bill has almost always been twice that of exports, including during the first nine months of FY 2023/2024, according to CBE.
Accordingly, with the local currency losing over 200% of its value against the dollar since 2022, consumers, companies, and the government have seen costs rise almost exponentially.
Those high foreign exchange rates will continue in 2025. Dutch financial institution ING predicts the exchange rate will stabilize at EGP 50 to the dollar throughout the year. However, it believes this will be a government-managed rate, noting “a gradual transition to a more free-floating exchange rate [will] materialize [a different rate].”
Oxford Economics predicts the pound’s exchange rate will be “somewhere between EGP 55 and EGP 60 per dollar [in 2025] if regulators switch to a flexible exchange rate regime.”
Meanwhile, Capital Economics forecast “an initial fall” between EGP 60 and EGP 65 to the dollar immediately after the next significant devaluation. It did not predict a stable rate for 2025, citing “tightened fiscal policy with price hikes and an announced 15% cut to investment spending this year.”
Trading Economics’ AI algorithm expects the pound’s exchange rate to be EGP 51.52 in early 2025, rising to EGP 58 to the dollar at the tail end of the calendar year.
Factors expected to impact the exchange rate in 2025 include what, how much, and when Egypt will import. Another is Suez Canal revenue, which Goldman Sachs predicts will decrease to $6.7 billion in FY 2024/2025 from $6.9 billion in FY 2023/2024. Those figures are way below the all-time high of $9.4 billion recorded in FY 2022/2023.
In August, Fitch presented two scenarios for 2025. The first is “optimistic, marked by a rapid de-escalation of conflicts, [which] could see the pound strengthen to a range of EGP 46.5 to EGP 48.5 per dollar.” The second would see “tensions escalate [weakening the pound] to around EGP 49.5, potentially reaching EGP 55 against the dollar in the short term.”
The people factor
Double-digit percentage increases in inflation and a depreciating pound mean the cost of living will continue to rise in 2025. If wages cannot cope, people will cut their buying, potentially crippling GDP growth. Mohamed Youssef, CEO of Dcode, a research firm, said at a November AmCham Egypt event that Dcode’s calculations show inflation is higher than official figures, which he attributed to different components and weights of each versus the government’s basket.
He noted that from November 2022 to May 2024, Dcode calculated inflation between 32.4% and 58.1%. CAPMAS, the government’s think tank, estimated it between 18.7% and 35%. “A breakdown shows prices across all [our] categories were rising except for ‘recreation and culture’ and ‘alcoholic beverages and tobacco,’” he said.
Wages have struggled to keep pace. At the November AmCham Egypt event, Mohamed Al Nizami, Egypt country manager at Mercer, a global consultancy, stressed, “[Egypt-based] companies can’t cope with giving 25% salary jumps [to employees] every year in 2023, 2024, and 2025.”
As a result, “real increases in income [after taking inflation into account] have been negative,” Youssef said. In 2022, real wages were down 4.7%, indicating salaries decreased when accounting for inflation. The following year was worse, at nearly 32%.
Continuing those negative wages into 2025 will make economic growth recovery tricky. “The delay in the response of wages to inflation … runs the risk of declining standards of living and pulling more and more people down to poverty,” a paper from the Egyptian Center for Economic Studies (ECES) said.
On the other hand, increasing salaries “may exert some inflationary pressures on prices,” the ECES said. That would undo the government’s work over the past three years to reverse inflation’s trajectory. Accordingly, the CBE believes “a wise monetary policy is needed to contain inflation without impeding economic growth.”
This article first appeared in January’s print edition of Business Monthly.