In an exclusive interview with Business Monthly, Pascal Devaux, Senior Economist for MENA & Western Balkans at PNB Paribas, shared his insights on Egypt’s economic outlook. Devaux discussed the country’s ongoing recovery efforts and the key risks to sustaining growth, offering a detailed analysis of Egypt’s economic profile following the bank’s February 2025 report titled “Egypt: The Egyptian economy remains vulnerable despite positive momentum.”
Pascal Devaux outlined key risks to Egypt’s economy, including geopolitical tensions, inflation, and vulnerability to external shocks. He highlighted that while the economy is on a path to recovery, the timing of Egypt’s transition to a regional renewable energy grid is critical.
Devaux also stressed the importance of addressing structural issues, such as reducing the public sector’s involvement in the economy. While he acknowledged the challenges in achieving sustainable growth rates, he emphasized that recovery is underway.
The Q&A has been edited for length and cohesion.
Business Monthly: Egypt is showing signs of gradual recovery with projected growth. What do you see as the biggest risks to sustaining this recovery in the coming years?
Pascal Devaux: The biggest risks to Egypt’s economy stem from external factors, though domestic reforms should continue, albeit at a gradual pace.
Key risks include a further deterioration in the geopolitical situation in the region, a significant rise in commodity prices—particularly soft commodities and hydrocarbons—due to the country’s reliance on food imports, and an expanding energy balance deficit. Such developments would likely drive inflation and put additional pressure on the Egyptian pound (EGP).
An exogenous shock of this nature could also negatively affect portfolio flows in emerging markets, worsening external accounts and exerting downward pressure on the EGP.
BM: You’ve mentioned that Egypt’s structural economic challenges will take time to resolve. Which specific areas should policymakers prioritize for immediate attention?¨
PD: A long-term solution to the energy issue is crucial, as it impacts all key economic variables, including growth, fiscal stability, and external balances. Addressing this challenge will require reducing the public sector’s footprint on the economy to foster a more sustainable and efficient economic model.
BM: What do you think will be the key challenges for the Central Bank of Egypt (CBE) in balancing inflation control with fostering economic growth?
PD: Inflation control and economic growth are two sides of the same coin. Persistent inflation can hinder growth by reducing consumption and weakening the exchange rate. While interest rates are important, Egypt’s cash-based economy means they may not be the main constraint on activity. The exchange rate and its volatility are more critical, given Egypt’s reliance on imports and remittances. The Central Bank’s primary mandate is inflation control, but it must also balance interest rates, which attract foreign investment in Treasury bills. Though volatile, these investments are essential for meeting Egypt’s medium-term external financing needs.
BM: How can Egypt manage its foreign debt in the long term without compromising its economic stability?
PD: The concern isn’t the level of external debt itself, as it remains manageable. The government has been cautious in accessing international debt markets, and private sector external debt is low. The issue lies in the rising external debt service, particularly as a percentage of foreign currency receipts, driven mainly by the persistent and substantial current-account deficit.
BM: How do you envision Egypt’s energy strategy evolving in the coming years, particularly concerning renewables and potential regional partnerships?
PD: Egypt’s current strategy—developing renewable energy and connecting to a regional grid—appears promising, but timing is crucial. The energy challenge is a race against time: on one hand, energy demand is rising due to population growth and economic development, while on the other, domestic gas resources are depleting.
Additionally, the development of renewable energy, including building a grid and storage capacity, is a time-consuming process.
BM: What steps should the Egyptian government take to stimulate private sector investment, particularly to address the issue of underutilized capacity, which is currently below 70%?
PD: It is often stated that corporations will not invest unless capacity utilization reaches around 90%. This increase in capacity utilization depends on the pace of the ongoing economic recovery. To stimulate productive investments, companies require a minimum level of visibility and macroeconomic stability.
BM: Based on your analysis, how would you assess the current health of the Egyptian economy? While recovery is underway, do you believe the economy is on a sustainable growth trajectory, or are there underlying vulnerabilities that could impede long-term progress?
PD: The Egyptian economy is currently in recovery mode, and the short-term outlook appears reasonably positive. The external financing requirement (current-account deficit + external debt amortization) is expected to be met by FY27. However, growth drivers will remain constrained in the short term, as household consumption—accounting for 80% of GDP—faces limitations due to fiscal consolidation and persistent inflation. While there does not seem to be a risk of stagflation, achieving 5-6% growth, which is necessary to improve Egyptians’ standard of living, will be challenging.
In the medium term, vulnerabilities persist across several areas: the ability to address the energy issue, which impacts external accounts and economic activity; the development of non-oil exports; attracting non-hydrocarbon foreign direct investments (FDIs) to help meet part of the external financing requirement; and limiting the need for further external financing.
