The Price of Geography: Has the Egyptian Economy Been a Victim of Global Turmoil?
Introduction: Does the Outside World Govern the Domestic Sphere?
Ever since Hegel formulated his dialectical conception of the relationship between the “subjective” and the “objective,” human thought has remained preoccupied with an enduring yet ever-renewed question: To what extent do societies and states shape their realities from within, and to what extent do external circumstances impose paths upon them that they did not choose?
Within this context, a substantial body of classical literature in the social and political sciences developed around the idea that domestic factors are the primary foundation and driving force, while external factors occupy a secondary position as either facilitating influences or sources of pressure. In political economy, domestic relations of production assumed a central role in explaining the creation of wealth. In political sociology, Marx regarded internal class contradictions as a fundamental driver of history. And in theories of revolution, structural disintegration within societies remained one of the principal keys to explaining major transformations.
The past two decades, however, have radically reshaped this dichotomy.
From the COVID-19 pandemic to the Russia–Ukraine war, from shocks stemming from U.S. monetary policy to disruptions in the Red Sea and the Strait of Hormuz and regional conflicts, events have demonstrated that external variables can carry enormous weight in determining the trajectory of a national economy, whether toward growth or contraction, and that the repercussions of decisions and crises occurring thousands of kilometers away can rapidly reach the domestic economy.
In the age of “interdependence,” as the American scholars Robert Keohane and Joseph Nye termed it, national economies are no longer isolated islands. What happens in one country or region can quickly spread to others through trade, energy, investment, and supply chains.
Under what is known as the “global financial cycle,” decisions by the U.S. Federal Reserve can redirect capital flows around the world, affecting currencies, markets, and financing costs far beyond the United States itself.
Yet acknowledging the weight of external forces does not absolve domestic actors of responsibility; rather, it redefines that responsibility.
A state cannot prevent a global pandemic, stop a war that has erupted beyond its borders, or determine interest rates in Washington. It can, however, largely determine how exposed its economy is to such shocks, how capable it is of absorbing them, how quickly it can recover from them, and, most importantly, how much of the ultimate cost reaches its citizens.
This is precisely the duality that explains much of what has happened in Egypt in recent years: storms that Cairo did not create confronted an economy that was still undergoing reform and rebuilding its capacity for resilience.
Any analysis that relies solely on international crises as the principal explanation—or, conversely, solely on domestic economic management—ultimately presents only half the picture.
How Did We Get Here?
The question is legitimate. The mistake, however, would be to answer it solely through the lens of today’s economy, as though what we see were the result of a single year or two, one decision, or one policy.
Like history, an economy cannot be read starting from its final page.
In 2016, Egypt was facing an acute foreign-currency crisis, a parallel market for the dollar, and economic imbalances that had accumulated over many years. At that moment, President Abdel Fattah el-Sisi made the politically difficult decision to proceed with an economic reform program that included exchange-rate liberalization, fiscal and monetary reforms, and subsidy restructuring.
The measures were painful, and Egyptian citizens bore a substantial share of their cost. By 2019, however, the results had begun to materialize.
According to World Bank figures, Egypt’s real economic growth reached 5.6% in fiscal year 2018/2019, compared with 5.3% the previous year. Unemployment fell to 8.1% in the first quarter of 2019 and then to approximately 7.5% by the end of the fiscal year.
For comparison, unemployment had hovered around 9% in 2010, during the final years of the late President Hosni Mubarak’s rule. In other words, after years of turmoil following 2011, Egypt succeeded in bringing unemployment down to levels below those prevailing before the January events.
In the first half of 2019, Bloomberg ranked the Egyptian pound as the second-best-performing currency against the U.S. dollar after the Russian ruble, having appreciated by approximately 6.5% over six months.
Egypt, therefore, did not enter 2020 with an economy heading toward collapse. It entered with a high growth rate, declining unemployment, and an economy beginning to reap the first fruits of genuine reforms for which Egyptians had paid a substantial price.
Then the world suddenly changed.
From COVID-19 to Ukraine
The COVID-19 pandemic struck, bringing tourism and global aviation to a standstill. Egyptian tourism revenues fell by approximately 70% during 2020, from more than $13 billion to only around $4 billion.
Despite this, the Egyptian economy maintained positive growth at a time when major economies around the world entered a cycle of contraction.
Before the recovery was complete, the Russia–Ukraine war erupted in February 2022.
For Egypt, this was no distant war. Russia and Ukraine together accounted for nearly one-third of tourists arriving in Egypt in 2021.
In other words, roughly one out of every three tourists visiting Egypt came from two countries that suddenly found themselves engulfed in a devastating war.
At the same time, global food and energy prices surged. This coincided with one of the fastest and most aggressive cycles of U.S. interest-rate increases in decades, prompting capital to move toward the dollar and triggering an outflow of short-term funds from a number of emerging markets.
By their nature, such flows seek returns and can move rapidly from one market to another when interest rates change or risks increase. Their rapid withdrawal therefore became an additional factor intensifying pressure on several emerging economies and raising borrowing and financing costs.
Egypt was not alone in experiencing this shock, nor were emerging markets the only ones affected.
According to analyses by the European Central Bank, the effects of U.S. monetary tightening reached the heart of Europe itself: bond yields in the euro area rose, equity markets came under pressure, the euro weakened against the dollar, and the repercussions extended to European economic activity. One ECB analysis even indicated that the effect of U.S. monetary tightening on real economic activity in the euro area was substantial and, by some estimates, comparable in magnitude to its impact within the United States itself.
Here, the “global financial cycle” ceases to be an abstract economic concept and becomes a tangible reality: a decision taken in Washington transmits its effects through interest rates, currencies, financial markets, and financing costs to economies thousands of kilometers away.
If the euro area—with its economic weight and advanced financial and monetary institutions—was not insulated from this wave, it is only natural that its effects would be more severe on economies more sensitive to capital flows and external financing.
Once again, Egypt found itself bearing the cost of a major crisis that had not begun in Cairo, but had been imposed, to a significant extent, by the structure of the global economy.
The Red Sea
Before the economy could fully regain its balance following the twin shocks of COVID-19 and the war in Ukraine, the Gaza war erupted, with its repercussions extending to maritime security in the Red Sea and Bab el-Mandeb.
According to Reuters, Egypt lost approximately $7 billion in Suez Canal revenues during 2024, a decline of more than 60% compared with the previous year, as large numbers of ships diverted to alternative routes around Africa. The International Monetary Fund also documented the impact of Red Sea disruptions on foreign-currency inflows from the canal.
Put more simply: more than half of the revenues from one of Egypt’s most important sources of U.S. dollars disappeared within a single year, while the state’s and the economy’s foreign-currency needs and obligations remained.
When the Economy Becomes a Mirror of Geography
Here, the proposition with which we began becomes clear: in recent years, the Egyptian economy has become an exceptionally sensitive mirror of Egypt’s geopolitical location.
Egypt did not start the war in Ukraine, but it paid part of its price through tourism, food, and energy.
Egypt did not set interest rates in Washington, but it bore the consequences of capital movements and higher financing costs.
Egypt did not ignite the region’s wars, but it found itself confronting prolonged conflicts and humanitarian crises along its borders.
Egypt did not create the Red Sea crisis, but it lost billions of dollars in Suez Canal revenues because of it.
At the same time, the state is dealing with the crises in Sudan and Libya, the Grand Ethiopian Renaissance Dam, and shifts in the Horn of Africa, alongside Gaza, Iran, Israel, and the security of the Gulf and the Red Sea.
This is why Egypt’s intensive diplomatic activity assumes significance beyond politics in the traditional sense. Efforts to contain crises, prevent their expansion, and safeguard Egyptian interests have become part of protecting the economy itself.
Recent years have demonstrated that a war thousands of kilometers away can strike tourism, food, and energy, while disruption in the Red Sea can cost Egypt billions of dollars.
Diplomacy, in this context, has become an economic line of defense just as much as a political one.
The equation also works in the opposite direction.
Egypt’s stability is not merely a domestic Egyptian concern. A country with a population exceeding one hundred million, situated along one of the world’s most important arteries of global trade, at the crossroads of Africa and Asia, and directly facing Europe across the Mediterranean cannot experience instability without repercussions extending beyond its borders.
From migration and Mediterranean security to supply chains, energy, and international shipping, Egypt’s stability represents a regional and international interest that transcends its borders.
Just as Egypt pays the price for instability in its surroundings, its surroundings would pay a heavy price if Egypt itself became unstable.
What Did Not Come from Abroad?
Up to this point, external shocks appear to be a major factor in explaining what the Egyptian economy has endured. Yet the picture remains incomplete without examining how prepared the economy itself was to absorb those shocks.
Economies cannot choose the crises that reach them from abroad, but over time they can build greater immunity against them.
Reviewing certain past policies is therefore a natural part of any economic reform experience—not to deny what has been achieved, but to learn from what the crises revealed and accelerate the transition toward a more resilient model.
First: Reliance on Foreign Portfolio Flows
Between 2017 and 2021, Egypt benefited significantly from foreign portfolio inflows into government debt instruments, which provided a rapid and important source of foreign currency at a time when the economy needed to restore confidence and strengthen dollar liquidity.
These flows played an important role during that period. By their nature, however, they are more sensitive to sudden changes in global interest rates and risk conditions than foreign direct investment or export revenues.
When the Federal Reserve began raising interest rates in 2022, a substantial share of global capital shifted toward the dollar and U.S. markets, placing Egypt, like other emerging markets, under considerable pressure.
The lesson from this experience is the importance of continuing to diversify sources of foreign currency so that exports, direct investment, industry, and tourism make increasingly larger contributions alongside portfolio flows—an approach that has assumed a more prominent place in current economic policy.
Second: The Exchange Rate and Lessons from Experience
The foreign-exchange market has experienced several periods of pressure in recent years—in 2016, then 2022, and again in 2024. Each occurred within a different domestic and international economic context, but collectively they demonstrated the Egyptian economy’s sensitivity to foreign-currency movements and changes in global markets.
During some of these periods, mounting pressure on foreign currency widened the gap between supply and demand, gave rise to a parallel market, affected imports and the release of certain goods, and led to the accumulation of arrears owed to a number of foreign companies, including $6.1 billion owed to oil and gas companies, which was fully repaid in June 2026.
The experience demonstrated the importance of continuing to develop the mechanisms of the foreign-exchange market and enhancing its ability to adapt to external developments, helping to prevent pressures from accumulating and preserve the smooth flow of trade and investment.
This is why the current policy of greater exchange-rate flexibility is particularly important—not as an end in itself, but as part of building a market better able to absorb shocks and respond more regularly to changes in supply and demand.
Third: From Building Infrastructure to Maximizing Its Returns
Recent years witnessed an unprecedented expansion in infrastructure: roads, ports, power stations, new cities, transportation networks, and logistics systems.
This expansion addressed a significant share of the bottlenecks that had constrained the economy’s capacity for growth and investment attraction for decades.
With much of this infrastructure now completed, the natural challenge for the next phase is to maximize its economic return through industry, exports, and investment.
A project designed to operate for decades naturally requires time before its full impact is reflected in economic activity. This makes it increasingly important to connect the infrastructure already built with an expansion of the productive base.
The issue is not a choice between infrastructure and production; a modern economy requires both. Rather, it is about moving from the stage of building basic capacities to using them at their fullest potential to create factories, exports, and jobs.
Fourth: The Private Sector—A Greater Partner in Growth
High interest rates during the crisis years posed a challenge to all sectors of the economy, including the private sector, as financing costs for factories and businesses rose at the same time that the state itself needed to finance its requirements amid exceptional global conditions.
The picture, however, has begun to change markedly.
According to the Prime Minister’s announcement in July 2026, the private sector’s share exceeded 56.5% of total implemented investment, with a target of surpassing 65% within two years.
This percentage reflects an important shift in the structure of investment and demonstrates that the stated policy of giving the private sector a larger role has already begun to translate into tangible figures.
The importance of the next phase lies in building on this improvement through additional investment opportunities, partnerships, public offerings, and simplified procedures, so that the private sector increasingly becomes a principal engine of investment, employment, and exports, while the state focuses more heavily on regulation, infrastructure development, and creating an environment conducive to growth.
Fifth: A Tax Base That Needs to Broaden
This is one of the most important keys to improving public finances. The narrower the tax base, the greater the burden borne by a smaller number of taxpayers, even as the economy requires sufficient resources to service debt and finance education, healthcare, investment, and social protection.
With a large informal sector, increasing the number of businesses and taxpayers entering the formal system becomes more important than relying on heavier burdens on existing taxpayers.
The Ministry of Finance’s efforts to broaden the tax base, simplify procedures, and build a relationship of greater trust with the business community are therefore highly significant. Greater compliance and a larger number of taxpayers can gradually improve revenues without making additional burdens on those already complying the only available path.
Sixth: How Can We Benefit from Exceptional Inflows?
Major deals and exceptional inflows have given the economy genuine breathing room at critical moments, easing considerable pressure on the currency and foreign reserves and creating a window of time in which to implement reforms that would be difficult to carry out under the pressure of an acute liquidity crisis.
The true value of these inflows, however, is measured not only by the amount of money entering the economy, but also by the opportunity they provide to accelerate structural reforms and increase production, exports, and investment.
Ultimately, the goal is not for the economy to become better at attracting exceptional inflows, but to become less dependent on them in the first place.
The conclusion of this section is that external shocks did not operate in a vacuum. They struck while the Egyptian economy was still engaged in a long reform journey.
Recent years have clearly revealed the areas that require greater reinforcement: sources of foreign currency, exchange-rate flexibility, production, the role of the private sector, and the tax base.
These are not merely weaknesses exposed by the crisis; they constitute a clear map of priorities for the next phase.
Where Do We Stand Today?
The numbers are moving again. Amid all these successive crises, economic indicators have begun once more to move in the right direction.
The economy recorded real growth of 4.4% in fiscal year 2024/2025, after slowing to 2.4% the previous year, before accelerating to approximately 5.3% in the first quarter of fiscal year 2025/2026.
Remittances from Egyptians working abroad reached $43.1 billion during the first eleven months of fiscal year 2025/2026, an increase of 31.2% compared with the same period a year earlier. Meanwhile, net international reserves reached approximately $56.3 billion by the end of July 2026, according to Central Bank of Egypt data.
When these indicators move together in the same direction, this is no longer simply an improvement in a single figure. It is a sign that several of the economy’s most important sources of foreign currency and fundamental sources of momentum have begun to recover.
These are not the figures of an economy whose problems have all been resolved, but they are certainly not the figures of an economy that is finished.
At the same time, improving indicators should not be confused with improvements in everyday life. Lower inflation does not mean that prices have returned to their previous levels; it means that the pace at which they are rising has slowed.
Economic indicators may therefore improve before citizens feel the same degree of improvement in their incomes and purchasing power.
The true test, ultimately, is whether the strength of these indicators translates into a tangible improvement in citizens’ living standards and real incomes.
Debt: The Number Alone Does Not Tell the Story
Debt is a real and structural challenge, and its significance should not be understated. Yet it is equally important not to treat the figure itself as though it represented an exceptional condition unknown elsewhere in the world.
According to France’s National Institute of Statistics and Economic Studies, French public debt reached 117.5% of GDP by the end of the first quarter of 2026, while International Monetary Fund estimates indicate that U.S. general government debt exceeds 120% of GDP.
The purpose of this comparison is not to suggest that Egypt’s circumstances are identical to those of France or the United States. Rather, it is to demonstrate that the debt figure alone is insufficient to judge a country’s economy. What matters more is the cost of that debt, how it is managed, and the economy’s capacity to generate resources and gradually reduce the burden.
Large figures sometimes appear for external debt maturities within a single year, creating the impression that the state must provide the entire amount in cash from its reserves.
That is not how sovereign debt maturities are assessed. Some deposits can be rolled over, some debts can be refinanced, and payments are also covered by continuing inflows from exports, tourism, remittances, the Suez Canal, investment, and external financing.
The more precise question, therefore, is not: Where will tens of billions of dollars come from all at once?
Rather: What are the net financing requirements after rollovers, refinancing, and incoming flows? And how can they be managed with the least possible pressure on reserves and the foreign-exchange market?
Current measures by the Ministry of Finance provide genuine grounds for optimism: broadening the tax base by bringing in new taxpayers rather than increasing the burden on those already paying; simplifying procedures; building greater trust with the business community; diversifying financing instruments; extending debt maturities; and working to reduce borrowing costs.
In Egypt’s international sukuk issuance in 2025, the country offered $1.5 billion, while investor orders exceeded $9 billion—more than six times the amount offered—reflecting the state’s continued ability to access international markets.
More important than any single issuance, however, is the change in the way the issue itself is being managed.
The challenges revealed in recent years are not being treated as one problem awaiting a single sweeping decision, but as a collection of areas requiring simultaneous and continuous improvement.
This is where the idea of the “cumulative effect” emerges.
Reducing debt costs, extending maturities, simplifying procedures, broadening the tax base, improving relations with the business community, and diversifying financing instruments may each appear limited when viewed separately. The picture changes, however, when the effects of these improvements accumulate.
Genuine improvement does not require a single decision that transforms the landscape overnight. It can begin with gradual and simultaneous improvements across multiple tracks, whose effects accumulate over time until the overall direction changes.
This is a realistic approach for an economy of Egypt’s size and complexity, where there is no magic wand, but rather dozens of areas that must move in the right direction at the same time.
Most importantly, the question is no longer merely how to meet today’s obligations, but how to make tomorrow’s debt burden lighter for the state, the economy, and the citizen.
How Do We Emerge Stronger?
The answer can be summed up in one phrase: industrialization and exports are the key. No matter how much debt management improves, it cannot be the solution on its own.
Sustainable relief from dollar pressures does not come from exceptional inflows, but from the economy’s ability to produce, export, and generate foreign currency on its own.
This is why current initiatives in the industrial sector are particularly important: deepening local content so that a larger share of what factories need is manufactured within Egypt rather than imported; localizing new industries; bringing struggling factories back into operation; and pursuing the ambitious target of raising non-oil exports to $100 billion by 2030.
It is a major target, but reaching it does not begin with the final leap. It begins with the cumulative effect of annual increases in production and exports and the opening of new markets.
Efforts also extend to attracting specialized European industrial companies, particularly from Germany and other European countries, to relocate part of their operations and production to the Egyptian market.
The significance here does not lie solely in company size. Some small and medium-sized companies in Germany and Europe possess highly specialized technologies or manufacture precision components used in much larger industrial supply chains, giving them an industrial importance that sometimes exceeds their financial size.
Attracting such companies to Egypt would mean more than simply securing new foreign investment. It would open the door to technology and expertise transfer, deepen local content, connect Egyptian factories to European supply chains, and gradually transform Egypt from a market that imports products and components into a base capable of producing and exporting an increasing share of them.
Egypt possesses a genuine advantage in this respect. Its location between Europe, Africa, and the Middle East, combined with the infrastructure, ports, transportation networks, and energy capacity expanded in recent years, could make it a production and export base for companies seeking a location close to Europe while also capable of reaching markets across the region and Africa.
The equation is simple: transform the infrastructure that the state spent years building into factories, production, exports, and jobs.
In other words, move from the stage of construction to the stage of maximizing the return on what has been built.
Energy: The Battle to Reduce the Dollar Bill
The same philosophy is perhaps even more clearly visible in the energy sector.
In June 2026, Reuters confirmed that Egypt had fully settled $6.1 billion in outstanding arrears owed to foreign oil and gas companies.
Resolving this issue represents more than the repayment of debt. It sends a direct message to investors that the state honors its obligations, thereby supporting renewed investment in exploration and increased production.
At the same time, the state is seeking to attract domestic and foreign capital to develop new energy capacity rather than requiring the public budget alone to bear the cost of every expansion.
Among the major projects under development is a 10-gigawatt wind-energy project, one of the largest planned wind projects in the world.
Egypt’s advantage is not limited to wind. The country lies within the world’s Sun Belt and enjoys more than 3,000 hours of sunshine annually, in addition to areas with significant wind-energy potential, particularly in the Gulf of Suez.
The significance is not merely environmental. Every expansion in electricity generated from domestic and renewable sources creates the possibility of using less gas and fuel for power generation, thereby reducing part of the import bill and easing pressure on foreign currency.
Egypt requires dollars to pay for a portion of its imports of gas, fuel, and energy-related inputs. The greater the dependence on imports, the greater the demand for foreign currency. And if the dollar appreciates against the Egyptian pound, the same bill becomes more expensive in local-currency terms.
Expanding domestic energy production therefore becomes an economic and monetary issue just as much as an energy issue.
In other words, Egypt is working not only to increase the dollars flowing into the country, but also to reduce the amount of dollars it needs to spend in the first place.
This is the broader equation: continuously generating foreign currency through industry, exports, tourism, investment, remittances from Egyptians abroad, and the Suez Canal, while simultaneously reducing dollar requirements through increased domestic production and the localization of industry and energy.
The Economy and Foreign Policy: One Equation
The matter does not end with the Ministry of Finance’s ledgers, production lines, or energy projects.
Economic policy does not operate in a vacuum or in isolation from foreign policy, nor can industry achieve its objectives without investment, export markets, and stable energy supplies.
This gives Egyptian diplomatic efforts a direct economic dimension.
Every effort to contain the war in Gaza, every attempt to prevent the conflict in the Red Sea from expanding, every move to stabilize conditions in Sudan and Libya, and every effort concerning the Horn of Africa, Nile waters, and Gulf security ultimately has a direct or indirect impact on tourism, shipping, insurance costs, investment, and trade.
Recent years have demonstrated that a war thousands of kilometers away can strike tourism, food, and energy, while disruption in the Red Sea can cost Egypt billions of dollars.
Diplomacy has therefore become an economic line of defense just as much as a political one.
Who Explains Egypt’s Economic Vision to the World?
One issue of no less importance remains: Is Egypt’s economic vision reaching the outside world as it truly is?
Alongside existing government platforms and initiatives, Egypt needs an independent and professional economic and media voice that speaks to investors in their own language, explains decisions and reforms through figures and facts, presents investment opportunities clearly, and counters misinformation with documented information.
The success of such a voice, however, depends on its credibility.
Professional investors are not looking for a narrative that claims everything is perfect. They want to understand both opportunities and challenges, and to know where the state is heading and why.
A narrative that acknowledges a problem and then explains how it is being addressed is more persuasive than one that presents successes alone.
Investment rests not only on returns, but also on trust, clarity of vision, and ease of access to information.
Countries compete not only through the opportunities they possess, but also through their ability to explain those opportunities and build confidence around them.
Egypt Can Make It Through
After six years of successive shocks, the question is no longer whether the Egyptian economy has been affected. That is evident both in the figures and in people’s daily lives. The more important question is this: Is Egypt today better equipped to deal with the next shock than it was at the beginning of this series of crises?
The answer does not come from one figure or a single indicator, but from the broader direction whose contours are beginning to emerge: growth is returning, remittances are rising, sources of foreign currency are regaining strength, and policies are moving more clearly toward industry, production, and greater private-sector participation, alongside efforts to reduce the cost of debt and lessen dependence on external sources.
This does not mean that the road has become easy. Debt remains a burden that requires further reduction; exports need to make much greater leaps; the private sector needs broader room to operate; and citizens who have borne years of reform and crises have every right to be the first to feel the benefits of improvement in their incomes and standard of living.
But it would also be unfair to erase everything that has happened since 2020 and then judge the Egyptian economy as though it had been operating in a vacuum.
Egypt has endured an extraordinary succession of shocks. Some were imposed from abroad, while others exposed domestic weaknesses that required faster and deeper reform. Somewhere between the two lies the true picture of what happened.
Therefore, having asked, “How did Egypt get here?” the more important question becomes: How can it emerge stronger?
The answer, in my view, begins with three interconnected paths: production and exports must become the most sustainable source of foreign currency; the role of the private sector must continue to expand while infrastructure is transformed into factories, investments, and jobs; and exceptional inflows must be used to accelerate reforms that make the economy less exposed to the next shock.
For truly making it through does not merely mean overcoming the current crisis. It means building an economy that will not be shaken with the same force by the next storm.
Geography has repeatedly placed Egypt at the heart of major crises, but it has also endowed the country with a location, capabilities, and opportunities that few nations possess.
Egypt, with the awareness of its people, the resilience of its institutions, and the unique advantages of its geography, is capable of making it through.
And the reform and development underway today represent a wager on a future that is more stable and productive—and on ensuring that, ultimately, its benefits reach the Egyptian citizen.
