Fitch Forecasts Egypt Current Account Deficit to Widen to 4%

Fitch Ratings expects Egypt’s current account deficit to widen to around 4% of GDP in fiscal year 2025/26, before easing to approximately 2.8% in the following fiscal year, as external economic pressures continue to weigh on the country’s balance of payments.

The credit rating agency attributed the projected deterioration to a combination of rising import costs, weaker external inflows, and shifting global financial conditions.

Fitch said the widening deficit is being driven in part by higher energy and commodity prices, which are expected to increase Egypt’s import bill during the second half of the fiscal year.

At the same time, the agency pointed to a decline in remittances from Egyptians abroad, alongside tighter external financing conditions, as additional factors contributing to pressure on the current account.

The report also noted expectations of a moderation in tourism activity, following strong resilience in the first half of the year. The sector, a key source of foreign currency earnings, is expected to provide less support to the external balance in the coming period.

Fitch highlighted that multi-billion-dollar portfolio outflows since mid-February have increased external financing needs and weighed on Egypt’s net foreign asset position.

The agency noted that net foreign assets declined to $27.3 billion in February, marking the first drop in six months, reflecting heightened pressure on the banking sector’s external position.

Fitch warned that a prolonged or escalating U.S.-Iran conflict could push the current account deficit beyond 4% of GDP, underscoring the sensitivity of Egypt’s external accounts to global geopolitical developments.

In such a scenario, the agency said policy adjustments may be required, including greater exchange rate flexibility, tighter fiscal policy, and maintaining higher interest rates for a longer period.

Despite external pressures, Fitch noted that Egypt’s foreign exchange reserves have continued to rise, while the banking sector’s net foreign assets remain near record levels, providing a buffer against external shocks.

The agency also expects Egypt to meet its financing needs through a combination of international debt issuance and potential new funding from the International Monetary Fund (IMF), supporting short-term external stability.