Egypt presents ambitious budget to parliament with record spending and subsidy cuts

Egypt's government on Tuesday presented parliament with its 2025/2026 national budget, which projects record spending and revenue levels while relying heavily on continued borrowing and subsidy reductions to meet its commitments.

The plan, presented by Finance Minister Ahmed Kouchouk and dubbed the budget of “growth, stability, and partnership with the business community”, was approved by the country's Cabinet two weeks ago and is now awaiting House approval.

The budget forecasts a 23 per cent increase in public revenue, bringing the figure to 3.1 trillion Egyptian pounds ($60.6 billion), with tax revenue expected to account for 2.6 trillion pounds, or 13 per cent of gross domestic product.

The Ministry of Finance described as “the highest tax-to-GDP ratio in a decade”, reflecting efforts to expand the tax base through digitalisation and simplified compliance measures.

Government tax revenue rose by 38 per cent during the current fiscal year to reach 1.4 trillion pounds, largely due to stricter collection mechanisms, according to Mr Kouchouk.

The new budget aims to achieve a primary surplus of 4 per cent of GDP, equivalent to 807 billion pounds, and reduce the overall budget deficit to 7.3 per cent of GDP by June 2026.

However, with expenditures projected to rise by 19.2 per cent to 4.6 trillion pounds, Egypt plans to borrow an additional 3.6 trillion pounds during the fiscal year to cover costs.

The country’s debts will continue to be high for the coming year, with interest payments on existing loans constituting 50 per cent of the country’s expenses under the new budget. The debt-to-GDP ratio will remain above 92 per cent, and the ministry will exert efforts to reduce it by the fiscal year after next, it said.

Mr Kouchouk defended the borrowing plan as necessary to fund critical investments in health care, education and social protection.

Allocations for health care have increased to 617.9 billion pounds, while pre-university education funding has risen to 684.7 billion pounds. The allocation for higher education and research was also increased to 358.2 billion pounds to support long-term growth.

The budget includes 742.5 billion pounds for social protection programmes, a 16.8 per cent increase over the previous year, including expanded funding for subsidised food programmes, social support initiatives such as Takaful and Karama, and state-sponsored health care.

Subsidy cuts and energy price hikes

A significant element of the budget is the continuation of subsidy reforms under Egypt’s $8 billion agreement with the International Monetary Fund. Energy subsidies dropped from 147 billion Egyptian pounds this year to around 75 billion in the new budget.

This month, the government raised fuel prices for the first time in 2025, with petrol and diesel rates increasing by up to 14.8 per cent. The price of butane gas cylinders used in households rose by 33.3 per cent.

The move is the most recent in a series of subsidy cuts on food and energy that was a key condition of the IMF loan.

The Ministry of Petroleum and Mineral Resources confirmed that another round of fuel price rises is planned for October as part of efforts to align domestic energy prices with international market levels by the end of 2025.

Despite these adjustments, the government will continue to subsidise diesel, butane and lower-octane petrol to mitigate the impact on sectors of society included in welfare programmes.

The government spends 366 million pounds daily on fuel subsidies, Mr Kouchouk told the parliament on Tuesday. He acknowledged the challenges of subsidy cuts but said they are essential to reducing fiscal pressures and reallocating resources towards long-term development goals.

IMF support

The 2025/2026 budget is closely tied to Egypt’s commitments under its IMF Extended Fund Facility programme. Last month, the IMF approved the disbursement of $1.2 billion to Egypt after completing its fourth review.

While praising Egypt’s progress on reforms such as subsidy reductions and currency flexibility, the IMF highlighted persistent challenges such as high debt levels, slow progress on structural reforms, and the limited role of the private sector in driving growth.

The fund has urged Egypt to accelerate reforms, including reducing the state’s role in the economy and fully eliminating energy subsidies.

Foreign investments crucial

To bolster foreign currency reserves, Egyptian President Abdel Fattah El Sisi recently secured $7.5 billion in direct investments from Qatar during a visit to Doha. The funds are expected to support infrastructure and industrial projects, providing an injection of foreign currency to stabilise Egypt’s balance of payments.

Private sector investment also remains a key focus of the budget: 59 per cent of total investments in the first half of the current fiscal year were attributed to private enterprises.

The government has allocated significant funding to sectors such as industrial production, tourism and exports, to encourage further private sector participation.

Mr Kouchouk said the new budget aims to increase the private sector’s contribution to the economy from 30 per cent to 50 per cent by 2026.

Looking ahead, the minister pointed to improving indicators as evidence of Egypt’s resilience. Inflation has fallen sharply, from 33.3 per cent in March 2024 to 13.6 per cent in March this year, while foreign reserves have stabilised at $47.7 billion.