The Egyptian Initiative for Personal Rights (EIPR) today released the English edition of its annual analysis of the state budget, entitled, “Budget 2026-2027: Balancing the Books Is Not Enough”. 

Parliamentary approval of the budget in June came at a time of mounting regional and global challenges affecting Egypt, while the government continues to implement the austerity policies agreed upon with the International Monetary Fund (IMF). Fuel, electricity, and transportation prices continue to rise, while increasing global energy prices and warnings of higher food costs – driven by the US-Israeli war on Iran and its impact on trade routes – place additional pressure on the government.

Beginning on 1 July, the new fiscal year coincides with the tenth anniversary of the 2016 IMF loan agreement, which paved the way for a series of IMF-supported economic programs. Through these programs, Egypt has increasingly relied on both domestic and external borrowing as a primary source of financing. The legacy of this decade of debt is clearly reflected in the structure of the 2026-2027 budget, in which debt obligations, debt repayments, and interest payments consume two-thirds of total expenditures. In the new fiscal year, government interest payments as a share of GDP will exceed the combined shares allocated to education, healthcare, wages, and subsidies.

Although the government has declared its intention to reduce debt levels, the new budget relies on a 48.5% increase in external borrowing compared to the previous budget. Planned international borrowing is expected to reach approximately EGP 594.6 billion (about $11.2 billion), up from $8 billion in the fiscal year that ended in June 2026.

Despite international forecasts pointing to rising global inflation in the coming months, particularly amid persistent regional tensions, the new budget assumes an inflation rate of no more than 9.3%, down from 18% in the new budget. This raises questions about the basis for such fiscal optimism at a time when prevailing indicators suggest inflationary pressures are more likely to intensify. In fact, the Central Bank of Egypt recently raised its inflation target to 16-17% for 2026.

The danger of adopting an unrealistic inflation estimate is that it affects all budget projections. For example, subsidy allocations would provide less social protection if inflation exceeds the targeted rate. Likewise, the real value of spending on wages, education, and healthcare, which is already insufficient, would decline further.

This situation also conceals the fiscal risks associated with higher consumer price inflation. The financial statement accompanying the budget proposal explained that inflation above the projected level would lead to higher interest rates, thereby increasing debt-service costs. The statement noted that “every 1% increase in interest rates raises debt interest payments by approximately EGP 120 billion”.

This optimism is also reflected in the sharp 79% reduction in petroleum subsidy allocations in the new budget, despite rising global oil prices. Such a substantial cut indicates the likelihood of further increases in petroleum product prices in the coming months. In March, the government raised fuel, natural gas, and LPG prices by 14% to 30%, blaming the move on the energy crisis resulting from regional tensions. These increases inevitably contribute to higher consumer inflation.

On the other hand, electricity subsidies are set to increase by 39% in the new budget. These subsidies are intended to cover the gap between production costs and subsidized sales prices, despite repeated increases in electricity tariffs. The budget attributes the rise in subsidy allocations to increased electricity production costs resulting from economic changes.

The government also plans to increase subsidies for food commodities and support for low-income households through the Takaful and Karama cash-transfer programs. However, the value of this support remains modest in the face of cumulative inflation over recent years and anticipated inflation increases during 2026. Whether provided in cash or in kind, the available subsidy does not come close to covering even half of a family’s essential needs or maintaining it above the poverty line. According to budget figures, the total subsidy for a family of four does not exceed EGP 3,500 per month (USD 70).

On the revenue side, the new budget continues to place a disproportionate burden on lower-income groups while favoring wealthier individuals and high-income earners. The largest share of expected tax revenue comes from payroll taxes and taxes on the consumption of goods and services, which together account for 44% of the total tax receipts, compared with only 14% generated from corporate profit taxes and 0.5% contributed by property owners.

To read the full analysis click here