Egypt’s strong macroeconomic performance amid the COVID-19 pandemic and continued appeal to foreign investors hold promise for Cairo’s near-term financial stability. But it does not resolve the country’s stubbornly high poverty levels, which will eventually become a political liability by stoking anti-government sentiment. In an address on Oct. 18, Egypt’s finance minister said economic growth has exceeded even the finance ministry’s previous projections for 2020. This confidence reflects recent positive adjustments to Egypt’s economic outlook projections by Fitch Ratings, Deutsche Bank and the International Monetary Fund — all of which now see Egypt’s economy growing at 3.5 percent of GDP in this year, exceeding the performance of most of its regional peers. 

• According to the European Bank for Reconstruction and Development (EBRD), Egypt is now the only economy receiving funds from the EBRD that’s expected to avoid a recession in 2020. 
• Egypt’s economy has benefited from a liberal exchange rate policy since the government floated its currency in November 2016, which has helped increase investor attractiveness by improving capital flows that had declined after the 2011 Arab Spring. 

Sustained investor interest will enable Cairo to continue floating bonds and taking out loans to fund its budget, though this will increase Egypt’s external financing needs and overall debt. Egypt is currently one of the strongest financial performers in the Middle East, which has bolstered its investment appeal even amid economic pressure from the pandemic. Egypt’s gross financing needs to service its external debt are expected to reach 9.2 percent of GDP over the next 12 months.

• Egypt floated the first-ever regional sovereign green bond in late September, raising $750 million for anti-pollution and renewable energy projects. The bonds yielded 5.25 percent and the five-year notes were nearly five times oversubscribed — suggesting high investor interest both for this type of financing, as well as in Egypt at-large. 
• In May, Egypt sold $5 billion in eurobonds, marking its largest-ever issue. According to the Economist Intelligence Unit (EIU), Cairo has also raised $20 billion from international institutions and credit markets since the COVID-19 pandemic began. 

Secure government coffers, however, do not translate to an improved standard of living for all Egyptians, who continue to struggle amid rising unemployment levels and record-low activity in the country’s crucial tourism sector due to COVID-19. Cairo’s touted economic success contrasts sharply with the fact that 32.5 percent of Egyptians now live under the poverty level, threatening the country’s long-term stability. Egypt’s external economic position is also coming under increased pressure, especially if worker remittances fall in the near term. 

• Despite overall growth in the economy, activity in Egypt’s tourism sector — which employs 12 percent of Egyptians and is the source of 19 percent of Egypt’s hard currency — is expected to decline by up to 70 percent through the year due to the ongoing COVID-19 pandemic.
• According to Egypt’s official statistic agency, the country's unemployment rate has increased from 7.7 percent to 9.6 percent over the last six months 

Cairo’s ongoing pursuit of business-friendly economic reforms in lieu of measures that address rising poverty levels could backfire by raising the risk of social unrest that ultimately deters foreign investment. Egypt’s steady commitment to structural economic reforms, including cutting costly subsidies and increasing taxes and fees, appeals to foreign investors and institutions and enables economic growth. But it also increases feelings of social vulnerability among Egyptians. Indeed, some of the same policies that ensured Egypt’s macroeconomic stability and appeal to investors have increased poverty rates and put some social programs at risk, fueling even more public dissatisfaction. 

• The Egyptian government’s latest update on nationwide poverty rates, released in 2019, found that the economic reform policies implemented between 2016 and 2018 had increased poverty rates across the country by almost 5 percent. 
• Over the summer, Cairo moved to increase the costs of utilities and public transportation. While this helped provide the government with more revenue, increasing the cost of living in the midst of the COVID-19 pandemic received criticism from some Egyptians. 
• Rare anti-government demonstrations popped up throughout the country during the last two weeks of September. Many of the protests were reportedly driven by economic grievances.