Egypt's Battered Economy Takes Another Hit Due to War on Iran

By Al Mayadeen English

5 Apr 2026 23:30

Egypt's economy faces mounting pressure as the fallout from the war on Iran drives pound depreciation, surging inflation, and sweeping electricity price hikes.

Egypt is simultaneously confronting a deepening set of economic challenges, as private sector activity contracts, energy costs surge, and business confidence deteriorates, all against the backdrop of the ongoing US-Israeli war on Iran and its far-reaching regional repercussions.

The latest data show that Egypt's non-oil private sector Purchasing Managers' Index (PMI) fell to 48 in March, its lowest reading in nearly two years and the fourth consecutive month of contraction. A PMI below 50 indicates a shrinking sector, and the latest figure reflects weakening demand and reduced output across key industries.

Input costs have risen sharply, driven by higher fuel prices and more expensive imports, pressures directly linked to the war's disruption of regional supply chains.

Perhaps most notably, business expectations turned negative for the first time, a signal that uncertainty over regional developments is beginning to erode confidence even among firms that had previously anticipated broader economic growth.

Egyptian pound depreciates further

A significant driver of those cost pressures is the Egyptian pound's accelerating depreciation. The pound has fallen to record lows, hitting 54.6 per dollar on the offshore market, its steepest decline in three weeks, making it the world's worst-performing currency since the start of the war.

The currency slide compounds import costs across the economy. Egypt's situation is particularly acute given its heavy reliance on hot money inflows as a primary source of financing and on Israeli gas as a key energy input, both of which have been directly disrupted by the war.

Inflation rebounds after months of easing

The currency pressure is feeding directly into prices. Egypt's annual urban inflation rate rose to 13.4% in February 2026, up from 11.9% the previous month, well above market forecasts of 12%, the highest reading since July 2025.

The rebound is particularly notable given that inflation had been on a sustained downward trajectory, whereby tight monetary and fiscal policies had helped reduce inflation to 11.9% in January 2026, supported by the Central Bank of Egypt's (CBE) commitment to exchange rate flexibility and its target of reaching 7% by the fourth quarter of the year. The war has now put that trajectory at risk.

Electricity price hikes

Compounding these pressures, the Egyptian government announced electricity price increases effective April, targeting higher-consumption households and the commercial sector.

According to the Ministry of Electricity, tariffs rose by approximately 16% for high-consumption residential users and 20% for commercial activities, while lower-consumption brackets remain shielded from the increases for now.

The hikes are framed by the government as part of a broader fiscal consolidation effort, aimed at reining in energy subsidies and curbing consumption at a time when import costs have spiked due to the war. They are not the first such measure, as fuel prices were raised three times in 2024 and again in April 2025, as part of the government's pledges to the IMF to reduce subsidy spending.

A critical juncture

This social dimension adds urgency to the government's otherwise technocratic response. Alongside the electricity adjustments, authorities have moved to reduce operating hours for certain commercial activities and raise fuel and transportation prices, measures designed to ease strain on public finances but ones that risk further dampening domestic demand and eroding household purchasing power.

The confluence of these developments places Egypt's economy at a critical juncture. The simultaneous squeeze of slackening private sector activity, a depreciating currency, rebounding inflation, and rising energy costs underscores the difficult tradeoff policymakers face. 

Egyptian policymakers are expected to advance the fiscal reforms demanded by creditors without further undermining the social stability on which any durable recovery depends.