BNP Paribas Sees Egyptian Current Account Deficit Narrowing to 2.9% Despite Energy Import Surge

The Outlook: Current Account, Fiscal Health and Growth

French bank BNP Paribas expects Egypt’s current account deficit to decline to 2.9% of GDP in the current fiscal year 2026-2027, from 3.6% in 2025-2026 and 4.2% the year before. The improvement comes even as energy import costs have jumped more than 30%, driven by higher global oil and gas prices and increased purchases of liquefied natural gas (LNG) to meet domestic demand.

The bank’s analysis pins the current account recovery on rising non-petroleum exports, tourism revenues and remittances from Egyptians abroad, which together help offset the ballooning import bill. However, the report cautions that Egypt’s foreign exchange liquidity remains fragile because part of its financing needs relies on short-term portfolio flows, which BNP Paribas describes as highly volatile.

On the fiscal side, the picture is mixed. Egypt is expected to post a record primary surplus – headline budget balance before interest payments – of 4.6% of GDP, supported by higher tax revenues and a gradual reduction in subsidies. Yet interest payments alone are forecast to consume about 70% of total budget revenue in 2026, pushing the overall deficit to 9.3% of GDP before easing to 6.1% the following year as an interest-rate cutting cycle continues. Government debt fell to an estimated 81% of GDP from 87% a year earlier, though refinancing challenges persist because of the domestic debt maturity structure.

The report also highlights Egypt’s deepening energy dependence. LNG imports now meet around 38% of domestic consumption, while local gas output has been declining at an annual rate near 12% since its peak in 2021. Importing LNG costs roughly twice as much as the piped gas Egypt receives from Israel. Nevertheless, BNP Paribas judges the fallout from the current energy crisis to be limited: a 33-day halt in Israeli gas supplies in March 2026 did not cause severe disruption, thanks to floating regasification units and larger LNG imports.

Behind the Forecast – Egypt’s Macro Tightrope

What Drives the Current Account Improvement

The narrowing deficit is not an accident – it reflects structural improvements and favourable cyclical forces. Non-oil exports, tourism and remittances are all performing strongly enough to compensate for a sharp rise in the energy import bill. But BNP Paribas warns that the quality of external financing is still a vulnerability. A significant share of Egypt’s funding gap is filled by short-term portfolio investments, which are sensitive to global risk appetite and can reverse quickly, keeping the external position fragile despite the headline improvement.

The Fiscal Paradox: Record Primary Surplus, Yet Heavy Debt Service

Egypt’s fiscal accounts tell a story of two halves. Tax collection gains and a phased reduction in subsidies are delivering a widening primary surplus. But this achievement is almost entirely absorbed by interest payments—70% of budget revenue is earmarked just to service debt. That burden makes the budget deficit stickier than the primary balance suggests and leaves limited room for public investment or social spending. The decline in government debt relative to GDP is welcome, but refinancing the existing stock remains a challenge given the heavy concentration of domestic bonds with short maturities.

Energy Imports as a Strategic and Fiscal Headache

The report quantifies how energy dependency is draining Egypt’s finances. Domestic gas production continues to shrink, forcing growing reliance on expensive LNG imports. With LNG costing double the price of Israeli pipeline gas, the government faces a rising subsidy bill or higher energy costs for businesses and consumers – both of which feed either deficit or inflation. The temporary halt of Israeli gas in early 2026 was managed without severe blackouts, but the episode underscored how precarious the supply situation has become.

Inflation and the Cautious Central Bank

Inflation accelerated back to 15% in April 2026 after the Iranian conflict disrupted the disinflation trend. BNP Paribas expects inflation to average 13.2% for the full 2025-2026 fiscal year, still well above the central bank’s target band of 5–9%. That means the monetary easing cycle – the policy rate has already been slashed by 825 basis points to 20% – is likely to stay on hold until geopolitical tensions in the Gulf region recede. The bank’s view implies that interest rates may not fall fast enough to bring the deficit down quickly, creating another fiscal loop.

The Longer Game: Regional Gas Hub Ambitions

Despite the current pain, BNP Paribas sees a medium-term gain. Europe’s push to diversify gas sources plays directly into Egypt’s plan to become a regional hub for gas trading and liquefaction in the Eastern Mediterranean. The expected start of Cypriot gas flows to Egypt’s LNG terminals before the end of this decade would add a new supply leg and enhance the country’s strategic role. If realised, this shift could eventually reduce Egypt’s import dependence and generate transit and processing revenues.

What the BNP Paribas Assessment Means for Decision-Makers

• External debt managers and fiscal planners should examine the maturity structure of domestic debt. BNP Paribas flags refinancing challenges, suggesting a need to extend maturities or lock in lower rates when disinflation allows.
• Foreign investors in Egyptian debt and equities must monitor the composition of capital flows. The bank explicitly warns that short-term portfolio money is volatile; a sudden shift in EM sentiment could quickly reverse the current account gains.
• Energy importers and industrial users face a prolonged period of high gas costs. The report’s projection that LNG imports meet 38% of demand signals that domestic production will not recover fast enough to contain the energy bill, so hedging and efficiency investments become more pressing.
• Central bank watchers and borrowers should factor a delayed rate-cutting cycle into planning. BNP Paribas expects the CBE to move cautiously until Gulf geopolitical stability materialises, meaning lending rates are unlikely to fall sharply in the near term.
• Potential investors in the energy sector have a concrete signpost: Cypriot gas flows to Egyptian LNG plants are expected before 2030. This timeline can anchor project planning and partnership negotiations for the regional hub concept.