Egypt has secured crucial development financing from the African Development Bank (AfDB) as the country accelerates its economic reform trajectory. On January 19, 2026, Egypt and the AfDB formalized a $170 million agreement for the second phase of the Private Sector Development and Economic Diversification Support Program (PSD-EDSP), marking a significant milestone in the nation’s pursuit of sustainable, private sector-led economic growth.
Dr. Rania Al-Mashat, Egypt’s Minister of Planning, Economic Development, and International Cooperation, signed the landmark agreement with Abdourahmane Diaw, the AfDB’s Country Manager in Egypt. The financing package represents more than just capital infusion—it signals international confidence in Egypt’s comprehensive reform program and its commitment to transforming the structure of its economy toward higher-productivity sectors.
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Building on Previous Success: The Two-Phase Approach
The newly signed second phase follows the first installment of the program, which was valued at $131 million and approved by Egypt’s parliament in December 2024. The initial phase, implemented during the 2023-2024 fiscal year, was widely regarded as successful in laying the groundwork for enhanced private sector participation and economic diversification.
According to the AfDB’s assessment, the first phase achieved notable progress in improving Egypt’s business environment and facilitating the transition of informal enterprises—particularly those owned or operated by women—into the formal sector. The program’s success in reducing business licensing processing times from 28 days in 2022 to a targeted 10 days by 2025 demonstrates the tangible impact of these reform efforts.
The second phase, approved by the AfDB’s Board of Directors on November 27, 2024, will take the form of budget support for the period 2024-2025. This structure allows the Egyptian government flexibility in allocating resources to advance structural reforms while maintaining fiscal discipline and supporting the overall macroeconomic stability framework.
Strategic Alignment with Egypt’s National Reform Program
The $170 million financing is designed to support Egypt’s state budget while advancing the implementation of comprehensive structural reforms. Dr. Al-Mashat emphasized that this agreement forms part of the Ministry’s coordinated efforts with national authorities to strengthen economic relations with multilateral development partners and ensure the integration of external financing with domestic reform initiatives.
The program directly supports Egypt’s National Structural Reform Program, which operates within the framework of the country’s “National Narrative for Comprehensive Development.” This narrative, officially titled “Egypt’s Narrative for Economic Development: Reforms for Growth, Jobs, and Resilience,” guides the nation’s transition toward a higher-productivity economic model centered on tradable sectors such as manufacturing, tourism, and telecommunications.
Minister Al-Mashat recently stated that 2026 will represent a pivotal turning point for the Egyptian economy following fiscal and monetary reforms. The emerging economic model builds on infrastructure investments—particularly in ports and logistics zones—while focusing on higher-productivity sectors that can drive sustainable employment and export growth.
Comprehensive Water Infrastructure Support: The Abu Rawash Grant
Alongside the $170 million loan agreement, Egypt and the AfDB also signed a grant worth $400,000 (approximately EGP 19 million) to enhance the sustainability and operational efficiency of the Abu Rawash wastewater treatment plant. This grant, though modest in size compared to the main financing package, carries significant environmental and social implications for millions of Egyptians.
The Abu Rawash facility stands as one of the world’s largest wastewater treatment plants, processing wastewater for the Greater Cairo area. Located approximately eight kilometers northwest of the Giza Pyramids on the western bank of the Nile, the plant serves as a critical infrastructure asset for environmental sustainability and public health.
Minister Al-Mashat highlighted the importance of the grant allocated to enhance the plant’s environmental sustainability and operational efficiency. The Abu Rawash facility currently has a treatment capacity of 1.6 million cubic meters per day, serving more than six million people across the Giza Governorate. The plant plays a crucial role in protecting the Nile River from pollution, preserving biodiversity, and providing treated water for agricultural purposes.
The Egyptian government previously signed a financing agreement with the AfDB in May 2025 for the fourth phase expansion of the Abu Rawash plant. This expansion project aims to increase treatment capacity from 1.6 million to 2 million cubic meters per day, with construction expected to benefit approximately 8.6 million people while improving public health and environmental sustainability across the region.
The plant’s development has been supported by the AfDB with previous financing totaling $150 million, demonstrating the Bank’s long-term commitment to Egypt’s water and sanitation infrastructure. The facility has created nearly 150 permanent jobs and generated opportunities for companies operating in multiple industries related to water treatment and environmental management.
The Broader Context: AfDB’s Commitment to Egypt’s Development
The newly signed agreement represents just one component of a much larger partnership between Egypt and the AfDB. The Bank has previously announced approximately $9.5 billion in concessional development financing to support Egypt’s budget from 2023 to 2026, making it one of the country’s most significant development partners during this critical reform period.
Egypt holds a prominent position within the AfDB’s regional operations. The country ranks as the Bank’s second-largest regional member country shareholder—after Nigeria—and third-largest overall. This strong relationship is reflected in the Bank’s substantial portfolio in Egypt, which currently totals $2.045 billion across both sovereign and non-sovereign operations.
Private sector operations account for approximately $800 million, or 39% of the Bank’s current portfolio in Egypt. The AfDB is currently involved in 13 active private sector projects in the country: seven in the power sector, three in finance, and one each in healthcare, industry, and agribusiness. This diversification reflects the Bank’s strategic approach to supporting multiple sectors critical to Egypt’s economic transformation.
According to Abdourahmane Diaw, the AfDB’s Country Manager in Egypt, the Bank will provide Egypt with $746 million in funding in 2025, with a matching amount projected for 2026. This support encompasses both sovereign and non-sovereign operations, reinforcing Egypt’s strategic importance to the Bank’s regional development agenda.
Private Sector Development: The Core Objective
The PSD-EDSP’s primary objective centers on fostering private sector development and promoting economic diversification, with special emphasis on green growth initiatives. The program supports the Egyptian government’s efforts through a robust reform matrix designed to facilitate increased private sector participation by improving the business environment and diversifying sources of economic growth.
By promoting private sector development and supporting economic diversification alongside the green transition, the program aims to achieve several quantifiable targets. According to the AfDB’s project documentation, the initiative seeks to boost private investment from 3.3% of GDP in 2021/22 to 4.3% in 2024/25, increase manufacturing value from 14.2% of GDP in 2021 to 17% in 2025, and expand the area of state-owned lands dedicated to renewable energy investments to 30,000 square kilometers by 2025.
The program’s direct beneficiaries include the Egyptian state, private industries, and agribusiness operators, while indirect beneficiaries encompass local small and medium-sized enterprises (SMEs), especially women-owned businesses that are transitioning from the informal to the formal sector.
Abdourahmane Diaw, commenting on the program’s approval, noted that “Egypt’s youthful and educated population, its improving competitiveness and attractiveness, and the potential of its private sector gives us plenty of reasons to be confident that the Egyptian economy will grow stronger and will be on a more solid, greener and sustainable path.”
Egypt’s Economic Performance: Signs of Transformation
The AfDB’s continued support comes at a time when Egypt is demonstrating tangible economic progress. In the first quarter of fiscal year 2025/2026, Egypt’s GDP growth exceeded 5% for the first time in more than three years, reaching 5.3% compared to 3.5% during the same period in the previous fiscal year.
This acceleration reflects the impact of ongoing economic and structural reforms that are bolstering the real economy, crowding in private-sector activity, and steering the growth model toward tradable, high-productivity sectors. Non-oil manufacturing industries, tourism, and telecommunications emerged as the highest contributors to this growth, confirming the government’s strategy of shifting away from extractive industries toward more diversified, export-oriented sectors.
Minister Al-Mashat highlighted that preliminary economic indicators point to a positive outlook for growth in fiscal year 2025/2026, with initial forecasts projecting at least 5% growth and promising upside potential. The government has set an ambitious target of achieving 7% growth rates to boost employment and ensure development outcomes that positively impact citizens across all income levels.
Investment contributed a positive 2.45 percentage points to growth during the first quarter, reflecting the notable improvement in capital formation. This development signals a recovery in investor confidence and highlights the growing role of private investments in supporting Egypt’s economic expansion—a core objective of the PSD-EDSP program.
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Macroeconomic Stability and Fiscal Discipline
Egypt’s reform program emphasizes macroeconomic stability as a cornerstone of sustainable development. The government has successfully enforced public investment governance in fiscal year 2024/2025, adhering to a strict EGP 1 trillion ceiling on public investments to enable private sector expansion and redirect bank credit toward private enterprises, particularly in the industrial sector.
This fiscal discipline represents a fundamental shift in Egypt’s economic management approach. By limiting public investment and maintaining spending efficiency, the government aims to create breathing room for the private sector to drive the national economic engine. Currently, the productive sectors—industry, tourism, and Information and Communications Technology—are largely under private stewardship, with approximately 98% of the tourism and industrial sectors now privately held.
The government’s commitment to fiscal responsibility is further evidenced by recent achievements in deficit reduction. Egypt’s government deficit narrowed from 6% of GDP in 2022/23 to 3.6% in 2023/24, driven primarily by an increase in the revenue-to-GDP ratio from 15.5% to 18.2%. This improvement stemmed partly from non-tax revenues linked to strategic development projects, including the Ras El Hekma development agreement with the United Arab Emirates.
International Support and Reform Implementation
The AfDB financing operates within a broader ecosystem of international support for Egypt’s reform program. In January 2026, Egypt received EUR 1 billion ($1.16 billion) in concessional development financing from the European Union as the first tranche of the second phase of the Macro-Financial Assistance mechanism. This disbursement was linked to 16 structural reforms already implemented by Egypt within its National Structural Reform Program.
Minister Al-Mashat announced that total concessional development financing mobilized with multilateral and bilateral development partners to support Egypt’s general budget reached approximately $9.5 billion during the period 2023-2026. This comprehensive financing package includes contributions from various international partners:
- $572 million from the African Development Bank to support food security, economic resilience, and private sector empowerment
- $557 million from the Japan International Cooperation Agency (JICA) to support the Universal Health Insurance budget, private sector development, and economic diversification
- $300 million from the Asian Infrastructure Investment Bank for Development Policy Financing
- $221 million from the French Development Agency (AFD) as budget support for the Universal Health Insurance Program
Additionally, the concessional financing package includes approximately $795 million in guarantees supporting the issuance of Panda and Samurai bonds, comprising $200 million from the Asian Infrastructure Investment Bank and $595 million from the African Development Bank. These guarantees enhance Egypt’s access to international capital markets through lower-yield instruments that support sustainable development projects and help diversify financing sources.
The National Structural Reform Program: Comprehensive and Coordinated
Egypt’s National Structural Reform Program represents a comprehensive framework encompassing approximately 430 reform actions being executed by more than 40 national entities. These measures span key areas including tax reform, trade facilitation, public investment governance, social protection, private sector participation, decent job creation, innovation and start-ups, industrial competitiveness, and other priority sectors.
The structural reform measures linked specifically to budget support total approximately 150 measures, all implemented within a clear and time-bound framework. These reforms are designed to sustain reform momentum, unlock the Egyptian economy’s productive potential, and enhance overall competitiveness across multiple dimensions.
Dr. Al-Mashat explained that Egypt is implementing an integrated policy framework through the Narrative for Economic Development, coordinating the strategies of industry, trade, investment, and employment to stimulate growth in productive sectors and the real economy. The growth indicators for fiscal year 2024/2025—in which non-oil manufacturing industries were the highest contributors to overall growth—reflect this transformation and confirm the significant potential of the Egyptian economy.
The reforms contribute to enhancing macroeconomic stability by improving public financial management and developing medium-term budget frameworks, managing fiscal risks and public investment, and supporting competitiveness and the business environment. This support includes improving industrial land allocation mechanisms and streamlining investment licensing procedures to reduce bureaucratic barriers and accelerate project implementation.
Private Sector Confidence and Investment Climate
Minister Al-Mashat highlighted the AfDB’s strong support for the private sector, noting that private-sector financing operations in 2025 were three times those of sovereign operations, reflecting strong confidence in Egypt’s growing economy. She emphasized that this underscores Egypt’s openness and readiness for new partnerships and foreign investments that can drive innovation, sustainable growth, and long-term development.
The improvement in Egypt’s investment climate has been recognized by international credit rating agencies. Standard & Poor’s Global Ratings recently raised Egypt’s credit rating from “B-” to “B” with a Positive Outlook, underscoring the tangible results of the economic and structural reforms implemented by the state. The rating agency anticipates that the Egyptian economy will continue achieving robust growth in the coming period, supported by key sectors such as agriculture, communications, tourism, and wholesale and retail trade.
The report also acknowledged the continued implementation of comprehensive structural reforms aimed at addressing growth constraints, improving the governance of public investments and state-owned enterprises, and expanding the role of the private sector. For the first time, the government published revenue and expenditure data for 59 economic entities within the budget statement as of April 2024—a move reflecting the state’s strong commitment to financial transparency and public spending governance.
Green Growth and Climate Finance
The PSD-EDSP program places special emphasis on green growth and Egypt’s transition toward a more sustainable economic model. This alignment reflects both the AfDB’s strategic priorities and Egypt’s national commitments under its Climate Change Strategy 2050 and its role as host of the COP27 climate conference in 2022.
The program aims to increase the area of state-owned lands dedicated to renewable energy investments, supporting Egypt’s ambitious target of achieving 42% renewable energy by 2030. Through the Nexus of Water, Food and Energy (NWFE) Country Platform, Egypt has already mobilized approximately $5 billion in concessional development financing for domestic and foreign renewable energy projects.
The AfDB has been particularly active in supporting Egypt’s renewable energy transition. Recent projects include approval of up to $170 million to support the development of the 1.1 GW Suez Wind Project, currently Egypt’s largest wind energy initiative. The Bank, alongside the British International Investment and European Bank of Reconstruction and Development, also supported a pioneering solar and battery storage project in Egypt with $479.1 million in financing.
In the 2025/2026 development plan, approximately 55% of total public investments are targeted to be directed toward green investment projects, up from 50% in fiscal year 2024/2025 and 15% in fiscal year 2020/2021. This dramatic increase demonstrates Egypt’s commitment to integrating environmental sustainability into its core development strategy.
Sector-Specific Impacts and Diversification Strategy
The diversification strategy supported by the PSD-EDSP extends across multiple economic sectors, each playing a crucial role in Egypt’s transformation toward a more resilient, export-oriented economy.
Manufacturing and Industry: The manufacturing sector has emerged as a primary driver of recent growth. Egypt’s industrial base is becoming increasingly diversified, with the country poised to surpass $145 billion in exports by 2030. The government has introduced integrated tax systems with substantial incentives for young firms, start-ups, and entrepreneurs to encourage industrial development and innovation.
Tourism: The tourism sector continues to show strong performance, with Egypt on track to reach 30 million tourists by 2030. The sector benefits from the upcoming official inauguration of the Grand Egyptian Museum in July 2025, which will serve as a cultural hub connecting Egypt’s ancient heritage with contemporary art and events. The government is also diversifying tourism offerings to meet growing demands and developing expertise in tourism and antiquities management.
Information and Communications Technology: The ICT sector represents another pillar of Egypt’s diversification strategy. The 2025/2026 development plan allocates EGP 13 billion in public investments to the sector, with ambitious targets including $8.5 billion in annual digital exports (including $6 billion in outsourcing exports), increasing internet users in government transactions to approximately 31%, and expanding innovation center coverage to 60% of Egypt’s governorates.
Agriculture and Food Security: The AfDB’s support extends to agriculture and food security initiatives, critical for a country with a population of 115 million. Projects like the Abu Rawash wastewater treatment plant expansion directly contribute to increasing irrigated land area and food production capacity while improving water resource management.
Regional Integration and the AfDB’s Strategic Framework
Egypt’s partnership with the AfDB operates within the Bank’s broader Country Strategy Paper for 2022-2026, which identifies two priority areas: strengthening Egypt’s competitiveness to support robust private sector-led growth and job creation, and building resilience to achieve food and water security and energy efficiency.
This strategy builds on results and lessons from the preceding 2015-2021 strategy paper, which helped develop the country’s infrastructure and improve the business environment, fostering sustainable and inclusive growth. The Bank’s total portfolio in Egypt exceeds $6.74 billion, including $1.1 billion dedicated to the private sector, making the AfDB one of Egypt’s key partners since establishing relations in 1974.
The partnership has facilitated the financing of over 128 projects totaling $7.79 billion across diverse sectors including agriculture, industry, energy, transportation, water, sanitation, and financial system development. These efforts aim to improve access to funding for small and micro enterprises while aligning closely with Egypt’s national development strategies, including Vision 2030 and the National Climate Change Strategy 2050.
Beyond Egypt, the AfDB plays a cornerstone role in the Programme for Infrastructure Development in Africa (PIDA), a joint initiative with the African Union Commission and NEPAD. The Bank is engaged in 56 PIDA projects spanning transport, energy, water, and ICT infrastructure. As part of its 2024-2033 Ten-Year Strategy, the AfDB aims to accelerate infrastructure connectivity, eliminate trade barriers, harmonize regulations, and bolster the African Continental Free Trade Area (AfCFTA).
Challenges and Future Outlook
Despite significant progress, Egypt continues to face challenges that require sustained reform efforts and international support. The country’s external debt stock, though improved from $165 million in June 2023 to $153 million in June 2024, still represents a significant fiscal constraint. External debt servicing has increased significantly, limiting fiscal space for development spending.
The global and regional context also presents ongoing challenges. Egypt’s economy has been impacted by successive external shocks, including the COVID-19 pandemic, Russia’s invasion of Ukraine, and regional conflicts affecting the Suez Canal’s operations. The canal, which handles approximately 12% of global trade, saw vessel traffic substantially affected by regional volatility, though recent peace efforts show promise for recovery.
However, Egypt’s economic outlook appears increasingly positive as reforms take hold. The International Monetary Fund upgraded Egypt’s GDP growth forecast for fiscal year 2026/27, reflecting confidence in the country’s reform trajectory. The completion of the fifth and sixth IMF reviews and the first review under the newly approved $1.3 billion Resilience and Sustainability Facility, alongside sustained reform policies, will further strengthen positive economic trends.
Standard Chartered Global Research projects that Egypt stands out amid a shifting global landscape, where most economies are transitioning away from monetary easing toward greater reliance on fiscal policy and investment-led growth. The research house forecasts continued inflows from GCC partners and long-term investors, alongside proceeds from the government’s privatization program, which have helped rebuild net foreign assets and reinforce confidence.
Inflation is projected to fall to around 11% by June 2026, giving the Central Bank of Egypt room for further monetary policy easing. The foreign exchange market is expected to remain more orderly, with the dollar projected to trade at EGP 47.5 by the end of the first quarter of 2026 and around EGP 49 by the end of the year.
Implications for Egypt’s Development Trajectory
The $170 million AfDB financing, combined with the $400,000 grant for the Abu Rawash plant, represents more than a financial transaction—it embodies a vote of confidence in Egypt’s reform direction and development potential. The agreement demonstrates the international community’s recognition of Egypt’s efforts to transform its economic structure and create a more sustainable, inclusive growth model.
The program’s emphasis on private sector development, economic diversification, and green growth aligns with global development priorities while addressing Egypt’s specific challenges and opportunities. By focusing on improving the business environment, supporting SMEs and women-owned businesses, enhancing manufacturing capacity, and investing in critical infrastructure like water treatment facilities, the program addresses multiple dimensions of sustainable development simultaneously.
Minister Al-Mashat’s assertion that 2026 will be a pivotal turning point for Egypt’s economy reflects the culmination of years of reform efforts and the beginning of a new phase of growth. With continued support from partners like the AfDB, implementation of comprehensive structural reforms, and the government’s commitment to fiscal discipline and private sector empowerment, Egypt appears positioned to achieve its ambitious development objectives.
The success of this partnership will ultimately be measured not just in macroeconomic indicators but in tangible improvements in citizens’ lives—through job creation, improved public services, environmental sustainability, and enhanced economic opportunities across all segments of society. As Egypt continues its transformation journey, the AfDB’s support through programs like the PSD-EDSP will play a crucial role in enabling the country to build the competitive, resilient, and inclusive economy envisioned in its national development strategy.
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By: Montel Kamau
Serrari Financial Analyst
20th January, 2026
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