Index trend
Previous Quarterly Editions
Expropriation risk: 56 56 56 57 ▲ Political violence risk:67 68 68 68 ►Terrorism risk:58 58 58 58 ►Exchange transfer and trade sanction risk: 44 44 44 44 ►Sovereign default risk:65 65 56 56 ►
Overall Risk Temperature: 60 (Significant) TREND ►
Special topic: Political polarization
The Egyptian political system provides little space for affective polarization in the sense of clear dividing lines and rivalries between political parties. For most of Egypt’s modern history, authoritarian rulers with a military background have sought to manage political participation through a dominant party, which also provides the means to dispense patronage.
Presidents Anwar Sadat and Hosni Mubarak allowed some limited space for opposition parties, and under the latter, the Muslim Brotherhood was able to win seats by proxy, despite being formally banned. Following the 2011 uprising against Mubarak, the Brotherhood formed its own party, which, with other Islamist groups, gained majorities in both houses of parliament. After the 2013 army coup against the Brotherhood, the organization was once more banned, and it was designated as a terrorist group.
The first parliamentary election under President Abdel Fattah el-Sisi, in 2015, resulted in a large majority of seats being won by independents aligned with the president. By the time of the next election, the Nation’s Future Party, controlled by intelligence agencies, won a landslide victory, with only a smattering of opposition members of parliament (MPs). Dissent was further eroded when one of the more outspoken of these MPs was stripped of his membership of parliament. This means that there is minimal basis for affective polarization. This situation is unlikely to change in the parliamentary election that is scheduled to take place in the second half of 2025.
Overt ideological polarization is also constrained because of the suppression of the Muslim Brotherhood and the hounding of liberal opposition figures. The main historical ideological currents in Egypt have been nationalism (both Egyptian and Arab), communism, Islamism (led by the Muslim Brotherhood but with offshoots that include mainly peaceful Salafism and violent Jihadism), and Westernized liberalism. The dominant ideology in the Sisi era has been Egyptian nationalism, with the armed forces and the intelligence services providing rallying points. The other ideological tendencies have been driven to the margins.
Ideological polarization exists in the economic sphere, reflecting the wide gaps between a narrow middle class, a wealthy elite and the majority of Egyptians, who live in relative or absolute poverty. Such polarization is mitigated by state benefits, including subsidies, social safety nets and large-scale public sector employment.
The government nominally subscribes to liberal economic policies, as advocated by the International Monetary Fund (IMF). These policies come under criticism from some economists, who blame the IMF reforms for increasing poverty and debt levels, but protests and strikes are rare, partly because of the fear of harsh retribution.
Economic policy is also a factor in elite polarization. During the Sisi regime, there has been a proliferation of centers of economic power that are not accountable to the Ministry of Finance and the government in general. This has created friction between these power centers (controlled by the military and the intelligence services) and the private sector. The IMF regularly urges the government to take effective steps to rein in the state sector and to ensure that it does not crowd out private investment. The government has drawn up strategies aimed at complying with the IMF demands, but they are largely ineffectual.
There is also polarization within the state elite, as interest groups compete for economic power and political dominance. A recent example of these struggles is the replacement in October 2024 of Abbags Kamel as head of the General Intelligence Service. Kamel had worked closely with Sisi for years, going back to the period when Sisi was head of military intelligence. Other officers in the military and intelligence services had grown increasingly resentful at Kamel’s power.
There was also suspicion in the military of Kamel’s close working relationship with his Israeli counterparts. Anti-Israeli sentiment has grown within the Egyptian military, and there has been concern that Sisi, under the influence of Kamel, was being drawn into positions that favored Israel, for example, acquiescing in Israel’s occupation of the buffer zone along the southern border of the Gaza Strip and being prepared to consider resettlement of Palestinians. Kamel’s replacement is Hassan Rashad, a career officer in the intelligence service, with a broader base of support compared with Kamel, who was very much Sisi’s man.
Sisi was reelected in 2024 for a third term. This runs until 2030 and is supposed to be his final term, according to the constitutional amendments he pushed through in 2018–2019. The questions of succession or a further extension of Sisi’s mandate are already bubbling beneath the surface and will be a source of increasing elite polarization.
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Successive investment laws passed since 1974 have included guarantees against expropriation. The current law, passed in 2017, reiterates these guarantees. Investments are protected against nationalization, and expropriation is only permitted where it can be established that it is in the national interest.
The government is focused on attracting more foreign investment. This has included the restoration in July 2024 of the post of investment minister after a five-year break. The minister is Hassan el-Khatib, a former banker.
Under the current regime, any shift toward a more nationalist policy that might include expropriation is highly unlikely. However, the heavy involvement of the military in the economy means that investors will continue to face potential obstacles from a powerful and largely unaccountable institution.
Some recent deals have attracted criticism on the grounds of erosion of sovereignty. In February 2024, the government announced its largest-ever foreign investment deal, involving the development of 170 square kilometers of land around Ras el-Hikmah, a resort town on the Mediterranean, 215 kilometers west of Alexandria. Abu Dhabi investment fund ADQ will own 65% of the project, with upfront payments of $35 billion in total: $24 billion for development rights and $11 billion through the conversion of Abu Dhabi deposits with the Central Bank of Egypt into grants. The deal was highly advantageous to the government in the short term, but there has been little scope for public scrutiny of its implications in the longer term. Likewise, questions have been raised about the benefits to Egypt of AngloGold Ashanti’s $2.5 billion takeover of Centamin, Egypt’s largest gold producer, which was completed in November 2024. These criticisms are marginal, however, and will have little impact on policy unless there is a major change in the political regime.
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The pre-emptive strikes by the U.S. and Israel against Iranian nuclear capabilities may provoke Iranian retaliation against countries in the region. Israel is hardened against air assault, and Iran may wish to expend its dwindling supply of missiles against targets where its strikes will be more effective, both because these targets lack Israel's multiple rings of anti-missile defenses, and because most of these targets are closer to Iran, with proximity implying defenders will have less of a chance to respond. Iran's goal in this case would be to cause sufficient disruption to make the U.S. question its continued involvement in the conflict. These disruptive efforts could in the first instance involve efforts to close the Straits of Hormuz to shipping; possibly involve attacks on U.S. bases in Iraq, Jordan, Syria, Qatar, and elsewhere (although such attacks might provoke an escalation of U.S. involvement); and possibly involve attacks on oil and gas and other critical infrastructure in the wider Middle East, most likely in Qatar, Saudi Arabia, and the UAE (although such attacks would risk bringing other regional militaries into the war). As of this writing, Egypt is not expected to be on the target list, although it does host a small U.S. military presence.
The Egyptian security services impose tight surveillance on civil society, which limits the scope for organizing protests. Tens of thousands of people have also been detained on political grounds. There is widespread resentment at the lack of civic freedoms and at the rise in the cost of living, and the Gaza conflict has intensified anti-Israeli sentiment. However, the power of the security state is a deterrent against active protest.
Ultimately these factors could lead to a spontaneous uprising along the lines of 2011, which would unleash a violent response from the authorities. The Sisi regime itself has a narrow base, with power concentrated in the General Intelligence Service. The extensive turnover of senior officers in the army and other intelligence agencies indicates that Sisi remains wary of the risk of a challenge to his regime coming from within the military establishment.
The Gaza conflict has created a wide range of potential terrorist threats facing Egypt. The stretch of northern Sinai running from the Gaza border to the Suez Canal has seen a long-running struggle between the security forces and armed Islamist insurgents with links to some of the major tribal groups. The potency of this insurgency has diminished in recent years, and the central government has cultivated support from tribal leaders through promising economic development.
The government was quick to rule out any large-scale relocation of Gaza Palestinians in Sinai. This would have risked alienating local tribes, while storing up problems for the future if those Palestinians sought to organize armed operations against Israel. In response to U.S. President Donald Trump’s plan to rebuild Gaza after clearing the territory of its current population, Egypt has come with a reconstruction plan with the population remaining in place.
Regional actors such as the Houthi group in Yemen will continue to pose a terrorism risk. They have already harmed Egypt through attacks on shipping that have cut Suez Canal revenue by more than half. One potential terrorist target is the pipeline system bringing Israeli gas to Egypt. Most of this is undersea, but onshore facilities could once more come under attack, as happened in 2011–2012 when the pipeline was being used to transport Egyptian gas to Israel.
Another potential terrorism risk stems from Sudan. Over 1 million Sudanese affected by the civil war have sought refuge in Egypt. As the war has turned in favor of the Sudanese Armed Forces, with significant military support from Egypt, the other main party, the Rapid Support Forces could seek to hit back through inciting sections of the refugee population to carry out terrorist acts in Egypt.
Egypt’s chronic foreign exchange shortage has been resolved for the time being, thanks to a series of agreements with Abu Dhabi and multilateral agencies that will generate inflows of more than $50 billion over the next three years. A significant portion of this has already entered the financial system as part of the $35 billion Ras al-Hikma deal with ADQ, an Abu Dhabi government-owned investment fund.
This deal allowed the Central Bank of Egypt to press ahead with the flotation of the currency, triggering a 40% devaluation. The currency has since stabilized, while the central bank has adhered to its commitment to a flexible market.
The sharp fall in inflation in the first quarter of 2025 has opened the way for cuts in interest rates. This will help to reduce the budget deficit, and it will be generally supportive of increased investment.
Egypt is not immune to the risk of U.S. trade sanctions. These could be triggered by conflict with the U.S. over the future of Gaza. Washington could also raise objections to the increased use of Egypt by Chinese companies as an offshoring center for exports to Europe and the U.S. Another issue could be Egypt’s arms deals with China. However, reports of Egypt recently receiving a first batch of J10C fighter jets from China was denied by the Chinese side. This could reflect concern in Egypt about the risk of a cut-off in U.S. military aid. The breakup of the U.S. Agency for International Development has also had an effect on Egypt, although the operations of the U.S. agency were already much reduced compared with the 1980s and 1990s.
The capital inflows from the Ras al-Hikma deal, the $8 billion IMF agreement, and some $16 billion in pledged finance from the World Bank and the European Union will help Egypt to deal with a daunting debt service schedule in the next two to three years. This includes about $1.6 billion per year in interest payments on its stock of $30 billion in sovereign bonds, plus $3.5 billion in principal repayments up to mid-2025. There is also $11.8 billion to be repaid to the IMF in 2024–2025, mostly involving principal on the $12 billion loan that was approved in November 2016.
Credit default swap spreads on Egyptian bonds have fallen sharply from over 1,500 basis points to around 550, reflecting the improvement in market sentiment about the medium-term sovereign default risk.
The net international reserves of the central bank have risen by more than $10 billion since February to about $47 billion, and the net foreign assets of the banking system have returned to a surplus after falling into deficit in early 2022. Improved sentiment among investors has enabled Egypt to return to the global bond market, with a $2 billion issue in January.
