Egypt: Subsidies, Suez and Devaluation

The economy of the Arab world's most populous country, from bread subsidies and the Suez Canal to repeated currency crises and IMF programmes.

Egypt, with over 100 million people, is the most populous country in the Arab world. Its economy depends on a mix of tourism, the Suez Canal, natural gas, remittances from Egyptians working abroad, agriculture and manufacturing.

Subsidised bread

For decades, Egypt has provided heavily subsidised bread. Tens of millions of Egyptians are entitled to buy flatbread at a tiny fraction of its cost. Egypt has been one of the world’s largest wheat importers. The subsidy protects poor households, but it is expensive. When the government has tried to raise bread prices, it has faced public anger; in 1977, attempts to cut subsidies sparked riots and were reversed. In 2024, the government raised the subsidised bread price for the first time in decades.

The Suez Canal

The Suez Canal is a major source of foreign currency. Egypt opened a new parallel channel in 2015 to increase capacity. But canal revenue depends on world trade and security. When attacks on ships in the Red Sea from late 2023 led many shipping companies to avoid the route, Egypt’s canal revenue fell sharply.

Currency crises

Egypt has repeatedly faced shortages of foreign currency, as import bills for food and fuel outstripped earnings. The central bank has at times kept the Egyptian pound at an official rate stronger than the parallel market, then been forced into large devaluations. In November 2016 it floated the pound, which lost about half its value. In March 2024, it let the pound fall sharply again as part of a reform package.

Outside support

Egypt has had several IMF programmes. In 2024, it secured an expanded IMF loan and a very large investment deal with the UAE to develop the Ras El-Hekma coastal area, worth around 35 billion dollars, which eased the currency shortage.

Why a weak pound raises bread costs

Egypt imports much of its wheat, paid for in dollars. When the pound halves in value, the same wheat costs twice as many pounds. If the government keeps bread prices fixed, the subsidy bill soars. Currency crises and subsidy costs are therefore tightly linked.

Thinking subsidies are simply wasteful

Egypt's bread subsidy protects many poor families from hunger, and removing it suddenly would cause great hardship. The challenge is targeting support effectively and keeping costs sustainable, not simply ending it.

Key takeaways

Egypt relies on tourism, the Suez Canal, gas, remittances, agriculture and industry.
Heavily subsidised bread protects the poor but is costly and politically sensitive.
Red Sea attacks from late 2023 cut Suez Canal revenue sharply.
Egypt has faced repeated currency crises, with large devaluations in 2016 and 2024.