The Egyptian economy has been historically agricultural, with cotton as the mainstay. Land prices are extremely high because of the shortage of arable land, and output of food is not sufficient to meet the needs of a 2.1% population growth rate as of 2003. Although Egypt has expanded its private sector in recent years, industry remains centrally controlled and for the most part government owned; since the 1950s, the government has developed the petroleum, services, and construction sectors, largely at the expense of agriculture.
Egypt's significant economic growth rate from 1975 to 1981, made possible in large measure through foreign aid and credits, had declined to about 5% by 1986. Revenues for 1985–86 from petroleum exports, Suez Canal traffic, tourism, and remittances from Egyptians working abroad were eroded in the wake of sharp declines in international oil prices and developments in the Iran-Iraq war. The inflation rate grew from less than 5% annually in the 1960s to nearly 23% by 1986, reflecting worldwide price increases and the government's deficit spending. Egypt's economic position was strengthened when the Gulf states and the United States rewarded the Egyptians for their role in forming the Arab anti-Iraq coalition, reducing external debt to about $40 billion in 1990.
In the early 1990s, the collapse of world oil prices and an increasingly heavy debt burden led Egypt into negotiations with the IMF for balance-of-payments support. As a condition of the support, Egypt embarked on a comprehensive economic reform and structural adjustment program, under the aegis of the IMF and the World Bank. Egypt succeeded in stabilizing the macroeconomic fundamentals necessary for sustained economic growth: the budget deficit was around 1.3% of GDP, and the inflation rate held steady at 3.8% in 1999. However, progress toward privatizing and streamlining the public sector and liberalizing trade policy was slow. Consequently, despite the improvements, the economy has not experienced the economic growth necessary to reduce unemployment (around 12% in 2001, unofficial estimates are higher) and generate the targeted 6–7% growth rates in the GDP (only 2.3% in early 2003). Nonetheless, Egypt's balance of payments had improved by 2001, led by higher oil prices, high revenues from tourism and textile exports, and a decline in import growth. Remittances from Egyptians working abroad have also aided the Egyptian economy. Reform legislation in the areas of intellectual property rights, mortgage laws, and legislation developing banking and capital markets have made the business climate more favorable to investment. However, following the 11 September 2001 terrorist attacks on the United States, tourism in Egypt was down, as were Suez canal tolls and exports, and the country was in a recession.