I'm inclined to think Lanzelot is correct. It seems like the AI finally figured out that it had no other opportunities to build a city anywhere and simply gave up.
vmxa is also correct that you can't bankrupt a civ this way. When you have no cities left, you don't have to pay unit support for any of your units. Try this sometime by building a settler and abandoning all your cities.
The Egyptians aren't at war with anyone and there's no barbs around. Their settler isn't even on their boat:
Spoiler:
If you're curious, check the attached save and see for yourself. Note that if you play Egypt as a human, you can simply sit around and do nothing and you won't get destroyed.
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