IMF lands in Cairo for the final review, with divestments, energy subsidies and tax on the table

Good morning, lovely people. The IMF mission is in town earlier than we expected for the eighth and final review of our USD 8 bn Extended Fund Facility, plus the last review under the RSF. Sources tell us the talks cover asset sales, energy subsidies, and tax. More on that below in What We’re Tracking.

This makes Banque du Caire’s IPO more than a bank story — officials are counting on it to strengthen their hand in those talks. CEO Hussein Abaza makes the pitch that BdC is “a private sector bank in everything but ownership” — a turnaround he says is finished, not still in progress. We have more insights on the IPO story in our recap of Abaza’s sit-down with our Editor-in-Chief Patrick FitzPatrick for EnterpriseAM’s Making It podcast.

What can be expected this Thursday at the MPC’s monthly meeting? Analysts tell us to mostly expect the CBE to leave rates unchanged, with fuel prices frozen through December keeping inflation contained. The trouble is the EGP — weakening past 55 to the USD — while foreign investors are net sellers of local debt, and some analysts see a defensive hike back in play.

Then there’s what comes after the IMF’s final review. That now has a name and a scoreboard: the National Economic Transformation Program 2027-2030, closed out at Egypt Forum. Read all the details of the program in our news well below.

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The last lap

The IMF is in town for its final review: An IMF mission arrived in Cairo yesterday to start talks on the eighth and final review of our USD 8 bn Extended Fund Facility (EFF) and the last review under the Resilience and Sustainability Facility (RSF), a government official tells EnterpriseAM. That’s weeks ahead of the second half of November we had been told to expect last week. Clearing both reviews would unlock some USD 2.3 bn, with about USD 1.5 bn under the EFF and USD 800 mn under the RSF.

The talks should take about two weeks, Mohamed Maait, IMF executive director representing the Arab group, tells EnterpriseAM. He expects both reviews to go through since the program has met its targets.

What’s on the table: The mission will meet the finance and planning ministries and the Central Bank of Egypt (CBE) to go over the private sector’s role in the economy, state asset sales, exchange rate flexibility, and whether monetary policy is in line with the program’s targets, the official says. Asset sales top the government’s list. The IMF wants about USD 1.5 bn in divestment proceeds by the end of the program, and the state still had close to USD 1 bn to raise as of last week. Officials are counting on the Banque du Caire IPO to strengthen their hand in the talks, the official says. At the reported EGP 5.30 a share, the 45% sale would raise c. USD 680 mn for Banque Misr, by our math.

Energy subsidies are likely to be the toughest item. The government has absorbed higher energy costs instead of passing new price increases on to consumers, the official says. That means skipping two fuel price hikes it had committed to in the seventh review, with fuel prices frozen through end-December. The social considerations behind the delay will come up in the talks, alongside a plan to rebalance energy subsidies and shore up the finances of the oil and electricity sectors, the official adds.

Tax is still on the list: The program prioritizes higher tax revenue, fewer VAT exemptions, and better compliance through digitization and risk management. One benchmark, a 4% withholding tax on freezone companies’ local sales due by end-November, has stalled, we reported last week.

WHAT’S NEXT- The program expires on 15 December, and the government’s post-IMF plan, the National Economic Transformation Program, is due to be finalized by end-December, with clear benchmarks to protect the reform gains, the source says. The government doesn’t appear keen on another IMF program for now and plans to lean on the Fund’s technical assistance instead, officials told us last week. More on the National Economic Transformation Program below.

The weight is over

The EGX is switching its SME market index to equal weighting, so a company’s size will no longer set its weight in the gauge. From 1 December, Tamayuz becomes Tamayuz All-Share EWI, with every constituent carrying the same share of the index instead of being weighted by freefloat market cap, according to an EGX bulletin issued yesterday. The old Tamayuz capped any single name at 35% of the index by freefloat-adjusted market cap, under the methodology EGX set at launch in 2021.

Two rules now govern entry: a company must comply with the SME market’s regulations, and its shares must have traded during the review period. The EGX says the traded-during-review rule keeps the index aligned with actual trading activity in the SME market.

The review cycle shifts with the methodology: Full reviews will take effect on the first business day of June and December, instead of May and November, with the June review covering November to April and the December review covering May to October. Partial reviews at the end of February and August will only reset each constituent’s Adjustment Weight Factor (AWF), the multiplier that brings weights back in line as share prices drift, taking effect in March and September.

The current Tamayuz keeps its constituents through the end of November, with no review that month. The EGX recalculates the AWF at the end of October and applies it from 1 November to ensure the index stays inside its capping limits until the new method starts.

Why it matters: The SME board is built to shed its biggest names. Once paid-in capital passes EGP 100 mn, a company can apply to move up to the main market, and above EGP 200 mn the move is mandatory under the Financial Regulatory Authority’s listing and delisting rules. Twelve companies have made the jump so far by our count, two of them this year. That is the flaw in a cap-weighted SME index: its heaviest constituents are the ones most likely to graduate. Equal weighting spreads the weight they leave behind, and the traded-during-review rule keeps the gauge tied to a market where trading is thin.

REFRESHER- This is the EGX’s second index methodology overhaul this year. The exchange reworked the EGX30’s selection criteria in August, giving freefloat market cap equal weight with trading activity when ranking companies, with four stocks joining and four leaving the index. That followed changes to the review calendar in July, moving main-market reviews to March and September and requiring results to be announced at least two weeks in advance to give tracking funds time to prepare.

PSA-

WEATHER- Cairo is in for a warm, hazy autumn Monday, with a high of 29°C, and a low of 19°C, holding within a degree of yesterday’s 30/20, according to our favorite weather app.

It’s oddly warmer still on the coast in Alexandria today, with a high of 31°C and a low of 19°C.

The big story abroad

Leftist incumbent Luiz Inácio Lula da Silva has secured a fourth term as Brazil’s president, winning 51.8% of the vote and beating right-wing challenger Flávio Bolsonaro. The result is a setback for US President Donald Trump, who backed Bolsonaro, and could result in continued tense relations between Washington and Latin America’s largest economy.

AI spending clouds strong earnings hopes: Alphabet, Microsoft, and Amazon are expected to report strong quarterly earnings this week, but investors will be listening closely for what they say about AI. Investors are reportedly torn on the technology. They believe it will drive markets in the long run, but they doubt the hundreds of bns being spent will pay off anytime soon. That’s a sore point now that the spending has pushed several tech giants into negative freecash flow.

Kyiv is ready to talk peace. Ukrainian President Volodymyr Zelensky said Ukraine is prepared to join trilateral talks between technical teams from Ukraine, the United States, and Russia. His priorities are an “energy ceasefire, the sea, grain, an all-for-all exchange.” The announcement comes after Russian President Vladimir Putin signaled interest in three-way negotiations during talks with US Special Envoy Steve Witkoff in St. Petersburg.

*** It’s Blackboard day: We have our weekly look at the business of education in Egypt, from pre-K through the highest reaches of higher ed.

In today’s issue: We look into the pushback as Arabic and history start counting toward international school students’ final scores.