Foreign investors’ appetite for EGP-denominated debt might be easing, Bloomberg suggests. Ahmed Feteha and Mirette Magdy say that “the inflows from foreign funds are still growing, but the pace has slowed to an average of 2% a week since mid-August, down from 8 percent, as policy makers signaled they may lower record interest rates once inflation eases.” Foreign investors now hold a record of over 30% of all outstanding T-bills, “but attention is increasingly turning to the risks of over-exposure and of a sudden selloff in Egyptian assets, according to Bank of America Merrill Lynch economist Jean-Michel Saliba. Interest rates are too high for the economy to grow and the government to borrow, he said, so it needs to find other sources of foreign exchange to meet its funding gap.”

Vice Minister of Finance Mohamed Maait was unfazed by the suggestion, saying “we may not get the same inflows going forward, especially as inflation slows and yields fall … In any case, the coming stage is one where we get more permanent inflows like foreign direct investments — not just portfolio inflows in T-bills.” HSBC regional Chief Economist Simon Williams says that investors are trying to lock in higher returns now, with inflation expected to drop and rates to be cut, although he believes that Egypt has not seen the peak of inflows yet. Elina Ribakova, head of EMEA research at Deutsche Bank, says Egypt’s allure to investors is also a convincing “macro story,” not just high yields. While inflows are now at “capacity,” the country’s improving fundamentals should attract more “sticky money,” she says.

REPORT ON IMF / WORLD BANK FALL MEETINGS- Egypt expects to receive the next USD 2 bn tranche of its IMF extended fund facility not long after the institution’s second review of the reform program concludes in the first week of November, Finance Minister Amr El Garhy said in an upcoming interview with CNBC at the fall meetings over the weekend. El Garhy next delved into the social welfare side of the reform agenda, saying that the government doubled social welfare spending in the FY2017-18 budget. El Garhy also reiterated that the tax code is stable considering the implementation of the value-added tax, according to a ministry statement.

Speaking on the next year’s eurobond issuance program, El Garhy said that the government is still in talks with investment banks on the broad strokes of the program, which is “most probably” happening in 1Q2018, he told Bloomberg in an interview. El Garhy also said as much in a meeting with his French counterpart Bruno Le Maire yesterday in D.C. We had noted on Thursday that the Finance Ministry is accept bids from investment banks interested in advising on the issuance.

The eurobond program comes as part of a wider plan to “diversify” the state’s sources of financing in an effort to plug the budget deficit and meet foreign debt obligations. That’s why the government plans to extend its USD 2 bn repurchase agreement (repo) with a consortium of international banks for another year, El Garhy added. The consortium had offered last month to modify the agreement to a USD 5 bn repo with a five-year maturity instead of one.

Gov’t makes another strong case for investment… Egypt hopes to reduce the budget deficit by an annual 1-1.5% to bring the deficit down to 4-5% by 2022, El Garhy said at a meeting with Standard Bank Group in DC over the weekend, according to a ministry statement. He reiterated that the government is targeting USD 10 bn in foreign direct investment this year. At a separate meeting with a number of US and Egyptian investors, El Garhy announced that the worst is over as far as the reforms are concerned, with markets stable, inflation falling, and the end of the FX crisis.

…and gives quiet nod to investors on privatizing energy, railways: Vice Minister of Finance Mohamed Maait said from DC that the government is looking to make the energy and railway transport sectors “more efficient.” This is a nod to efforts to privatize the energy sectors through the Natural Gas Act and the Electricity Act, as well as to announcements from Transport Minister Hisham Arafat that the private sector will be brought in to manage, operate and maintain railway lines. Arafat’s most recent statement on the issue came on Friday, where he said that the government will hold back on allowing the private sector from operating railway lines until after they have been overhauled. He added that the government would open the door to the private sector to manage and run warehouses and other logistics facilities, AMAY reports.

Investment and International Cooperation Minister Sahar Nasr was also busy making the case for investment in Egypt at meetings with senior officials from the World Bank, IMF and other financial institutes and investors. With the WBG she discussed receiving the third USD 1 bn tranche of its USD 3 bn loan to Egypt and more funding to wastewater projects in Egypt, according to a ministry statement. She invited the European Bank for Reconstruction and Development (EBRD) to hold its next business forum for the southern and eastern Mediterranean (SEMED) region in Egypt, and pushed for the International Finance Corporation to boost its support to SME and the private sector.

While in D.C., Nasr also assumed the chairmanship of the WBG’s 2018 African Caucus, which Egypt is hosting next year. During her tenure, Nasr said she would focus on investment in infrastructure and human capital, particularly in the youth population, according to a ministry statement.

The World Bank expects Egypt’s budget deficit to decline to 8.8% of GDP in FY2017-18, the WBG said in its Egypt Economic Outlook October 2017 (pdf). The bank attributed its outlook — one of the more optimistic ones on the deficit we’ve heard — to the economic reform program, particularly cuts to energy subsidies. “Egypt’s GDP growth is predicted to stand at 4.5 percent in 2017/18, and to grow gradually to reach 5.3 percent by 2019,” the World Bank noted.

Inflation will fall to 23.3% this fiscal year and 22.1% in FY2018-19, then drop to 14% by 2019, the World Bank says. If the current inflation rate continues, Egypt might need to tighten its fiscal policy, “which will affect the economic growth,” the World Bank said. The bank also warned against slowing down the pace of fiscal reforms so as not to affect Egypt's credit ability in repaying international debts.

Egypt’s economic reform program is moving on the right track, said World Bank President Jim Yong Kim at a press conference on Thursday on the sidelines of the fall meetings. The government saved around USD 13 bn for low-income citizens as a result of the economic reforms, Kim added, according to Al Shorouk. He also noted that the reforms have given investors confidence in the Egyptian economy.

The next stages of the reform agenda should focus on lowering Egypt’s debt level, said IMF Mission Chief to Egypt Subir Lall at a press conference on Friday, according to Al Mal. Lall also sang Egypt’s praises at the fall meetings, reiterating that the reform program was off to a good start.

The timetable on next round of subsidy cuts will be left to the government’s discretion, said the IMF’s director for Middle East and Central Asia Department, Jihad Azour. The fund is now discussing that timetable with the Egyptian cabinet, according to Al Mal. Azour also said that the IMF delegation that will run a second review of the reform program will arrive in Cairo on 25 October and will stay on until 7 November.

The outlook for the Egyptian banking system is stable, as economic growth picks up, loan performance remains broadly resilient and banks benefit from a stable deposit base, Moody's Investors Service says. “The banks are funded by stable and low-cost domestic deposits, mainly from households, a credit strength … We expect increasing banking penetration and increased remittances to spur deposit growth. Though government-owned banks have significantly increased their market funding over the last two years, this funding is mainly from regional banks and multilateral development banks, where refinancing risks are lower,” says Melina Skouridou, Assistant Vice President at Moody's. The ratings agency does not expect a material deterioration in loan quality, because corporate debt repayment “is supported by relatively low overall levels of debt, as well as government initiatives to help tourist companies and importers” and “retail loans are confined to wealthier households.” Moody’s wants that delinquency rates could increase as new loans matures but also says capital buffers are expected to improve.

…Separately, ratings agency Fitch affirmed CIB’s long-term issuer default rating at B with a stable outlook. “The bank's significant exposure to sovereign debt is a key driver of the VR and effectively caps the [viability rating] at the level of the Egyptian sovereign. The Stable Outlook on CIB's IDR reflects that on Egypt's sovereign rating.”

M&A WATCH- Egypt Kuwait Holding (EKH) subsidiary International Financial Investments Company (IFIC) has reportedly withdrawn its bid to acquire National Company for Maize Products (NCMP), Al Mal reports. Sources said IFIC did not finish the due diligence process because of the bureaucracy and the length of time associated with the transaction. The EKH affiliate first submitted its bid for NCMP in May. IFIC’s withdrawal now leaves only a unit of Archer Daniels Midland (ADM) and Cairo Three A Group as the remaining bidders. Al Mal says the third bidder, Louis Dreyfus’s local affiliate Al Mona Misr, had withdrawn “two months ago.” The news also comes following last month’s report that ADM representatives were unhappy with the delay in the transaction and have held a meeting with Investment Minister Sahar Nasr in hopes of expediting the process. Pharos Holding is sell-side advisor to Misr Capital Investment (owner of the NCMP stake on offer), while EFG Hermes is advising ADM, and CI Capital is advising Cairo Three A Group.

IPO WATCH- Readymade garment manufacturer Dice is planning to list an extra 50-60% of its shares on the EGX within a month, Al Mal reports. The company is waiting for EFSA to greenlight its fair value assessment. The stake will be issued to existing investors. EFG Hermes is managing the transaction.

INVESTMENT WATCH- The Chinese consortium Acasys Group is reportedly looking for a piece of major infrastructure projects worth up to USD 20 bn in Egypt, Ahram Gate reports, citing a statement from the group. Acasys, which earlier this month offered to build 250k units for the government’s social housing program at a cost of USD 5 bn, is also interested in the fields of energy, power, real estate and infrastructure development, and water treatment. The Group has yet to hear back from the Housing Ministry on its offer.

EARNINGS WATCH- QNB Al Ahli reported net income of EGP 4.25 bn in the first three quarters of 2017, up from EGP 4.06 bn in the similar period in 2016, according to a bourse disclosure.

The Ismail cabinet discussed implementing a national solid waste management plan at its weekly meeting last Thursday, according to a cabinet statement. Decisions taken at the meeting include:

• Approved a funding agreement with the European Bank for Reconstruction and Development to help upgrade sewage and wastewater systems Fayoum;
• Establishing a fund for the victims of terrorism and families of casualties from terrorism;
• Approved kicking off renovations in the Raml tramline in Alexandria which is funded by a USD 100 mn loan from the French Development Agency.

Egypt brokers peace between Fatah and Hamas: Palestinian factions Hamas and Fatah reached a reconciliation agreement during talks in Cairo last week, Hamas chief Ismail Haniyeh said on Thursday, according to Reuters. Under the terms of the pact, Hamas and Fatah agreed to complete the handover of administrative control of Gaza to a unity government by 1 December. The two sides will be in Cairo on 21 November for more talks. Bloomberg notes that there was “no indication that an understanding had been reached on the fate of Hamas’s armed wing, a sticking point which analysts have said could yet scupper reconciliation efforts.”

Israeli Prime Minister Benjamin Netanyahu said on Thursday that the Palestinian accord must abide by international agreements, including recognizing Israel and disarming Hamas, Reuters reports. Bloomberg’s Eli Lake says there is more to these statements than meets the eye, as Israel has been in the loop since talks first started and had displayed no objections. On the flipside, sources tell Asharq Al Awsat that US and Egyptian diplomats have asked Israel not to sabotage the agreement.
…Also finding peace in Cairo on Thursday were Syrian factions that reached a ceasefire agreement in Southern Damascus, Ahram Gate reports. The Associated Presshas more.

Former French culture minister Audrey Azoulay was elected the new head of UNESCO, beating Qatar’s Hamad bin Abdulaziz Al Kawari after a fifth round of voting, Reuters reports. Khattab had exited the running after an earlier head-to-head ballot with Azoulay, who went on to beat the Qatari amid allegations the statelet had engaged in bribery in connection with the bid. After initially filing a notice to UNESCO alleging irregularities in the secret ballot, the Egyptian Foreign Ministry issued a statement congratulating Azoulay and another thanking all the countrieswhich gave its support to Khattab’s bid, including China.

The vote came after the US and Israel pulled out of UNESCO on charges that the organization is biased against Israel, Reuters reports. The US provides one fifth of UNESCO’s budget. Azoulay is the first person to run the cultural institution who identifies herself as being Jewish.

Meanwhile, the UN’s human rights agency condemned Egypt, Azerbaijan, and Indonesia for “unjustly arrested dozens of people during anti-gay crackdowns in recent weeks,” according to Reuters.

Saudi Arabia is considering delaying the international tranche of its IPO of Aramco until at least 2019, according to people familiar with the situation. The sources added that the share sale in Riyadh could still happen next year, Bloomberg reports. A two-stage Saudi Aramco IPO is one of several options being considered, while another plan would include listing in Riyadh next year and privately selling a stake in Aramco to one or several cornerstone investors, sources added. There had been talk swirling over a possible delay of the IPO for some time with a contingency plan for the delay being put in place. The FT takes a look at the implications of the postponement.