In principle, there’s nothing wrong with commercial companies using all legal channels to make a profit and prosper.
However, the Tunisian NGO Alert felt it could take Tunisian banks to task for agreeing to invest their money to buy bonds issued by the state to finance its budgets in 2022 and 2023.
Investing one’s money and assets in order to grow and enrich oneself is a common and widespread practice throughout the world, at all levels, from ordinary citizens to the largest groups and cartels of banks and industrial and commercial companies.
As we all know, the income generated by these investment operations is called annuities. Some invest in real estate, others in bonds, others in shares.
By buying government bonds, Tunisian banks make a profit through what are known as “bank rent-seeking.”
In a study published by TAP news agency on July 21, the NGO Alert estimated that “bank annuities are is the main obstacle to monetary policies in Tunisia, which are characterized by their inability and failure to achieve the desired objectives”.
In its study presented earlier this week, the organization Alert explained this situation by pointing to several causes, including the structural nature of the inflationary phenomenon in Tunisia, the functioning of the Tunisian financial system and the incoherence of the monetary policy of the Central Bank of Tunisia.
It pointed out that the structural phenomenon of inflation is due to the structural deficit of the state budget, caused by the structural dependence of the Tunisian economy on imports financed by foreign loans, in the face of the blockage of productive sectors, such as the agricultural sector, which is no longer able to satisfy domestic demand, and a domestic market dominated by monopolies and escaping the rules of healthy competition.
In this respect, Alert’s diagnosis is in line with that of the World Bank, which, in a report on the economic situation in Tunisia that hit the headlines last April, deplored the numerous “barriers to entry” for new economic actors in Tunisia.
Barriers to entry remain a major obstacle to growth, according to this WB report, which notes that in the private sector, more than 50% of the Tunisian economy consists of activities subject to entry restrictions. These restrictions include specifications, operating licenses, administrative permits, etc.”.
Exclusion
The WB adds that “economic reforms have not mechanically contributed to the emergence of a transparent market characterized by free entry (and exit) and free movement of factors of production. Rent-seeking practices remain protected by numerous barriers to entry, preventing the emergence of small and medium-sized enterprises (SMEs). As a result, a large proportion of young Tunisians feel excluded from the process of wealth creation and distribution.
“Specifications in certain over-regulated sectors in Tunisia, as well as the level of qualification required, can discourage young entrepreneurs. One example among many is the self-regulation exercised by the dominant interprofessional groups (GIPs), particularly in the date sector. They have the power to determine the conditions of entry of other competitors into a common market”.
With regard to the structure of the financial system and financing, the Alert study has shown that the Tunisian financial system has led to two types of demand for banking services: an economic operator who, due to a number of factors, including the excessive increase in the guarantees required for borrowing, has to resort to illegal channels, and an economic operator who is heavily dependent on bank financing and has no other alternatives.
Manipulation
In this regard, the study highlights “the contradiction of the monetary policy aimed at reducing the rate of monetary inflation through the intervention of the BCT in the key interest rate, pointing out that the increase in the key interest rate coincided with a reduction in the rate of reserve requirements, in parallel with operations to inject money into the economy through refinancing and interventions on the open market.
Among the other negative consequences of this policy, according to the study, is the high risk of default due to the sudden increase in the cost of financing, given that the average non-performing loans remain high (within the 13% limit) compared to other countries …
Thus, in order to absorb defaults, the Alert organization points out that banks charge high interest rates, stressing that the application of the highest interest rates allows banks to make high profits.
Most of the loans granted by banks are subject to a variable interest rate, which follows the interest rate of the financial market, so that any revision of the base rate allows banks to make higher profits.
Over the past five years (2017-2022), banks have been able to achieve high profit margins as a result of the increase in the financial market interest rate, according to the study by Organization Alert.
Analysts believe that this is where the fault lies, i.e. it’s not the investment practice in absolute terms that’s to blame, but its manipulation in one direction or another through the instrumentalization of the relevant regulations.
