The Executive Board of the Central Bank of Tunisia met on February 1, 2023. As expected, it decided to keep the key rate of the Central Bank of Tunisia unchanged at 8%. To change it again, one month almost to the day after the increase by 75 basis points last December 30, would have been unwelcome in a socio-economic situation, already tense in Tunisia.
TND 82.8 billion of imports in 2022
The Board noted, with a desolation that it did not utter, “the current balance’s widening over 2022, despite the sound performance of tourist receipts and worker remittances. In fact, the current balance closed for the year 2022 with a deficit of -8.6% of GDP against -6% a year before, bearing the mark of the trade deficit’s worsening which reached a historical record.”
According to the BCT, the latter is strongly affected by the sharp rise in the import bill which peaked at 82.8 billion dinars against 62.9 billion a year earlier. Export revenues have certainly improved, but the deficit has maintained pressure on foreign exchange reserves, which posted nearly the same level recorded at the end of 2022: 22.3 billion dinars or 97 days of import, on 31 January 2023. The BCT had projected a trade deficit of more than 25 billion dinars, and a current account deficit of -7.8% of GDP at the end of December 2022, against -5.3% previously.
Regarding inflation, it continued to rise, up to 10.1% in December 2022 (in annual shift), against 9.8% in the previous month and 6.6% over the same month of the previous year: its highest level for more than three decades. Likewise, core inflation “inflation excluding fresh foodstuff and controlled-priced products” amounted to 9.3% in December 2022 (in annual shift) against 6.1% a year before.
BCT anticipates state’s will and advises against it
But the most important note in the latest statement of the Executive Board of the BCT, is this timely reminder of the conclusions of the discussions held at the 9th meeting of the Macro-prudential Oversight Committee (MSC) of January 30, 2023 which reviewed the evolution of macroeconomic and financial risks. The Board recalls, certainly to the government Bouden and its Minister of Finance of a government in the throes of finance and which has already drawn a little too much in the resources of the Tunisian banking system that had just been penalized by Moody’s, that the MSC “has highlighted the risks tied to the Treasury’s intensified recourse to domestic financing. It has also pointed out, notably, that in the absence of capacity to raise external resources, financing of the budget through increased recourse to indebtedness on the domestic market, over the first quarter of 2023, runs the risk of exacerbating pressures on liquidity and favoring arbitrations between different placements likely to thwart the activity of banking, capital and insurance markets.
The rating agency Moody’s had already drawn its alarm, on “the direct exposure of Tunisian banks to Treasury bills and bonds, which increased to about 57% of equity in August 2022 and exposes banks to increasing risk to assets and solvency. Asking more from Tunisian banks, therefore, risks jeopardizing the resources of Tunisian banks that could become insolvent, both internally and externally, including for the financing of Tunisian commodity imports. The government of Kais Said should know, and the BCT has clearly told it!
And that’s why the Executive Board of the BCT recommends it, through the MSC “to send strong signals to restore confidence and give more visibility to domestic and foreign economic operators to establish an inclusive and sustainable economic recovery. Will Kais Said and his Prime Minister hear it? Will they also have the will to anticipate the expectations of Tunisian economic operators not to impact more the exchange of the TND? Nothing is less certain, to read the response, indirectly via its official press agency, to the various alarms of the BCT! And it is not the head of the entire Tunisian state, who has not yet completed his own project, who would say otherwise!
BCT points out the danger of the rating on the import of raw materials
The Executive Board of the BCT did not fail to mention the recent downgrading of Tunisia’s sovereign rating by Moody’s, explained mainly by the lack of global financing. It directly points out the mortal danger for Tunisia if this deterioration “has a negative impact on the normal execution of foreign trade transactions initiated by Tunisian banks and relating in particular to the import of raw materials. In that case, not only sugar and coffee would be lacking, but perhaps grain and the daily bread of the Tunisian. The BCT’s Executive Board drew the government’s attention to the situation and recommended that it “speed up the implementation of the necessary reforms to correct the budgetary and external imbalances” and finally get into the good graces of the IMF.
