First of all, it should be noted that the document presented to the Head of State by the Governor of the Central Bank of Tunisia (BCT), Fethi Zouhair Nouri, on Friday, June 28, 2024, was simply the financial statement of the issuing institution, and nothing was said about the results and the level of profits of what is the bank of Tunisian banks, which is not a commercial bank. Especially since a large part of these profits will go directly to support the treasury, and the profits could only come from the BTA and the sale of gold to local jewelers.
So, it wasn’t the annual report, which is usually a summary of all the bank’s activities and where ‘A Word from the Governor’ is the most important thing. Like his predecessor, Fethi Zouhair Nouri will have to initial a report for which he is not responsible! This will be an opportunity to present his program and ambitions for the BCT until 2030, as he has a six-year mandate.
Delays, an enduring tradition
Although in theory the BCT’s annual report should have been published on Monday, July 1 (according to the provisions of the law establishing the BCT’s statutes, article 80 to be precise), observers of Tunisia’s economic and financial news are likely to be disappointed if the previous report is anything to go by, as its publication was considerably delayed.
It was in September 2023 that the last report was presented to President Saïed during his famous unannounced visit to the headquarters of the BCT. The joke at the time was that Saïed was so tired of waiting that he came to collect his copy himself on Friday, September 8, 2023.
All this is to say that this delay is bizarre for a serious institution such as the BCT!
The same applies to the meetings of the Executive Board, which have been postponed on several occasions, in total contradiction to the provisions of law No. 2016-35 of April 25, 2016 on the statutes of the BCT.
While we wait for Godot, i.e. the 2023 report, let us try to take stock of the BCT in a key year, other than by reciting the figures of the sector.
2023 is first and foremost the year of the so-called independence of the BCT and the direct financing of the budget by the BCT credit.
It was also the year in which relations with the IMF came to a standstill, but above all it was the year in which former Governor Abassi’s term of office came to an end.
It should also be noted that 2023 saw the appointment of a former BCT official, Ahmed Hachani, as Prime Minister. A first since the late Hedi Nouira.
A BCT measured by the results of its monetary policy
The BCT’s monetary policy in 2023 was marked by decisions to maintain a high policy rate and to keep a close eye on inflation. These decisions certainly helped to contain certain economic pressures, but at a significant cost to growth and access to credit.
Despite its reminders of the need for far-reaching structural reforms and prudent management of public finances, which are crucial if Tunisia’s economic situation is to improve in the long term, the BCT unfortunately stuck to its monetarist corner. Tunisia needed more. The BCT could have done much better!
In 2023, the BCT operated in an economic context marked by significant challenges. Economic growth was showing signs of weakness and slowing down. In this context, the BCT’s monetary policy maintained a key interest rate of 8% throughout the year.
This decision was aimed at containing inflation, which fluctuated, peaking at 10.4% in February, but remained high. Thus, despite attempts to bring inflation under control, it continued to weigh heavily on the Tunisian economy.
In its findings, the BCT alternated between an easing of core inflation and continued high upside risks, also due to the structural weakness of the economy. There is, however, one bright spot in the BCT’s 2023 table: foreign exchange reserves.
Despite a still high trade deficit and a growing energy deficit, these reserves have increased thanks to external inflows and a better performance by the export sectors. A performance not always understood by a population in need of imports.
However, the downgrading of Tunisia’s sovereign rating by Fitch Ratings and Moody’s has made access to external financing more difficult and exacerbated fiscal tensions.
Broadly speaking, the work of the BCT seems to be bearing fruit. But the details qualify this observation.
Maintaining a high interest rate has certainly helped to contain inflation in the short term, but it has restricted access to credit, thereby limiting consumption and investment.
This policy has contributed to a slow and fragile economic recovery. It’s a case of the snake biting its own tail! The consequence of this situation is that the BCT has been forced to manage significant liquidity pressures, exacerbated by the Treasury’s increased domestic financing needs.
This has affected the functioning of financial markets and banks, highlighting the need for urgent structural reforms.
Another Godot!
. Which is what Governor Nouri should do, in our novice opinion!
The logical consequence of an ubiquitous situation is that, officially, people will say that this is resilience to ease their consciences. In practice, the country is dependent on external funding. A situation that highlights Tunisia’s economic vulnerability.
All the more so as the downgrading of its sovereign rating further complicates the country’s financial situation and limits its ability to mobilize resources on acceptable terms, even for local banks that have been affected by the sovereign debt.
Paradoxically, the BCT’s balance sheet in 2023 could be the same as that of 2024 (at least for the first six months), with many challenges still to be overcome, such as high interest rates for citizens and professionals, pressure on liquidity and dependence on donors who remain stingy, as is the case with the EU in particular.
In short, although the BCT has succeeded in maintaining a degree of monetary stability, the structural and external challenges remain significant and require concerted action that goes beyond monetary policy measures alone.
First, the BCT needs to move towards a gradual reduction of the policy rate, as this would help to stimulate access to credit and support consumption and investment.
At the same time, in the context of a very fragile balance sheet, the BCT will have to continue to monitor inflation very closely, using unconventional monetary policy instruments if necessary.
Meanwhile, Fethi Nouri, a renowned economist with several mandates on the BCT board, is expected to play a key role.
. The BCT should take action against certain banks, not cover them up with silence
The mixed results of 2023, and above all the political calculations of an election year in 2024, have certainly had an impact on the BCT’s work. The Central Bank of Tunisia does need reforms.
The BCT should also strengthen the resilience of the banking system through greater convergence with international standards.
The echo of the Competition Council’s recent decision against the banks should sound the death knell for reforming the BCT’s role as a bank regulator and supervisor.
The OECD report on anti-competitive practices of banks should also be given more attention by Governor Nouri, as well as certain practices of certain local banks, such as the complaint of a citizen about fictitious loans, which went to court and where the DG of Banking Supervision should have sanctioned well before the courts.
Financial inclusion to open doors for others
Where the BCT still lacks initiative and certainly time (he has only been in office for a few months) is in the area of financial inclusion and consumer protection.
For 2024 and 2025, the BCT would benefit from promoting financial inclusion initiatives to widen access to banking services.
At the same time, and as a matter of urgency, it should strengthen regulations to protect consumers of financial services and ensure that banks behave fairly. And above all, it should open the doors of credit to start-ups, and those of foreign currency payments, without the risk of imprisonment, to those who want to do e-commerce in foreign currency, so that technological skills do not leave the country.
The President of the Republic is very concerned about the future of young people and the BCT has repeated its unfulfilled commitments!
Another issue that is not a luxury is the integration of ESG (environmental, social and governance) criteria into banking regulations to promote sustainable and responsible practices in the financial sector. This is a point that now counts for a lot in negotiations with international donors.
For Fethi Nouri, who will be able to mark his term in office with a white stone, the challenge now is to finish 2024 well, so that the conditions are in place for a flying start in 2025, with the aim of strengthening economic resilience, improving financial stability and stimulating long-term growth in Tunisia.
An integrated approach combining structural reforms, an adaptive monetary policy and economic diversification will be crucial to address current and future challenges. Quite a task!
