The statements made by Mustapha Kamel Nabli the Governor of the Central Bank of Tunisia (BCT) to AfricanManager, sound like a serious warning for Tunisian citizens and its entire political class that is more concerned with sharing posts than with the recovery of an economic situation that is dangerous now. M.K. Nabli does not yet speak of austerity, but the choices become difficult between resources and expenditure, as the first are decreasing and the latter increasing.
The Governor of the BCT, who still wavers between optimism and pessimism, explains in this interview especially the weak points of the economic situation in Tunisia after the election. He also speaks about the case of BFT. Interview:
What is the current economic situation in Tunisia and what are its prospects after the elections of October 23, in your opinion?
What we see is that the economic situation remains difficult and I do not think that there will be early signs of a recovery following the elections. On the contrary, there are even, new challenges that lie ahead because of the impact on Tunisia, of the effects of the crisis in Europe, at the level of exports and tourism, and particularly phosphates, that have not recovered as it should. There are still many uncertainties and questions that operators arise after the elections. So we can only continue to observe and closely monitor the evolution of all these circumstances and in particular the post-election that is being managed.
What is the projected growth at the end of 2011, according to you?
It will be zero or slightly positive, zero or 0.5% probably. There are no assumptions of recovery for the 3rd quarter so that growth would be positive, although the fourth quarter is slightly positive.
And what about the current account deficit?
It is probably 5.5% of GDP, which is quite heavy. A deterioration of trade with Europe is expected, with the worsening of its crisis. So we must be very careful about what is happening in Europe, because its impact on Tunisia will also be serious.
Will 2012 not be a good year?
The year 2012 will, in my opinion, be much more difficult than 2011. The main reason is that the margins that we had in 2011 will no longer be there.
Can you be a little more explicit?
We started the Revolution with a number of flexibilities that had allowed us to implement a number of policies. The budget deficit at the beginning of the year was quite low, which has boosted public spending and increased the deficit to 4%. This margin is gone, and next year will already start with a deficit level higher than 2011, with incurred expenses already very significant and the exceptional resources we had available in 2011 that are no longer there in 2012 and therefore the risk of much larger budget deficit.
Foreign exchange reserves that we have currently are at a level much lower than in 2011. We are at 115 days of imports, which is certainly comfortable, but we cannot go down below that level and this is, therefore, another margin that we would not have in 2012. We had the opportunity in 2011 to reduce interest rates and reserve requirements; we will not have that opportunity.
The revival was made in 2011 thanks to the BCT, we still have the budget. Will we have enough budget resources, next year, to meet the internal and external circumstances and the needs of a 2012 that will be, as you said, much harder?
I tell you, even for the budget, 2012 will be more difficult and opportunities for expansion of expenditure will be much smaller than in 2011.
Will there be recourse to debt then?
It is no longer a choice, but it will be up to the next government to decide whether to tighten its belt and reduce the rate of increase in expenditure or accept a much higher debt.
Are we moving towards an austerity budget?
I’m just saying that there will be no longer sufficient margins to increase spending, launch new projects and tackle unemployment. The possibility will exist, but to a limited extent.
Is there a plan to borrow from foreign markets and under which conditions, bearing in mind that the sovereign rating of Tunisia was downgraded?
There is a new government to come and it is up to it to make the decision in view of the options that are available.
Where are then the various promises of assistance made by the G8, the United States, Europeans and France?
Loans were limited to the maximum in 2011 to take only what was strictly necessary to deal with the situation after the Revolution. There were loans from the World Bank, the African Development Bank, the French Development Agency and a grant of the European Union. Opportunities exist for 2012, but it remains the responsibility of the new government.
We note in view of the annual or interim financial statement that Tunisian banks are doing well. Their net spending income is still evolving, and so are their results and deposits of customers and resources are also increasing. Everything is evolving in banks at a time when we are talking about a crisis in the country … Where is the truth?
You are right to ask that question. But let us first return to the beginning of 2011. The economy was then at a halt and deposits declined dramatically with even a negative growth for some types of deposits and some had begun to withdraw their own. We did not talk so much about that, but the most important for us was to ensure that the Tunisian banking sector remains healthy and continues to fund the economy, because the risk of an inflationary spiral continues. It was therefore urgent to stabilize the situation and we have succeeded in that. BCT had intervened to provide monetary resources to banks. Despite the stability of deposits, it was possible to increase loans and finance companies facing difficulty.
We believe that this proactive policy which aimed at maintaining the economic activity in Tunisia has succeeded, and it is no coincidence that credits have continued to be granted.
When you look at the results, credits increased by about 10% over the year, which is not at all negligible in a stagnant economy. This has allowed deposits and resources to increase currently to 3.6%, although this remains lower than the increase in appropriations.
The difference is that it is the BCT which injects liquidity in the short term for long-term loans. The reverse of all this is that many of these loans consists of consolidation loans, a portion of which goes to companies that are struggling to get finance or public service businesses. The NPLs have increased and bad debts have also rose by at least 50%. All this will impact the equilibrium of the banks’ balance sheets.
So we will find this in the 2012 balance sheets of banks?
That’s what I told you at first, and this is still part of the leeway that has become limited. Banks and the Central Bank will have less in 2012.
Will there be any need to restart printing money?
But in providing liquidity, we create money and inflation will be back and this should be monitored.
News published in France and posted on social networks reported a bank cleaning action, under pressure from the central bank, across the sector and essentially on a loan granted by the BIAT to BFT. To what degree is that true?
What we know is that the situation of the BFT (French-Tunisian Bank) concerns everyone. This bank used to be financed on the interbank market, with short-term loans from local banks and BIAT was probably was one of the creditors of BFT. However, we have noted that these loans were granted with very high interest rates. What happened is that the Tunisian Treasury gave a guarantee to the BFT, for funding from the three public banks amounting to 145 MTD, allowing it to borrow, but at lower rates. There was, to some extent as well, recovery of loans from the interbank market to consolidate and reduce the burden of BFT. This has certainly led some local banks not to lend to the BFT, but this is within the scope of solutions we are trying to find to the BFT.
How long will last this kind of solutions for a failed bank?
This too is an issue that the next government must address. We study, at our level, this issue; we prepare possible solutions.
What would be the most viable solution, in your opinion?
There are options of absorption, there are options for privatization. Each of these options has advantages and disadvantages. There are actually no good solutions. All are difficult and there will be choices to make.
Is there, among these solutions, one that would make the link with the ongoing litigation between the Tunisian State and ABC Investments which claims ownership of the bank?
Sure, but what we are trying to do is to separate the dispute from the solutions to be found, to separate the conflict between the investor in question with the BFT and the Tunisian Government to find the solution.
There is no question, therefore, to give it back the bank?
I am not aware of a proposal in this direction.