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Tunisia: BCT concerned about widening of trade balance deficit; downturn in industry and depreciation of dinar

The Executive Board of the Central Bank of Tunisia noted at its meeting on April 30, 2014, the continuing deterioration of the current account deficit in the first quarter of the year, reaching 2.7% of GDP against 1.8% the same period of 2013, in connection with the unprecedented widening of the trade balance deficit as a result, in particular, of pressures related to imports of energy balance and food which account, alone, for 43% of the overall deficit.

This evolution has resulted in a decline in the level of net foreign assets which fell to the equivalent of 97 days of import, on April 29, against 102 days on the same date in 2013.

In a statement, the Board noted the positive developments in the agricultural sector, including an abundance of supply, especially of certain sensitive products; which is likely to moderate price changes.

However, it noted adverse developments involving other concerned sectors, particularly the decline in industrial production in December 2013 (-0.3% yoy) and regression of most leading indicators of activity in the sector in March 2014 and, in addition to weakening of the main indicators of tourism during the same month (-0.4% for overall nights and -13.6% for tourist arrivals) parallel to the slower pace of the air transport activity.

Regarding the evolution of the inflation index of consumer prices recorded in March 2014, it eased slightly to 5% yoy against 5.5% in the previous month and 6.5% in the same month last year, due to the moderate evolution of core inflation (excluding prices of regulated and fresh produce).

In terms of monetary developments, the Board noted the continued increase in liquidity needs of banks during the month of April 2014, which had the effect of increasing the volume of interventions of the Central Bank to regulate the monetary market with approximately 5,280 MTD in average daily until April 28, against 4,688 MTD at the end of last March . The interest rate on this market was therefore at around 4.73% during the same period, against 4.72% in March.

Concerning the activity of the banking sector, the Board noted the slowdown in deposits in the first quarter of this year (1.9% against 2.6% a year earlier), in connection with the deceleration of the savings accounts outstanding and the decline in certificates of deposit.

This same trend has concerned the financing of the economy which grew 1.1% during the same period, against 1.9 % a year earlier, due to lower short-term loans and the quasi- stagnation of medium and long term credits.

Regarding the latest developments on the foreign exchange market, the Board noted the slight depreciation of the dinar vis-à-vis major currencies during the current month while remaining higher than at the beginning of the year.

The exchange rate of the dinar reached, on April 28, 1.5965 dinar per U.S. dollar (+3.1%) and 2.2071 dinars for one euro (+2.7%).

Given these developments, the Board reiterated its concern over the recent developments recorded in the trade balance, emphasizing the urgent need to implement urgent measures to contain the widening trade deficit, which now threatens the balance of the external sector.

It called for joint efforts from all to work towards the rationalization of imports by setting, for this purpose, priorities, on the one hand, and reviving exports in favor of better prospects for external demand, on the other hand, and decided to maintain the same key interest rate of the Central Bank.

The Board also considered that the launch of the preparatory work for the organization of the National Economic Conference is a good opportunity for the effective contribution of all economic, social and political stakeholders to work jointly to identify urgent responses to the imminent challenges facing the national economy and lay the foundation for a model of development that meets the economic and social aspirations of the country.

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