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Tunisia: national bond, a risky undertaking

Tunisia is preparing to launch a national bond and the subscription operation to this effect will start in late April 2014 and the following days to mobilize 1 billion dinars.

The loan has three maturity periods, 7 years, 13 years and 15 years. This is what we have known to date but we still ignore the respective interest rates and if it is fixed or variable. It is not known if this loan is also a response to the financial impasse or an entry into a dynamic of growth and if it is announced in a timely manner or not.

Call to attract subscribers

Academic and economic expert Moez Labidi said in an analysis note analysis published by broker Mac SA, the government should have announced the loan after January 14 when hope was at its zenith and Tunisians were willing to sacrifice their lives to build tomorrow’s Tunisia.

“It is at this point that everything was possible,” he said, noting, however, that today, the poor political governance, coupled with the institutional cacophony that prevailed until the end of 2013, has plagued the fundamentals of the Tunisian economy.

He called, in this context, on the authorities to seduce citizens by an attractive compensation and establish favorable conditions to make the loan more attractive to subscribers explaining that, in this context, the authorities find themselves faced with a dilemma: either they opt for an exciting compensation (high interest rates) for subscribers and in this case, the government runs the risk to bear the charges of interest under debt service; or they prefer relatively low interest rates to reduce the debt service and in this case, they run the risk of failing in this undertaking.

Which conditions for the success of the national bond?

Moez Labidi explained further that several factors weigh on the conditions for success of the national bond, referring, first, to the drying up of liquidity that is closely related to the low level of domestic savings, but also to the inflationary drift.

He noted, in this connection, that keeping inflation at a high level and the resulting deterioration in the purchasing power, exclude the middle class from the subscription operation, pointing out that with the increase of the inflation rate, (nominal rate minus inflation rate) the real interest rate becomes negative and the investor is reluctant to place his savings in bonds or even in banking products.

He added that in a context marked by inflationary pressures, financial investments are not generally expected, because of the risk of devaluation of financial assets at maturity. “It’s quite the rush of real estate and land that appeals to investors,” he said.

“Inability to pay the salaries of civil servants”

The other decisive issue raised by the economic expert is the alarmist talk that takes up the thesis of the bankruptcy of the Tunisian State and its inability, very soon, to pay the salaries of civil servants; this is likely to jeopardize the success of subscriptions.

“How can we subscribe to the obligations of a State threatened with bankruptcy? Can we succeed in a national bond when the country pours into defeatism, amplified by a nostalgia for the recent past, despite its security abuses and economic failures (graduates unemployment and regional imbalances) and anxiety about an uncertain future, which dominates all conversations?” he wondered.

Moez Labidi pointed out, moreover, that the business climate is far from being completely reorganized mainly because of the electoral uncertainty and the delay in the revision of the Finance Act, voting on the new investment code and clarifying the contours of the new tax reform which continue to plague investment decisions.

Call to swiftly punish the corrupt

He noted, however, that “if the deterioration of the purchasing power eliminates the middle class from the race to subscriptions, can we then expect the involvement of Tunisian entrepreneurs to mobilize the necessary resources?” he said, adding that some of them are still languishing today in the lobby of transitional justice.

“Why so much reluctance to swiftly punish abuse and restore color to the business environment? A hesitation fueled by incompetence and political calculations explains the delay in dealing with this issue since January 14, 2011, “said Moez Labidi, noting that only a serious and fair treatment where the real culprits will be punished could spare us this heavy atmosphere of deplorable suspicion that penalizes private initiative, and therefore discourages fundraising under the national bond, according to him.


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