alkhabar
Maghreb
A proximité
Central Bank of Tunisia
On a positive note, tourism numbers and the import of capital goods – equipment destined for industrial production – are improving. The latter is an especially encouraging sign, because it indicates that Tunisians are investing in equipment that streamlines and maximizes industrial output, said Moez Labidi, an economic and financial expert at the BCT.
However, Tunisia is still running a trade deficit, with exports slowing down to a growth rate of 9.1% in the first three months of 2012, while imports rose by 21.6%. The weak export figure is most readily explained by the current Eurozone crisis, which has crippled European demand for Tunisian goods. Italy, Germany, and France, among other European states, are Tunisia’s largest trading partners.
The trade imbalance and fiscal deficit have contributed to the decline in Tunisia’s foreign currency reserves, which are down to 9.947 million Tunisian dinars. For the first quarter of 2012, public debt was the equivalent of 2.3% of the current account deficit. According to Labidi, if the fiscal deficit continues at this pace, Tunisia will end up with public debt reaching 9.2%, a dangerously high figure, by the year’s end.
Additionally, bank savings rates have dropped, while the number of non-performing loans has risen. Both trends have sunk banks into a liquidity crisis, and limited the capital they can contribute to financing the economy.
Why have Tunisians increasingly decided not to deposit money in the bank? With the inflation rate at 5.4% higher than the going market interest rate at 3.78%, savers will consequently see the value of their bank deposits erode by 1.6%. Additionally, the purchasing power of Tunisians is decreasing. As a result, Tunisians do not have enough money to save and simultaneously meet their monthly expenses.
The major dilemma that the BCT now faces is how to tackle the inflation rate. For Labidi, the problem of inflation can’t necessarily be solved by the BCT. Normally, in order to fight inflation, the BCT has to raise interest rates, but by doing so, Tunisians will not borrow to make the necessary investments that stimulate the economy. “This will suffocate growth,” said Labidi.
Hafedh Ben Abdennebi, an economics and finance professor at the University of Carthage, gave an example of the potential setbacks that could result from raising interest rates. “We have a very qualified, young workforce. So jobless youth need to access low-interest loans. This could reduce unemployment and appease social discontent,” he stated.
Furthermore, Labidi explained that “higher interest rates would increase the weight of non-performing loans in the economy. With a greater number of Tunisians defaulting on loans or risking default, a jump in the interest rates could condemn many debtors to default in one fell swoop.
Yet, addressing the question of inflation does not have to be mired in catch-22’s. Inflation is in part due to a supply shock, with rampant smuggling of food, agricultural products, and other goods to both Algeria and Libya, Labidi mentioned. The Libyan demand for smuggled Tunisian products has spiked in the past year as the domestic distribution of goods within Libya has remained disrupted since its uprising.
Labidi looks at the prices of white and red meat, which have recently begun to drop in Tunisia. How did this happen? The government achieved this result by merely obliging meat producers to increase the supply to the Tunisian market, said Labidi.
Yet for now, the prevention of smuggling and market regulations remain outside the purview of the BCT.
However, Tunisia is still running a trade deficit, with exports slowing down to a growth rate of 9.1% in the first three months of 2012, while imports rose by 21.6%. The weak export figure is most readily explained by the current Eurozone crisis, which has crippled European demand for Tunisian goods. Italy, Germany, and France, among other European states, are Tunisia’s largest trading partners.
The trade imbalance and fiscal deficit have contributed to the decline in Tunisia’s foreign currency reserves, which are down to 9.947 million Tunisian dinars. For the first quarter of 2012, public debt was the equivalent of 2.3% of the current account deficit. According to Labidi, if the fiscal deficit continues at this pace, Tunisia will end up with public debt reaching 9.2%, a dangerously high figure, by the year’s end.
Additionally, bank savings rates have dropped, while the number of non-performing loans has risen. Both trends have sunk banks into a liquidity crisis, and limited the capital they can contribute to financing the economy.
Why have Tunisians increasingly decided not to deposit money in the bank? With the inflation rate at 5.4% higher than the going market interest rate at 3.78%, savers will consequently see the value of their bank deposits erode by 1.6%. Additionally, the purchasing power of Tunisians is decreasing. As a result, Tunisians do not have enough money to save and simultaneously meet their monthly expenses.
The major dilemma that the BCT now faces is how to tackle the inflation rate. For Labidi, the problem of inflation can’t necessarily be solved by the BCT. Normally, in order to fight inflation, the BCT has to raise interest rates, but by doing so, Tunisians will not borrow to make the necessary investments that stimulate the economy. “This will suffocate growth,” said Labidi.
Hafedh Ben Abdennebi, an economics and finance professor at the University of Carthage, gave an example of the potential setbacks that could result from raising interest rates. “We have a very qualified, young workforce. So jobless youth need to access low-interest loans. This could reduce unemployment and appease social discontent,” he stated.
Furthermore, Labidi explained that “higher interest rates would increase the weight of non-performing loans in the economy. With a greater number of Tunisians defaulting on loans or risking default, a jump in the interest rates could condemn many debtors to default in one fell swoop.
Yet, addressing the question of inflation does not have to be mired in catch-22’s. Inflation is in part due to a supply shock, with rampant smuggling of food, agricultural products, and other goods to both Algeria and Libya, Labidi mentioned. The Libyan demand for smuggled Tunisian products has spiked in the past year as the domestic distribution of goods within Libya has remained disrupted since its uprising.
Labidi looks at the prices of white and red meat, which have recently begun to drop in Tunisia. How did this happen? The government achieved this result by merely obliging meat producers to increase the supply to the Tunisian market, said Labidi.
Yet for now, the prevention of smuggling and market regulations remain outside the purview of the BCT.
