African markets

Tunisia’s central bank maintains rates and plans economic reforms

Tunisia’s central bank left its interest rate unchanged and called on politicians and other stakeholders to carry out economic reforms that could help the country overcome its current crises and stressed the need to restore confidence in international institutions. and foreign donors in the country’s economy.

The Central Bank of Tunisia (BCT) left its key rate at 6.25%, unchanged since September last year, when it was lowered for the second time to support economic activity hard hit by the pandemic. of COVID-19.

The BCT cut its rate twice last year – in March and September – by a total of 150 basis points, but has kept its rate stable this year despite the country facing the the bank’s governor described it as the toughest conditions ever.

The central bank’s call for economic reforms and the need to restore confidence comes a week after Tunisian President Kais Saied invoked emergency powers and sacked the government.

On Saturday, Saied called on banks to lower interest rates to help improve social and economic conditions, saying corrupt people had left the country on the brink of bankruptcy.

Taking note of the president’s decision on July 25 to dismiss the government and freeze parliament, the bank’s board of directors called for more coordination between the various stakeholders to put in place a plan for economic reforms and new mechanisms to overcome crises.

The BCT also declared that it had “insisted on the importance of preserving the stability and proper functioning of State institutions, of protecting and ensuring their sustainability, in the face of the unprecedented challenges imposed by the political, economic, social and current health”.

Tunisia’s economy has shrunk by 8.8% in 2020, the deepest recession since its independence, and the budget deficit and public debt have increased sharply.

In the first quarter of this year, gross domestic product contracted 3% year-on-year, but that figure is down from a 6.1% contraction in the previous quarter.

The country is in talks with the International Monetary Fund (IMF) over financial assistance and in May the bank’s governor, Marouan Abassi, warned against central bank financing of the budget as it would boost inflation and would lead to what he called the “Venezuelan scenario”. .”

The BCT said its board took note of inflation rising to 5.7% in June from 5.0% in May, but also of a narrowing of the current account deficit in the first half of the year. of the year to around 3.4% of GDP, compared to 3.9% during the same period. period last year due to an improvement in transfer payments.

However, the services balance had continued to decline due to the impact of the pandemic on the tourism sector and a widening trade deficit.

Despite the crises, the Tunisian dinar remained firm and traded today at 3.26 for one euro, up 0.6% since the beginning of the year, and at 2.76 for one US dollar, up 3.8% this year.