AlwaysFree: Tunisia Hikes Rates As Inflation, Policy Tensions Surge

According to Bloomberg article published on December 30, 2023, Tunisia hiked rates Friday, as the cash-strapped North African nation grapples with surging inflation and growing public anger over spending cuts.

The Banque Centrale du Tunisie raised the benchmark lending rate by 75 basis points to 8%, the second hike since October, when it said it needed to prevent the highest price rises in three decades from spiraling out of control. The regulator also raised the key rate for savings to 7% from 6.25%. Friday’s decisions will take effect on Jan. 2, it added.

Tunisia is awaiting final approval on an International Monetary Fund loan that would unlock $1.9 billion in funding over a four-year period. 

The central bank said the rate hike seeks to “help curb the upward trend in inflation” and lower it “to sustainable levels in the medium term, in order to protect citizens’ purchasing power, preserve the stock of foreign currency assets and foster conditions for a sound and sustainable economic recovery.”

Authorities had hoped to secure final approval for the IMF loan before the end of the year. That push stumbled as they struggled to settle on the 2023 budget in time or present an amended reform program.

Tunisia has struggled with a lack of political unity and to implement economic reforms in the decade following the popular uprising and ouster of its longtime leader, Zine El Abidine Ben Ali. 

With the country mired in a political crisis stemming from President Kais Saied’s decision to absorb greater powers — a move dubbed by critics as a coup, concerns have been building about the nation’s ability to withstand more economic shocks.

The bank’s council voiced “deep concern” over what it described as “risks surrounding Tunisia’s monetary and financial balances.” In its statement, it emphasized the “need to guarantee the external financing necessary for the balance of public finances and to strengthen the coordination of economic policies or the policy-mix.”

The nation, which gave birth to the 2011 Arab Spring uprisings, however, has struggled to find a policy formula that’s palatable to different stakeholders, including the powerful unions who have resisted efforts to curb spending.

A budget bill decreed by Saied for next year is further stirring political tensions. The government is looking to boost state revenue through the politically-sensitive moves of lowering subsidy spending and raising taxes. 

The powerful UGTT trade union, whose support is important for Saied and the IMF aid, is leading opposition to the bill. It’s been organizing meetings with professional advocacy groups to shape a joint response that could involve widespread strikes against the proposed spending cuts and taxes. 

In its statement on Friday, the bank also said:

• Expects economy to grow 2.2% in 2022 supported mostly by recovery in tourism
• Trade deficit to hit an all-time high of 25b dinars in 2022 vs 16.2b dinars in 2021; “This situation weighed considerably” on foreign exchange buffers which now cover 101 days of imports versus 133 days by end-2021
• Tunisia has been missing out on rising phosphate prices due to a drop in output

Tags: Africa,All Products,AlwaysFree,English,Middle East