Tunisian currency needs further weakening to stimulate economic growth, IMF says

Expectations that Tunisia is headed for a currency depreciation have grown in recent months

Containers are seen at a port terminal in Bizerte, Tunisia, March 27, 2018. Picture taken March 27, 2018. REUTERS/Zoubeir Souissi

Tunisia’s dinar must weaken further this year if the North African country is to boost exports and revive an economy battered by political upheaval since its 2011 uprising, the International Monetary Fund said.

"I don't think that we need to see a big downward movement to equilibrium, I think we are not too far from it," said Björn Rother, the IMF's Tunisia mission chief. "I also don't think we need to see an abrupt adjustment."

Expectations that Tunisia is headed for a sharp currency depreciation have grown in recent months as foreign reserves have declined rapidly, reaching $4.6 billion on Monday, enough to cover just 78 days worth of imports. Mr Rother said the dinar’s real exchange rate – its ability to purchase products relative to other currencies – was misaligned by 10 to 20 per cent.

Central bank governor Marouane El Abassi said last month he could not defend the currency even if he wanted to, but a steep depreciation risks fuelling inflation and public anger in a country that has had eight governments since the 2011 popular uprising against authoritarian rule.

Politically, Tunisia is often held up as the lone success story from the region’s wave of protests seven years ago. But political infighting, strikes and terrorist attacks have complicated efforts to engineer the economic revival Tunisians envisaged when they pushed Zine El Abidine Ben Ali from power.


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The government has focused on cutting spending and gradually weakening the currency, measures backed by the IMF, which awarded Tunisia a $2.9bn loan in 2016. But austerity measures have fuelled violent protests in a country with a stubborn unemployment problem, delaying the latest loan tranche, which was released just last month.

Moody’s Investors Service downgraded Tunisia’s credit rating in March for the second time in seven months to five levels below investment grade, citing the deteriorating fiscal situation and dwindling reserves that it said would not rebound significantly in the next few years.

Mr Rother said the drop in reserves was temporary, caused partly by delays in the IMF loan and the sale of international bonds. Low reserves discourage investment but do not signal an imminent currency crisis, he said.

Strikes have hit phosphate exports, a key earner of hard currency, and tourism is just beginning to recover from the impact of terrorist attacks in 2015.

Mr Rother said Tunisia’s trade balance was beginning to improve, allowing it to move gradually on currency depreciation. The dinar declined 19 per cent against the euro last year. The trade deficit shrank by nearly a quarter in January and February compared to the same period last year as exports grew 43 per cent.

“If you want to attract investment and if you want to develop your exports you need to be competitive in the world economy,” said Mr Rother. “And the easiest way to achieve that is to rely on a competitive real exchange rate.”