To avert a full-fledged debt crisis, the government must urgently implement reforms and land the deal with the International Monetary Fund, experts say
The new Central Bank of Tunisia chief faces “an exceptionally challenging situation”, with the North African country struggling to avert a debt crisis as talks with the International Monetary Fund remain in limbo, analysts have said.
Fethi Zouhair Nouri was last week revealed as the new bank governor after being appointed by Tunisia’s President Kais Saied to replace Marouane Abbasi. A row over the IMF bailout programme had soured relations between the President and Mr Abbasi.
“The new governor faces an exceptionally challenging situation”, Hamza Meddeb, a research fellow at Beirut-based Malcolm H Kerr Carnegie Middle East Centre, told media.
“His immediate priorities involve navigating the delicate balance of financing the government deficit, servicing debt obligations and curbing inflationary pressures,” he said.
“With very little foreign funding forthcoming, this task will be undeniably challenging.”
Mr Nouri, a professor at the Faculty of Economics and Management Sciences in Tunis, served on the Tunisian Economic and Social Council from September 1994 to January 2011. He is also a specialist on energy and worked as an economic adviser at the Financial Market Council from 2013 to 2015.
He must now seek to maintain the independence of the central bank after Tunisia’s Parliament this month approved a law authorising the banking regulator to fund part of the government’s financial needs for the year ahead.
The law allows central bank financing on a one-off basis for an amount of 7 billion Tunisian dinars ($2.2 billion or 4 per cent of GDP) to be repaid over 10 years, exempt from interest.
However, the new law is expected to “erode the [bank’s] autonomy, complicating its price and financial stability goals and ultimately weighing on the effectiveness of the monetary policy”, Moody’s Investors Service said in a report.
“Before replacing Mr Abbasi, it was clear that President Saied was not ready to agree to the IMF conditions,” Intissar Fakir, senior fellow and director of the North Africa and Sahel Programme at the Middle East Institute, told media.
“The ball from the IMF’s perspective was in his court and despite the lack of money – the country’s liquidity challenge – he felt he had alternatives, namely borrowing from the central bank. Mr Abbasi and the presidency had had months of disagreements about monetary policy approaches from interest rates, to borrowing from the central bank. Mr Abbasi was against policies that would impact the Central Bank of Tunisia’s relative independence. And so that was bound to come to a head.”
Tunisia’s economy was hit hard during the Covid-19 pandemic, contracting 9.2 per cent in 2020, the worst in the Mena region, according to the World Bank.
While its economy has since rebounded, it continues to face strain from rising inflation amid the Russia-Ukraine war as well as growing national unemployment.
The country’s GDP contracted by 0.2 per cent on an annual basis in the fourth quarter of last year amid a decline in agriculture production due to a drought and a decrease in domestic demand, latest data from the country’s National Institute of Statistics found.
Inflation and unemployment levels continue to rise in the country, which has a population of more than 12 million.
“To avert a fully fledged balance of payments and debt crisis, and to restore macroeconomic stability and debt sustainability, implementing a comprehensive medium-term reform programme, supported by the IMF, is urgently needed,” Garbis Iradian, chief economist for Mena and Central Asia at the Institute of International Finance, told media.
Tunisia is seeking $4 billion from the IMF and reached a staff-level agreement with the Washington-based lender for a 48-month Extended Fund Facility worth about $1.9 billion in 2022.
However, the IMF board rejected the deal, citing opposition to an agreed reform of fuel subsidies by Mr Saied.
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