The Executive Board held on 29 January 2014

In the beginning of its works, the Board welcomed the easing of the political situation in line with the progress of the transitional process, illustrated mainly, by adoption of the new constitution and the vote of confidence granted by the National Constituent Assembly to the new Government. These positive developments are capable of sending reassuring messages to economic operators both inside and outside and contributing to a renewal of confidence, as well as preparing the favorable ground for a better business climate and an economic activity and growth pace recovery.

The Board reviewed then, recent trends in the international economic situation, noticing better world economic outlook, as shown through the International Monetary Fund and the World Bank recently published forecasts. These show, in fact, an expected firming up of economic growth over the current year and the forthcoming one, notably in industrialized countries, particularly in the Euro Zone which is likely to resume a positive growth pace starting from this year, after two successive years of economic recession.

At the national level, the Board examined main trends at the economic and financial levels, through analysis of the latest economic, monetary and financial indicators which were overall below estimated targets. Thus, it is expected to achieve a growth rate varying between 2.6% and 3% for the previous year with persisting pressure on financial balances, bearing in mind that updated forecasts of the Economic Budget for 2014 show an expected growth rate of about 3.8%, based on an anticipated improvement of domestic demand, mainly as regards investment, besides the positive trend in external demand. This economic growth improvement should concern mainly, the agricultural sector, which was affected by adverse weather factors that prevailed in 2013, and the services sector, notably tourism which made weak results over the same year (-0.2% for bednights, 5.3% for entries and 1.7% for receipts).

In addition, an increase in the industrial production pace is expected mainly in exporting industries and in the sectors which were affected by giving up of production activity and transport such as non-manufacturing industries (-0.8% at the end of September 2013 against 4.6% a year earlier), particularly in the mining sector.

In this context, the Board noted that achieving these objectives requires a growing perseverance from all intervening parties in order to establish a sound and stable social, political and security climate, allowing businesses to found prerequisites as regards productivity and competitiveness. As for trends in prices, the Board noted a resumption of inflationary pressure after a certain easing recorded over the previous months. This brought the inflation rate to 6.1% on average in 2013 against 5.6% a year earlier, in the wake, mainly of the increase in foodstuff prices (8% vs. 7.5%). Core inflation (excluding controlled and fresh products) recorded a similar trend, posting 6.4% against 5.4% in 2012. These trends constitute a major challenge for the national economy over the current year, which requires combination of all efforts in order to rationalize production costs and monitor distribution channels, besides adequate measures at the monetary policy level.

As for the external sector, the Board highlighted the ongoing pressure on the balance of payments, with a current deficit posting 8.3% of GDP at the end of 2013 (against 8.2% a year earlier), bearing in mind that the trade deficit increased by 1.5% from one year to another, despite slower trade pace with abroad. As a result, net assets in foreign currency closed for 2013 at 11,602 MTD, corresponding to 106 days of imports, against 12,576 MTD and 119 days at the end of 2012. These assets reached 11,230 MTD or 102 days of imports as at 28 January 2014, a level which remains acceptable considering difficulties related to the exporting sector, on the one hand, and external resources mobilization, on the other hand.

At the monetary level, the Board noted the relative easing of the bank liquidity situation over the previous year compared to 2012, which reduced the Central Bank intervention on the money market to 4,299 MTD, on average, against 4,542 MTD a year earlier. Hence, standing of banks’ needs for liquidity at a high level meant a higher average interest rate on the money market, up to 4.59% in 2013, against 3.75% in the previous year. On the other hand, interest rates dropped, in the beginning of the current year, down to 4.72% in daily average on the money market, over January against 4.74% over last December. These trends reflect the different measures taken by the Central Bank over the previous year so as to offset pressure exerted on bank liquidity and improve its management on the interbank market, more particularly the Central Bank key interest rate raising by 50 base points, up from 4% to 4.5%.

This is mainly to reduce the negative spread between the interest rate and the inflation rate, in addition to the reduction of banks’ reserve requirements rate down from 2% to 1%. While considering the banking sector activity, the Board noted the slower growth pace of the outstanding balance of deposits in 2013 (7.8% vs. 10.7% in 2012) following, notably, the deceleration of the outstanding balance of forward deposits and savings accounts. Concurrently, financing of the economy grew at a less rapid pace compared to the previous year (6.8% vs. 8.8%).

As for trends in the foreign exchange rate, the Board pointed out the better value of the dinar, up by 3.3% and 2.5% respectively against the euro and the US dollar since the beginning of the current year, to 2.1947 dinars and 1.6059 on 29 January, after having dropped, at the end of 2013, by 9.7% against the euro and 5.8% against the dollar compared to the end of the previous year. Thus, the dinar’s value reached, over the last two months of the previous year, the minimum levels of 1.6830 dinar against the dollar and 2.3024 dinar against the euro on the interbank foreign exchange market.

In light of these trends, the Board has expressed again its optimism concerning progress of the political process and its positive impact on the improvement of visibility among investors and financing institutions, as well as on boosting cooperation with international financial institutions mainly after the International Monetary Fund’s Executive Board (held today), disclosure of the last review conclusion, in the framework of the stand-by arrangement concluded in June 2013, and its decision, as a consequence, to disburse 506.7 million dollars for Tunisia.

Moreover, the Board focused on the importance of stakes for the forthcoming period, mainly as regards growth pace acceleration, job creation and integrated development, and the major challenges which should be put in first position, of which the required and urgent economic and financial reforms, in order to bring the national economy on the path of a strong and balanced growth, and decided to keep unchanged the BCT key interest rate.