Press release of the BCT Executive Board meeting held on 6 OCTOBER 2021

Press release of the BCT Executive Board meeting held on  6 OCTOBER 2021

The Executive Board of the Central Bank of Tunisia held its periodic meeting on Wednesday 06 October 2021 and discussed the various issues on its agenda. At the beginning of its work, it reviewed recent economic, monetary and financial developments, including data on economic activity. In fact, the GDP posted during the second quarter of 2021 an increase of 16.2% compared to the same period of the past year and a decrease of 2% compared to the previous quarter, mainly due to the base effect induced by the contraction of economic activity during the same period of the previous year. These results also underline the relative recovery of certain sectors, in particular exporting manufacturing industries, in relation to the continued improvement in demand from the Euro Zone, in addition to the significant recovery in fuel production thanks to contribution of  “Nawara” and “Halk El Menzel” fields and the gradual re-establishment of the phosphate sector. On the other hand, certain sectors continue to be affected by the health crisis of COVID-19, in particular that of services.

As for trend in prices, the Board noted stabilization of the inflation rate in September 2021 at around 6.2%, on annual shift, for the second consecutive month, against 5.4% during the same month of the previous year. The main indicators of core inflation also rose slightly to reach + 6% against + 5.9% in the previous month for “inflation excluding food and energy " and +5.4% against + 5.3% for “inflation excluding controlled and fresh products”.

Regarding recent trends in the external sector, the Board underlined the decrease in the current deficit during the first eight months of 2021, down to 3.5% of GDP against 4.8% a year earlier. This result is mainly attributable to the ongoing consolidation of labour income (+ 42.8%) with a relative improvement in tourism receipts (+ 5.2%), while the trade deficit (FOB-CIF) widened by 13.7% in line with the evolution of imports. As for the net flows of external capital, they recorded a sharp drop due to the decline in the volume of external resources mobilized, on top of the increase in expenditure for the repayment of the debt principal. Given these trends, net foreign currency assets fell to 20,962 MTD or 127 days of import at the end of September 2021 against 23,099 MTD and 162 days of import at the end of 2020.

In this context, the Board expressed its concern about the acute drying up of external financial resources, faced with the significant needs to close the State Budget for the year 2021, reflecting fears of international donors in view of the deterioration of Tunisia’s sovereign rating. To this is added absence of a new programme with the IMF, which will require an intensified bilateral financial cooperation by the end of the year in order to mobilize as much external resources as possible and to avoid monetary financing during this period because it implies fallouts on the level of inflation as well as  on foreign currency reserves and management of the dinar exchange rate  upward trend in commodity prices on international markets further to its negative impact on Tunisia’s relations with international donors and sovereign rating agencies.

On the other hand, the Board stressed that the deterioration of public finances, suffering from vulnerable situation, as well as the rise in international oil prices, are likely to curb sustainability of public debt, in addition to the negative effects of the increase in public sector indebtedness to the banking system on its ability to finance the economic operators. He added that the persistence of this situation will have high negative repercussions on external balances and on the foreign exchange market.

After discussions and deliberations on the aforementioned issues, the Board reiterated its deep concern facing the current critical financial situation, stressing the need to send clear signals to local and foreign investors with regard to recovery of the economic activity and global and financial balances, consolidation of public sector governance, improvement of the business climate and intensification of investment efforts. In this regard, the Board affirmed that the Central Bank will continue to fully play its role in supporting the economy, and to closely monitor the evolution of economic, monetary and financial indicators. At the end of its work, the Board decided to keep unchanged the key interest rate of the Central Bank of Tunisia.