Tunisia keeps key interest rate unchanged at 8%

Tunisia’s central bank kept its key interest rate unchanged amid the easing of inflation in the country.

Banque Centrale de Tunisia kept its benchmark interest rate unchanged at 8 per cent following a bank’s board meeting on Friday, it said in a statement.

“Maintaining the key rate at its current level should continue to support the disinflationary process for the period ahead and bring inflation back to sustainable levels,” the bank said on its website.

Inflation eased in the North African country with the inflation rate reaching 9.6 per cent in May from 10.1 per cent in the previous month and a peak level of 10.4 per cent in February, according to the bank.

Tunisia’s economy was severely affected by the war in Ukraine, which widened its current account deficit, as well as the coronavirus-induced slowdown, high debt and deteriorating finances.

The country is seeking $4 billion from the International Monetary Fund to overcome the financial crisis and reached a staff-level agreement with the Washington-based lender for a new 48-month Extended Fund Facility worth about $1.9 billion in October.

The IMF board, however, did not approve the facility, which was planned for December 2022, as prior government actions were not met. The fund specifically pointed out the opposition of Tunisian President Kais Saied to an agreed reform of fuel subsidies as one of the reasons for its failure.

The fund’s managing director, Kristalina Georgieva, on Friday, urged Tunisia to implement “reforms that make the economy stronger, and prospects for the people of Tunisia brighter”. The IMF and Tunisia still have some work to do on “details how reforms can be pursued", she said.

According to comments posted by the IMF, Ms Georgieva lauded “significant progress” in the IMF-Tunisia talks and that an improvement in tourism puts the north African economy in a “better position today”.

"Our aspiration is to support a dynamic economy and one that is fair, where poor people are not paying for subsidies to rich people how exactly to do that, I'm sure we will agree."

Tunisia's economy grew by 2.1 per cent in the first quarter of 2023 after recording 1.8 per cent growth in the previous quarter on the back of "good performance of export industries and the recovery of the tourism sector and related activities", according to Tunisia's central bank.

Foreign exchange reserves improved to reach 22.8 billion dinars ($7.39 billion) as of June 14, corresponding to 97 days of imports "thanks to the encashment of the first tranche of the loan granted by Afreximbank", it said.

This month, Tunisia announced that it will receive $500 million from African Export-Import Bank to fund its 2023 budget, after passing a law related to the loan.

Tunisia's central bank also warned of potential repercussions that the recent downgrade by Fitch would have on “Tunisia’s ability to mobilise external financing with acceptable conditions and on the fluidity of settlements with abroad”.

This month, Fitch Ratings downgraded Tunisia's rating further into junk territory on concerns that it is struggling to meet IMF requirements to clinch a financing deal.

The country's long-term foreign currency issuer default rating was revised to 'CCC-' from 'CCC+', which is seven levels below investment grade.

Junk status makes it more difficult for a country to access capital markets and raise the funding that it needs when it wants to borrow.