Tunisia: It’s time to activate the return to growth!

Doing anything to speed up the return to growth is the mother of all emergencies. By all means, try to reactivate the attractive effect on foreign direct investment (FDI).

Wednesday 4 current, press briefing, eagerly awaited, Governor of the Central Bank of Tunisia (CBT). The invitation meant that the focus would be on increasing the Bank of Banks policy rate.

Indeed, on Friday, December 30, 2022, the Board of Directors of BCT decided to increase the main rate from 7.25% to 8%, i.e. + 0.75% at once. It deserved clarification.

Resist somehow

The governor of the Institute of Issuers has surprised everyone from the beginning that the rise in the base rate was only a detail of national economic news. Marouane El Abassi, who provided extensive media coverage with the participation of large international networks, addressed a different audience than the audience of journalists present in the VIP hall of BCT. He urged international investors to return to this area to invest in Tunisia.

He then assured the IMF about the country’s current situation. It justifies the last means. To all those who challenged him on certain macroeconomic inconsistencies, Marouane El Abassi, stoically, affirmed that “given the current situation, what else can we do?”. Threading the finance bill was an inevitable juggling act. Increasing your base rate is equally important. And go to God.

Speaking a day after the 2023-2025 Development Plan was made public, the governor subtly invited the government to review a copy of it. Satisfying with a meager growth rate of +1.8% can put us at social risk, which will add crisis to crisis.

Tone, if nothing else. Although there was laziness at the macro-financial level, it seemed to tell the IMF experts that we had temporarily overcome all the pitfalls. Willingly, we did it with the possibilities we had.

You should know that since April 2020, the country has not received a penny of credit outside the flow of foreign aid. Thus, the IMF, faced with its obligations, could not, logically, tempt. And his agreement would free up the entire chain of foreign currency financing.

Finally, if the situation is tense, it is the lack of resources. And this signal of concern seems to be addressed to the government to extricate itself from the current growth failure. The country is leaning against the wall, we cannot postpone reforms for any reason. This also applies to the structuring of economic choices, especially for environmental, energy and digital transitions. It is called mass.

The Dilemma of Rising Rates

Increasing the policy rate is not a stroke of genius. This includes both developed and developing economies. The whole world gathered under the same flag. Although we know that inflation combined with economic stagnation in Tunisia is not of monetary origin, monetary tightening is inevitable. And this drug is not very reactive, because it takes 3-4 quarters to realize the beneficial effects. Even if it is proven that inflation is largely imported and the rest is caused by rising costs, a money parade is inevitable. The problem is that it will further stifle growth.

Hence Marouane El Abassi’s plea to lure FDI in this global context of backwardation of value chains. Most of the governor’s speech was addressed to international investors. So when he shows that the management of the exchange rate is managed with great care and skill. The same applies to the base rate, the management of which is related to the emergencies of the moment, and this rate has been revised downwards when the international situation allows.

Everything made FDI confident in two main components of economic policy. Which sectors can receive FDI? Energy, as a priority, because investments there have been postponed for a long time. And obviously IME, because the return on investment there is much more attractive.

Highlighting our priorities

How to deal with IMF prohibitions and conditionality? By looking good. A big plus is our sustainability testing to avoid a macroeconomic meltdown. The difficult question remains about the main reforms. Marouane Abassi recalls that these are not necessary for the good will of the Foundation, but for our economic resettlement. And he is matching the pace of reform with bold reform of the exchange code. The latter will get rid of all procedural complications.

Resolute and unwavering, the governor firmly affirmed that “this is the last touch we will bring to the code, because the next step will really be the conversion of the dinar.” Thus, it is necessary to play openly with the Fund to properly discuss the sequence of reforms, and this is the best way to bring them to a successful conclusion.

Marouane Abassi has engaged in a dangerous exercise, saying “I” and being seen as a “path” of economic change. As a good party manager, he shows how the roles of all stakeholders, including the government, should be distributed. His language is grounded and logical. His approach is acceptable. And his message is perfectly heard. It’s not flawless, but it has a solid overall consistency.

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