Tunisia: 'The Dinar May Depreciate At an Accelerated Pace After Elections' (Ezzeddine Saidane)

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/Imen Gharb) — "The dinar has been artificially strengthened, but this artificial pressure that has been created around it is likely to have serious consequences." The national currency could depreciate in a more accelerated pace after the elections, "says economist Ezzeddine Saidane as he sets out his analysis of the situation of the national currency in an interview with TAP.

What is your reading of the slight appreciation of the dinar observed lately?

First, it should be mentioned that the figures relating to exports, tourism receipts, remittances by Tunisian expatriates and foreign direct investment must be presented in foreign currency to give a fair idea of their evolution, given the instability of the dinar. Whoever presents them in dinar only, deliberately seeks to mislead people, just like one who is content to present a ratio or two, ignoring others.

Generally, the national currency, in any country, is a mirror reflecting the economic and financial situation. We do not know a country where the economic situation is deteriorated and the currency is strong and vice versa. If the dinar has depreciated in a very consistent way by more than 70% since 2011, it is because economic and financial conditions have been very bad and all the indicators of the Tunisian economy have deteriorated sharply.

However, since March 2019, there has been some appreciation of the dinar, which has continued to this day.

Since the currency is the reflection and the mirror of the economy, it can be assumed that the appreciation of the dinar reflects an improvement of the economic and financial conditions of the country. But it turns out that this is not the case.

In terms of economic growth, the performance achieved is extremely low. On a year-on-year basis, the growth rate was 1.1% for the first quarter and 1.2% for the second. The second figure released by the INS, shows a growth of 0.1% for the first quarter and 0.5% for the second, compared to end 2018. This poor growth cannot justify a recovery of the dinar.

With regard to the trade balance, the year 2018 was catastrophic and ended with a deficit of 19.2 billion dinars, which largely contributed to the decline of the national currency.

In 2019, the trade balance deficit worsened by 20% at the end of the first half of the year. It cannot therefore be said that the provisional adjustment of the dinar results from an improvement in the trade balance.

The other determining factor is inflation, and here again the inflation rates are far from serving the dinar.

The last figure published by the INS is 6.7%. That figure should not be compared to 2018, when inflation was calculated on a different basis. This, politicians do not say it.

In 2018, inflation was calculated according to the consumer price index (base 2010), while this year, the benchmark is that of 2015.

According to the Director General of the INS, the difference between the two calculation methods, technically, is about 0.5%.

If we add this difference to the 6.7%, we would have an inflation of 7.2%. This is a huge inflation that does not justify the recovery of the dinar.

If all indicators are red, what was really the reason for the recovery of the dinar?

Part of the answer probably lies in the IMF's latest report, which blames the national monetary authorities clearly and accurately, saying that the monetary authorities' assessment of the dinar will complicate Tunisia's task to recover the imbalances in the balance of payments. The attempts to straighten the dinar have even been called irrational.

Indeed, when observing the financial events since the beginning of this year, we note that there was the sale of the "Zitouna Bank" and "Zitouna Takaful" to foreign investors, but also, that several credits have been obtained, which has generated foreign exchange earnings.

Logically, these receipts should have been allocated to foreign exchange reserves to strengthen them, given the country's very high level of indebtedness.

However, our authorities have decided otherwise, carrying out massive interventions on the foreign exchange market, by intervening with the banks and by proposing to the latter currencies at reduced prices which allowed to gradually recover the dinar. The currencies resulting from the debts or the transfer of assets were thus used to invert the curve of the dinar, in an artificial way.

The remaining part was used to increase the level of foreign exchange reserves, but all this to the detriment of another ratio, that of the external debt, which has exploded, now exceeding 100% of GDP.

This external debt costs us in interest (in interest only, and not in principal), the equivalent of 3 points of annual growth.

Tunisia has therefore been over-indebted to make a temporary artificial recovery of the dinar.

Just as an indication, this external debt, has increased more than 70% in two years (BCT figures), from 62 billion dinars in 2016 to 105 billion dinars at the end of 2018.

In 2019, this trend towards massive debt continued, starting with the 700-million Eurobond which was carried out at the beginning of the year and which made it possible to unlock a whole of other credits.

All these credits have unfortunately not been used to launch productive investments that should allow Tunisia to repay its debts under normal conditions.

Is this situation sustainable?

No. It's unbearable, it's irresponsible and the country can not last long like this, because this artificial recovery of the dinar has cost us excessively, dearly. In the first place, it was behind the worsening of the trade balance, because by artificially strengthening the value of the national currency, exports were thwarted and imports favoured.

Secondly, it should also be remembered that the transfers made by foreign companies established in Tunisia in respect of dividends for the financial year 2018 were made under conditions that were very favourable to them because they did so on the currency base whose price has been artificially low.

As a result, the economy is almost at a standstill today. The country is no longer growing and investing as it accumulates deficits and debts.

The reasons behind this situation are strictly political. I suppose that as soon as the elections end, the dinar will evolve differently and this artificial pressure will make it depreciate at a faster pace after the elections.

Politicians often refer to the improvement of the tourist receipts as argument justifying partly the recovery of the dinar. What is it exactly?

As I said at the beginning, presenting tourism receipts, exports, the remittances by Tunisian expatriates or the foreign direct investments (IDE) in dinar means seeking voluntarily, to mislead people.

In 2018, we received 8.2 million tourists for 4 billion dinars of revenue. A revenue of 500 dinars per tourist, equivalent to €140 per tourist, plane ticket included. I do not see how this could contribute to the recovery of the dinar.

This year, until September 10, we received 6.8 million tourists for revenues of 4 billion dinars, i.e. 600 dinars per tourist, (€170 per tourist).

Just to compare, the average revenue per tourist in Morocco is the equivalent of €600 per tourist. In Kenya, the average revenue per tourist is €950.

We have a very serious problem with the strategic choices of this sector. Tourism may have contributed a little to improving the country's foreign exchange earnings, but since the trade deficit has become much worse, this coverage remains very partial.

Besides, the current account deficit reached an alarming level, standing at 11.2% of GDP in 2018. It could reach the same figure this year, whereas according to international standards, this ratio should never exceed 3%. This situation explains the excessive indebtedness that seriously threatens the sustainability of the Tunisian debt.

This situation is all the more disturbing as political confusion prevails in the country. Its outcomes are uncertain and it will create a kind of expectation or distrust of our financial partners and investors.

This expectation, which could last a year or more, is almost unbearable for Tunisia, given the huge pressure on public finances.

Translated by Samir Ben Romdhane

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