Tunisia central bank extends rate pause as IMF urges reforms

Tunisia’s central bank kept its key interest rate unchanged with inflation in retreat and the government engaged in ongoing negotiations with the International Monetary Fund over a reform agenda and bailout package.

Banque Centrale de Tunisie, or BCT, kept its benchmark interest rate unchanged at eight percent after a policy board meeting Friday, it said in a statement.

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Maintaining the key rate at its current level “should continue to support a decline in inflation for the period ahead and bring it back to sustainable levels,” it added.

More than a decade of political instability and economic inertia has dragged down the living standards of most Tunisians.

The sovereign this month was downgraded deeper into junk territory by Fitch Ratings as authorities consider measures needed for a sign-off on a $1.9 bailout from IMF directors, including potentially painful spending cuts.

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.”

According to comments posted by the IMF, 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.” On the key components of reforms, “we have no differences.”

The fund wants to support a “dynamic economy” where “poor people are not paying for subsidies to rich people,” she added. “How exactly to do that, I’m sure we will agree,” she added.

Meantime, BCT warned of potential repercussions that the recent downgrade by Fitch would have on “Tunisia’s ability to mobilize external financing with acceptable conditions and on the fluidity of settlements with abroad.”

The regulator also said that despite a slowdown in major partner nations, exports and tourism lead economic growth. Lower output from mining continued in early 2023, “depriving the economy of significant additional foreign exchange resources.”

Current deficit was 2.2 percent of GDP at the end of May versus 4.6 percent a year earlier after the trade deficit fell to 8.1 billion dinars ($2.6 billion).

FX buffers improved to 97 days of imports on June 14 after a first tranche of lending granted by Afreximbank.

With Bloomberg

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