TUNIS/DUBAI: A slide in Tunisia’s foreign reserves may undermine its currency and push the country into a balance of payments squeeze resembling the crisis in neighbouring Egypt.
Since revolutions swept the Arab world in 2011, Tunisia has done more than most countries to reform its economic policies, aiming to repair state finances and lure foreign investment.
Unlike Egypt, it has mustered the political will to agree on an emergency loan programme with the International Monetary Fund, making socially explosive changes favoured by the IMF such as cutting fuel subsidies. It is laying plans for more reforms, including changes to taxes and bank regulation.
But these steps may still fail to save Tunisia from Egypt-style currency turmoil, as its trade deficit expands and foreign reserves drop below the level which the central bank (CBT) considers safe. “The very weak state of foreign currency reserves shows the serious situation of the Tunisian economy,” said Moez Joudi, a financial analyst and economics professor in Tunis. “The problem may become similar to Egypt’s economic crisis.”
Since President Zine Al Abidine Ben Ali was toppled in January 2011, political violence and industrial unrest in Tunisia have been less heated than in Egypt and its Islamist-led government has been more conciliatory to the secular opposition.
But key earners of foreign exchange have not fully recovered since the revolution. Tourism revenues were 988m dinars ($595m) in the first five months of this year, down eight percent from the same period in 2010, the tourism ministry said.
Foreign investment inflows totalled 394m dinars in the first quarter of 2013, down 17 percent from the first quarter of 2010, according to the investment promotion agency.
Meanwhile Tunisia’s trade deficit has surged, partly because Europe’s economic slump has hurt export growth. The deficit was 4.74bn dinars in the first five months of 2013, up five percent from a year earlier and 32 percent higher than it was in the same period of 2010, official data shows.
The result has been a protracted slide in the central bank’s foreign currency reserves, to 10.473bn dinars in late June - equal to 94 days of the country’s imports. That compares with 100 days a year ago and around 140 days in late 2010.
Central bank governor Chadli Ayari has said that for safety, Tunisia needs to maintain foreign reserves covering at least 100 days’ imports.
Reuters
