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Tunisia resorted to floating the dinar partly to absorb the pains of its economy


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Tunisia resorted to floating the dinar partly to absorb the pains of its economy

April 19, 2017

 

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The Tunisian government confirmed the validity of the forecasts, which coincided with the debate in the economic circles during the last period, when revealed yesterday, plans to partially float the dinar after pressure from the International Monetary Fund to reform its deteriorating economy.

"The central bank will cut its interventions to gradually devalue the dinar, but it will not allow a big slide of the local currency, as happened in Egypt when the pound was floated," Finance Minister Lamia Zribi said.

She explained in an interview with the local private Express FM radio that the devaluation of the dinar against global currencies would be gradual, but did not say when the move would be taken, which came too late, economists say.

The IMF mission visited Tunisia last week to see how far the government's reforms have been completed to release the estimated second installment of $ 350 million out of a total loan of $ 2.9 billion.

"There is an intention to change the pattern of intervention regarding the adjustment of the dinar exchange rate against foreign currencies and its willingness to reformulate the dinar exchange rate against foreign currencies," a government document presented to the IMF said.

The central bank, which is in charge of monetary policy in the country, is supposed to raise its hand on the local currency in part to allow it to move freely, according to the law of supply and demand in the exchange market.

Although the move is inevitable, there is fear of a possible sudden slide in the dinar. This move could have a negative impact on the country's crippled economy as prices will rise entirely without limiting the prices of imported goods.

The expert Murad Al-Hattab predicts a "price chaos" in the near term, including consumer and other materials, which will increase the rate of inflation to enter the case of a collapse of sectors and the result of social events. 
Lama Zribi: The central bank will reduce its interventions in the coming period to gradually devalue the dinar

Given the prevailing concern about the Tunisian economic situation, official handling of the country's financial situation seems inappropriate, especially with statements by senior officials of the central bank over the past period about the possibility of bankruptcy of a number of banks.

Since last June, the dinar has recorded its lowest levels in years due to the crisis. Yesterday, the dinar reached 2.47 dinars against the dollar and 2.3 dinars against the dollar.

The dinar was sold in 2015 at 2.13 dinars per euro, a decline of about 14 percent, and 1.9 dinars for the dollar, a decline of about 12.2 percent.

The decline in the value of the dinar, according to experts surveyed by the "Arabs" views earlier, the intention of the Central Bank for the first time in history not to intervene to protect the dinar in the exchange market, which means in their view the beginning of the era of the liberation of the dinar.

Some analysts say the real value of the local currency, for example, is three dinars, and that its current value needs urgent review.

"The devaluation of the dinar is a reform pledged by Tunisia to the IMF since it entered into negotiations for a loan, which would contribute to boosting exports, reducing imports and thus reducing the large trade deficit," Reuters analyst Ezzeddine Saidan was quoted as saying.

The latest statistics from the Tunisian Statistics Institute showed that the trade deficit widened in the first quarter of this year to reach $ 1.7 billion compared to $ 1 billion in annual comparison, a rise of 57 percent, which requires reconsideration of supply operations, especially random ones.

However, Saidan warned of the consequences of devaluation of the dinar if not followed by other measures, including combating the banana economy and smuggling, as well as taking protective measures to reduce imports.

Tunisia faces many difficulties in reviving its fragile economy for six years despite all efforts to get out of the tunnel crisis.

In its urgent reform plans, the Government is reducing the number of public sector employees by offering voluntary layoffs for economic benefits, reforming social funds, administration, reducing bureaucracy and reforming the banking sector.

Prime Minister Tawfiq al-Rajhi said the government would stick to a reform program until 2020 that would include a reduction in indebtedness to less than 60 percent, a reduction of the budget deficit to 3 percent of gross domestic product, a reduction in wage expenditures, government subsidies and tax evasion and corruption.

Tunisia expects growth this year to be between 2.5 and 3 percent, with some signs of a recovery in economic activity, despite widespread protests in several regions recently.

The Arabs of London

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