Tunisia’s faltering currency is main challenge for reshuffled government

The IMF warned against wage increases, noting that Tunisia’s public sector wage bill is among the highest in the world as a proportion of its economy.
Friday 23/11/2018
A general view of the Bourse de Tunis (Tunis Stock Exchange) building in Tunis. (Reuters)
Strong pressure. A general view of the Bourse de Tunis (Tunis Stock Exchange) building in Tunis. (Reuters)

TUNIS - The Tunisian dinar’s steep decline is increasing pressure on the government as it struggles to implement economic reforms backed by the International Monetary Fund (IMF) and win support from the country’s powerful trade unions, which are calling for salary hikes.

“We will get salary hikes whether they like it or not,” said Tunisian General Labour Union (UGTT) Secretary-General Noureddine Taboubi as he drummed up support for a civil sector strike planned for November 22. “The economic and social crisis combined with the falling dinar value will push Tunisians to stage a revolution of empty bellies.”

The IMF warned against wage increases, noting that Tunisia’s public sector wage bill is among the highest in the world as a proportion of its economy.

“It is very important for the government in Tunisia to maintain control over current spending and to maintain control over the wage bill,” said Jihad Azour, director of the IMF’s Middle East and Central Asia department.

The IMF has a 4-year, $2.8 billion loan agreement with Tunisia conditioned on economic reforms, including reducing its wage bill from 15% of GDP to 12%. Tunisia received a $245 million loan instalment in September and the next tranche hinges on a positive assessment of recent economic reform measures.

Stabilising the country’s currency is one of the top priorities of Tunisian Prime Minister Youssef Chahed, who recently oversaw a government reshuffle. Gaping trade and current account deficits and a sluggish economy will test his resolve.

Financial experts said Tunisia’s economic situation was dire and that the rate at which the dinar depreciated in the past eight years — 60% — has been “a menace to Tunisia’s economy.”

“The falling dinar is throttling the enterprises as almost all of them rely on imported goods,” said Samir Majoul, president of the Tunisian Union of Industry, Trade and Handicrafts, Tunisia’s leading business group.

The UGTT called off a nationwide strike by public sector workers planned in October after the government agreed to raise wages for 150,000 workers of state-owned companies.

Financial expert Ezzeddine Saidane said the value of the dinar was likely to sink further in the coming months, a reflection of what he said was a general economic downturn. “The dinar value is the mirror of the economy,” he said.

Abdelkader Boudriga, a finance professor at the University of Tunis, said: “The more the dinar falls the more the danger increases for the economy.”

Cutting non-essential imports is being suggested to reduce the trade deficit and strengthen the value of the dinar but experts said that must be accompanied by higher exports and foreign investment.

“Spurring the growth of both exports and foreign investment is good to strengthen the dinar value,” said former Finance Minister Hakim Ben Hamouda, “but intervention on the foreign currency market to defend the value of the dinar is needed because all enterprises need imported equipment and goods for their operations.”

Tunisia plunged into an economic slump following the ouster of former President Zine el-Abidine Ben Ali in 2011. Since then, nine governments have been unable to cut the budget or reduce the deficit, leading to the depletion of foreign currency reserves and limiting the Central Bank’s ability to stabilise the currency.

Tunisia’s foreign currency reserves in mid-November stood at $15.1 billion — enough to cover just 83 days of imports — among lowest levels in 15 years.

Former Finance Minister Houcine Dimassi predicted that the current account deficit would further “worsen by the end of 2018 with the effect of pushing lower the dinar value” and that cutting imports would not be enough to bolster the currency’s value.

“Trimming imports is a flight forward. The solution lies in boosting exports by making Tunisia’s products more competitive abroad by lowering costs and that will come from a good social and political climate that draws more foreign investment and tourists,” he said.

The Tunisian Consumer Defence Organisation, an advocacy group, urged the government to ban all imports of goods that can be produced locally, arguing that would increase demand for domestic products, shore up foreign currency reserves, reduce unemployment and bolster the dinar.