Foreign currency reserves below 90 days: experts stress need to act on current account deficit | Tunisia News Gazette

Foreign currency reserves below 90 days: experts stress need to act on current account deficit

Tunisia’s foreign exchange reserves continue their downtrend, standing on January 23, 2018, at 12.3 billion dinars, covering only 89 days of imports, according to figures published by the Central Bank of Tunisia, on its official website.

Moez Labidi, Professor of Economics said “foreign exchange reserves are a kind of safety bag to overcome periods of foreign exchange shortages.

Their current level marks the crossing of the symbolic bar of the 90 days of importation, although historically, Tunisia has known, even lower levels.

Labidi believes that the downward pressure on foreign exchange reserves is mainly explained by the widening of the current account deficit. A phenomenon that tends to increase in recent times because of the sharp rise in the price of a barrel, which finds levels close to 70 dollars, but also, because of the decline in foreign exchange earnings of tourism, being in low season.

While stressing the need to curb this downward trend in foreign currency assets, which could “fuel a speculative dynamics on the dinar,” Labidi believes “that the reversal of this trend is closely linked to our ability to reverse the upward trend of the current deficit.

This requires “more determination on the part of the government, to unblock the situation of some exporting companies, because the blockage of the productive apparatus in these companies deprives us of foreign exchange earnings and pushes us to more debt. This is to anchor the standards of good governance, in order to restore discipline and respect for the law in the administration and support Tunisian companies in foreign markets.

At this level, it is necessary to set up a real aggressive commercial policy of prospecting foreign markets, in particular through the renovation of the consular framework (especially the commercial attaches) “.

Labidi also argues for “more dialogue and consultation to appease the excessive demands for higher wages that weigh on the budget, deepen the budget deficit and inflate debt,” calling for “rationalising imports, without succumbing to the pressure of some lobbies and to contain the growth of the informal sector “.

Such measures will make the “site Tunisia” more attractive for foreign investors, and thus generate more foreign currency reserves, which will reduce the downward pressure on the dinar, according to Labidi.

“Although managed by the Central Bank of Tunisia, which is often unjustly blamed for the deterioration of foreign currency reserves, the health of these reserves depends, rather, on the state of the fundamentals of the economy,” he said in conclusion.

Acting on the trade deficit, a highly political decision

For his part, banking and financial expert, Ashraf Ayadi, describes the current level of foreign exchange reserves as “worrying”, “because the reserves are not only used to import goods and services, but also, and especially, to pay our debts and other international commitments “.

Ayadi explains this situation by “the demand for more and more currency.

Indeed, the continuous slippage of the dinar pushes investors to import today and immediately goods they will need much later.

Expectations of additional future slippage of the dinar against major currencies accelerate the fall of the national currency, and therefore the pressure on foreign exchange reserves.

According to him, “it is rather on the trade deficit that we will have to act to reduce the pressure on the foreign exchange reserves”.

Still, “this decision is highly political”.

As a reminder, the trade deficit in Tunisia worsened to 15.5 billion dinars at the end of 2017, a record level never reached before by the country.

Source: TAP News Agency

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