Global Arab Network | IMF: Tunisia improving monetary policies

Translate this article to your language:

GANPublications

e-Publications

Add Site to Favorites

Add Page to Favorites

Make Homepage

Share This Page

RSS Feed

--------------------------------------------------------------------------------------------------------------------
| |

IMF: Tunisia improving monetary policies

Friday, 16 July 2010 15:45

The International Monetary has reported that the Banque Centrale De Tunisie (BCT) performance in the area of monetary policy operations continues to improve . In the context of the modernization of money market instruments and with a view to diversifying its liquidity management tools, the BCT introduced, in early 2009, 24-hour lending and deposit facilities for banks to allow them to cover their liquidity needs or to place their temporary surplus liquidity. The rates for these facilities, fixed at 50 basis points around the reference rate, facilitated a greater flexibility in the money market rate. With the recent reduction of the excess liquidity, the money market could become even more active and could strengthen the role of the benchmark rate as a central tool for the conduct of monetary policy.

Global Arab Network has received the International Monetary report on Tunisia. According to this report, Banque Centrale De Tunisie (BCT) has successful efforts to sterilize the abundant liquidity should be pursued in 2010 by maintaining a close watch on the situation to ward off any resurgence of inflationary pressures or excessive growth in credit. Higher foreign currency inflows, fuelled by the upturn in exports of goods and services, as well as an increased presence on the securities issuance markets, primarily by the Treasury, are the main factors that will influence the bank liquidity position in the second half of 2010 in Tunisia.

Efforts to modernize the monetary policy operational framework must be pursued to create the conditions necessary for the adoption of an explicit inflation targeting regime. In this regard, the BCT has concentrated its efforts on building the necessary capacities, as well as on reinforcing its understanding of the transmission mechanisms. The BCT has launched a twinning project with European central banks, financed by the European Commission, to capitalize on the expertise of the central banks of the European countries in the use of analytical tools and information systems dealing with the operational aspects of inflation targeting.

In this context, actions aimed at further easing the transmission of monetary policy through interest rates and identifying an appropriate inflation target could be undertaken. IMF mission (visited Tunisia last month) also believes that improving the central bank’s communication tools would be an effective mean of influencing markets’ expectations. Thus, the BCT should consider publishing a periodic monetary policy report, as well as a financial system stability report.

Tunisian authorities are committed to achieving the goals of the President Ben Ali’s program, which include the convertibility of the dinar and the further liberalization of the capital account by 2014. As a first step, they will focus on setting up the main prerequisites, including strengthening the financial soundness of the banking system and deepening the foreign exchange market. At a later stage, the capital transactions could be gradually liberalized, while maintaining the necessary safeguards to prevent destabilizing capital movements.

IMF mission considers that inflation targeting, convertibility of the dinar, and liberalizing of the capital account are necessary and timely developments that will allow the Tunisian economy to boost its growth potential. The mission also supports the gradual approach envisaged by the authorities, while underscoring that it will be necessary to move forward on several fronts in order to facilitate the emergence of the market tools allowing regulators and economic agents to adapt.

Exchange rate policy remains guided by the medium-term objective of a floating exchange rate and fewer interventions by the BCT on the foreign exchange market. These interventions were relatively stable in 2009 and 2010 and occurred in both directions. Against the backdrop of high volatility among the major currencies, the exchange rate policy led to a stabilization of the real exchange rate of the dinar, which remains in line with its fundamentals.

Despite the international economic crisis, Tunisia continues to see its policy of economic opening as key to achieving high growth rates. The authorities are seeking to expand trade beyond traditional markets in order to reduce Tunisia’s dependence on the European Union, which currently accounts for 80 percent of its exports and faces less promising growth prospects over the next few years. Tunisia has therefore concluded a preferential trade arrangement with the West African Economic and Monetary Union (WAEMU) and is in talks with the Central African Economic and Monetary Community (CEMAC) as well as with several countries in Sub-Saharan Africa and in the Near and Middle East. Bilateral negotiations are also ongoing between Tunisia and the European Union to open the Association Agreement to services and agricultural and agri-food products. With that in mind, the government has begun developing a program to upgrade business services, health, transport, and information technology and telecommunications sectors to increase their productivity before they are opened up to international competition. Tunisia is also actively engaged in the Maghreb integration process. The mission encourages the government to pursue its efforts aimed at stimulating growth through trade diversification and access to new markets.

In the context of its medium-term reform programs, Tunisia has chosen to maintain its policy focus on improving the business climate. Work is ongoing to modernize the customs administration with the implementation of a new information system and the simplification of customs tariffs. Improvements in customs procedures, which have already resulted in shorter customs clearance times, are also being pursued with the new Customs Code that came into force in 2009. As a result of all these reforms Tunisia was placed 41st in the Davos World Economic Forum external trade facilitation ranking. Further reinforced by two new programs to support the improvement of the business climate and competitiveness, with funding from the World Bank, the African Development Bank, and the European Commission, these advances will serve to preserve and increase Tunisia’s attractiveness to investors.

The development of high value-added services sectors by making a more efficient use of the available pool of skilled labor is seen by Tunisia as an essential element for the new phase of diversification of its economy. To develop such sectors, the authorities have begun reforming the university system with a view to producing more science and technology experts. Reform of the education system is part of an ambitious program to develop the high-end value-added services sectors, such as information technologies, health, logistics, and business services. This effort will be supported by a program with the World Bank to upgrade companies in these sectors. The authorities also intend to support the modernization of the services sector by implementing an infrastructure development program that is expected to facilitate the establishment of new investors.

Global Arab Network

Add comment

The opinions of the authors in articles published are theirs alone and do not necessarily reflect the views of Global Arab Network
------------------------------------------------------------------------------
Published comments are the opinions of private individuals and do not reflect the views of Global Arab Network