Tunisia: BCT Urges Continued Co-Ordination to Avoid Monetary Financing of Budget Deficit

Tunis/Tunisia — The Executive Board of the Central Bank of Tunisia stressed at its meeting Thursday the need to continue co-ordination between financial and monetary policies to avoid monetary financing of the budget deficit, given its impact on inflation.

According to a statement issued by the BCT, the Board emphasised the importance of continuing coordination with the Government, to reach an agreement with the International Monetary Fund on a new programme that will send positive signals to investors and will give impetus to improve the country’s sovereign rating.

It also called for accelerating the implementation of a clear plan of economic reforms, able to restore the confidence of international donors and investors in the Tunisian economy, involving all relevant national partners to ensure commitment to the process of structural reforms and restore macroeconomic and financial balances, including public finances under severe pressure.

The CenBank also reaffirmed its intention to closely monitor all economic, monetary and financial developments and that it would not fail to use mechanisms at its disposal to support the recovery of economic activity, while containing inflationary pressures.

The Board reviewed recent economic, monetary and financial developments, including the latest data on economic growth in the third quarter of 2021, which showed a slight improvement of about 0.3% year-on-year and at constant prices, compared to a contraction of 7.1% in the same period of the previous year.

On the other hand, it particularly noted the continued increase in the consumer price index, year-on-year, to 6.4% in November 2021, compared to 6.3% in the previous month and 4.9% in the same month of the previous year.

This is attributable to the acceleration in manufacturing and services prices (7.6% and 4.9% respectively, compared to 7.5% and 4.6%), despite the relative slowdown in food inflation (6.9% compared to 7.0% last October).

the main indicators of core inflation, notably inflation “excluding administered and fresh products” and that “excluding food and energy”, saw an increase in their rate of progression to 6% and 6.5%, respectively, in November 2021 from 5.7% and 6.3%, one month earlier.

In this context, the Board considered that the situation requires the continuation of close monitoring of the sources of inflation and more coordination between economic policies, in addition to the activation of appropriate mechanisms to limit the risks.