Recourse to borrowing from BCT to meet State budget needs did not create local currency ( MAC SA) [Upd 2]
13/04/2024 17:44, TUNIS/Tunisia
(TAP)- Recourse to direct borrowing from the Central Bank of Tunisia (French: BCT) to meet State budget needs had not resulted directly in monetary creation as these amounts were deduced from foreign currency reserves to repay the external debt, reads a note on the economic situation released by stock market intermediary, MAC SA.

The budget deficit is expected to hit TND 10.6 billion. This adds up to refunding the principal of TND 17.9 billion (TND 8.1 billion in domestic locans and TND 9.8 billion in external loans). This amount, a total of TND 28.5 billion, will be financed, as set out in the Finance Law 2024, by domestic loans (TND 11.7 billion) and external debts (TND 16.4 billion). The remaining TND 0.4 billion will be covered by the treasury.

"The State - faced with the impossibility to secure external loans in Q1 of 2024- had recourse to direct borrowing from the BCT- a total of TND 7 billion, " further reads the document.   

Around half of the funds which was paid out did not lead to monetary creation beyond the needs of the economy as this was offset by a drop in foreign currency reserves. The Central Bank provided the State with funds in foreign currency, not Tunisian Dinar, to pay its foreign debts which means hardly any impact on net monetary creation."

// Deceleration in inflation//

The inflation rate, MAC SA said, stood at 7.5% in February and March 2024. This downward trend would continue for some months ahead, on the basis of the pre-Ukraine crisis level (2021), before further dropping to nearly 7% at the end of the year. The average inflation rate for 2024 would then stand at 7.3% compared to 9.3% in 2023.

Imported inflation is still considerable given the pressure on the exchange rate in connection to an expectedly stronger Dollar, as the US key interest rate was maintained at 5.25%, and international price hikes (oil, metals, sugar) though some prices dropped (grain).

The local component of inflation is tightly linked to the scarcity of some commodities and the increasing number of commercial intermediaries.

This slowing inflation can foster the stability of the Dinar and help maintain the purchasing power.

// Sluggish growth in Q1 of 2024// 

A sluggish growth was reported in Q1, MAC SA said. This is unfavourable to employment creation given the lack of public and private sector investments.

Q1 indicators suggest that the improvement in the agricultural sector is offset by the decline of industry, yielding a relatively low growth rate.

GDP growth in Q1 is projected to hover between 0.5% and 1%, slightly up on last year (0.4%) but falling short of the target set for 2024 (2%).

The pursuit of the policy of monitoring imports, the mobilisation of external funding or foreign direct investments at similar levels as reported over the recent years and the stability of international prices would help Tunisia live up to its international financial and trade commitments while reporting an acceptable and slight drop in foreign exchange reserves.

This has the advantage of avoiding to reschedule the external debt so that the country remains credible, as it has always been.
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