Monetary policy faces challenges

For the first time since 2018, the Tunisian dinar is improving its position against the dollar and the euro, despite red economic indicators due to Covid-19 and plummeting demand. A smart monetary policy helps to circumvent the loopholes that cause a lack of foreign exchange earnings.

The consolidation of the dinar against foreign currencies and in particular the dollar and the euro depends on several factors. Indeed, one of the determining factors concerns the assets of the Central Bank of Tunisia in foreign currency (BCT). Already, an encouraging first has been announced by the bank despite this difficult economic context characterized by a vertiginous drop in tourism revenues, average trade and foreign direct investment which do not really reflect the ambitions of the leaders. However, the price of the dinar recorded a clear improvement against the US dollar on the foreign exchange market – even if it remains disadvantageous for Tunisia – reaching 2,700 dinars to the dollar (exactly at 2.6989 dinars). This is what emerges from the latest data published by the Central Bank of Tunisia (BCT). This is, in fact, a first since April 2018. As for the euro-dinar ratio, it is 3.31 dinars for 1 euro, which is very high.

At least a small step forward has been recorded and this proves that our national currency is starting to strengthen and can improve further in the months to come, provided that we maintain the same approach and do not let go. The consolidation of the national currency depends to a large extent on foreign exchange earnings. It is necessary to take the necessary measures in order to boost exports by revitalizing the various sectors falling within the manufacturing industry intended for export. At the same time, imports must be rationalized in order to avoid wasting foreign exchange on the purchase of superfluous products which are expensive but which are not always in demand by consumers.

Global demand recession

However, Tunisian exporters are called upon to face a recession in demand which manifested itself in particular during the advent of Covid-19. Such a situation had adverse effects on the activities of companies, some of which could not resist and threw the apron down. Others have changed their vocation in order to maintain an acceptable level of activity. Finally, it has been observed that some companies have reduced their workforce because they are unable to pay salaries. Note that non-resident exporting companies have a basket of currencies managed according to needs. As for the industrialists, their need for foreign currency is important, because they are obliged to buy raw material as well as semi-finished products to operate their production units.

These companies still need an authorization to carry out the necessary imports which also include work equipment not available in Tunisia. This means that currencies are very useful for our industry and its development. When the dinar recovers its strength, importers spend less money on the acquisition of raw materials, semi-finished products and equipment. And the consolidation of the dinar can only be achieved by strengthening exports which must be greater than imports, that is to say have a favorable trade balance on our side.

Tunisia has for years maintained privileged economic and trade relations with many countries in Europe, in the Arab world and in the Asian continent with which agreements of non-double taxation or of free trade zones have been concluded. However, these conventions are not always exploited in our favor, because the exportable Tunisian products are quantitatively limited and the diversification of products at market value are not numerous apart from olive oil, citrus fruits, dates to take advantage of. example of the agrifood industry sector. The list also includes products from the mechanical and electrical industries, textile and clothing, and leather and footwear.

Sectors at half mast

Even more serious, some sectors that brought us foreign currency have been at half mast since the advent of Covid-19. Yet everyone rejoiced when the tourism industry resumed normal activities and even performed. Hoteliers were able to achieve encouraging sales before the spread of the coronavirus. Despite assurances from the World Tourism Organization and the World Health Organization affirming that the destination Tunisia is healthy and poses no risk to health, several potential tourists did not want to travel and went to cancel their 2019 high season reservations, which skewed all forecasts made. So the foreign currency that comes from tourism was limited and the state was forced to help professionals in the sector instead of profiting from it.

And since misfortune never comes alone, foreign direct investment, which is also an important source of foreign exchange, stagnated for a fairly long period. This led to a drop in the foreign exchange contribution and the absence of new recruitments in large companies and international firms. This regression is also explained by the effects of Covid-19 but also by the deterioration of the business climate and the absence of a strategic vision of foreign investment.

Hence the need to review the approach adopted to attract new capital to the Tunisian site. Especially since Tunisia still needs foreign currency for the repayment of debts each year, the acquisition of various raw materials such as cereals, vegetable oil, petroleum, in addition to semi-finished products and equipment for the ‘industry. With a strong dinar, it is possible to attenuate the effects of price increases on the international market, provided that this monetary policy is pursued aimed at revaluing the national currency.

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