Central Bank of Tunisia's Administrative Council Meeting: Economic and Financial Developments
The Administrative Council of the Central Bank of Tunisia (BCT) met on July 31, 2024, to examine the latest economic and financial developments at the national and international levels. The Council also reviewed the evolution of banking activity in 2023 and the first half of 2024, focusing on the financing of the economy and the mobilization of savings, as well as the financial solidity and challenges facing the banking sector in the coming years.
Inflation and Prices
After a pause in May 2024 (7.2% year-over-year), the inflation rate slightly increased to 7.3% in June 2024, compared to 9.3% a year earlier, due to the acceleration of fresh food prices. The underlying inflation rate, excluding fresh food and administered prices, continued its downward trend, decreasing from 7.3% in May to 7.2% in June 2024.
External Sector
The Council noted the continued contraction of the current account deficit in the first half of 2024, reaching -2.388 billion Tunisian dinars (MDT) or -1.4% of GDP, compared to -3.164 billion MDT or -2% of GDP a year earlier. This development is attributed to the reduction of the trade deficit (FOB-CAF) by 7.7%, which stood at -8.017 billion MDT, despite the deterioration of the energy balance, with a deficit of -5.794 billion MDT over the first six months of the year. Meanwhile, tourism receipts and remittances from Tunisian workers abroad increased by 6.6% and 7.2%, respectively.
Foreign Exchange Reserves
As of July 30, 2024, net foreign exchange reserves stood at 24.500 billion MDT (111 days of imports), compared to 23.250 billion MDT (101 days of imports) a year earlier. In this context, the Council examined ways to further consolidate the reserve stock.
Banking Financing
The Council expressed concern about the slowdown in credit growth to the economy in 2023 and the first half of 2024, which mainly affected small and medium-sized enterprises (SMEs) and individuals, linked to the economic context and ongoing inflationary pressures. The Council emphasized the need for coordinated efforts from all stakeholders to support businesses, ensure their viability, and preserve jobs.
Banking Sector Solidity
The Council noted the positive evolution of the banking sector's role in mobilizing deposits, which continued to progress at an average rate of 8%, driven by the BCT's threefold increase in the savings remuneration rate in 2022 and 2023. This situation, combined with the slowdown in credit growth, contributed to an improvement in the banking sector's liquidity situation.
Furthermore, the banking sector continued to strengthen its financial solidity and risk coverage, as evidenced by the continued increase in the global solvency ratio, which exceeded 14% (compared to the regulatory ratio of 10%). This was achieved through improved performance indicators and proactive measures taken by the BCT since the COVID-19 crisis to frame dividend distribution policies. This process has consolidated financial stability and reinforced banks' capacity to face pressures from the rise in non-performing loans starting in 2023 and the challenges related to climate change.
Recommendations
The Council invited the BCT services to complete the adaptation of the prudential framework to converge with international standards and integrate environmental and green finance dimensions into governance and banking practices.
Monetary Policy
The Council considers that the current priority should be given to consolidating the disinflation process and preserving macroeconomic and financial stability. It decided to maintain the BCT's key interest rate unchanged at 8%.
