Increase in key interest rate necessary to minimise dangers entailed by rising inflation (IMF’s Jihad Azour)

The increase in the key interest rate announced by the Central Bank of Tunisia (BCT) was necessary to minimise the dangers entailed by the rising inflation, said International Monetary Fund (IMF) Middle East and Central Asia Department Director Jihad Azour.
“Tunisia has to improve its business climate and deliver a boost to the private sector, notably small and medium-sized enterprises, so as to generate jobs,” Azour told TAP  in a telephone interview on the sidelines of the presentation Tuesday in Dubai of an updated  Middle East, North Africa, Afghanistan & Pakistan   (MENAP)  regional economic Outlook.
Q: The Central Bank of Tunisia raised its key interest rate by 50 basis points to control the exchange rate of the dinar, which fell to its lowest level in history, and tackle trade deficit. Do you think this would be sufficient?
A:  This measure is part of a package of economic, financial and monetary reforms aimed at securing an improvement in the deficit and increasing growth   to create job opportunities.
There was need to partially raise the key interest rate so as to mitigate the dangers of inflation partly caused by wage increases and the depreciation of the dollar.
It is essential yet to pursue a policy of financial reform that seeks to push growth and investment forward and address social issues.
Structural reforms are also of paramount importance insofar as they will pave the way for a bigger role of the private sector; the latter will as such become the main engine of growth and harbour enormous potential for job creation, notably for youth.
Q: Do you think this measure would increase the investment cost?
A:  This step is mainly geared towards bringing inflation under control as it affects the economy and the social situation, hence the need to  strike a balance in policies, make use of all available means, maintain stability and lend further support to the process of rebooting the economy.
Q: The IMF reaching staff-level agreement for the completion of the first review of Tunisia’s Extended Fund Facility had a positive impact on international lenders which met their commitments for the country. When will the second instalment be disbursed and will that be along the one that should have been paid in December?
A: The Executive Board will look at its meeting initially set for early June on the review undertaken by the IMF team in Tunisia; if the latter is approved, the second tranche will be paid.
The $2.9 billion loan for Tunisia will to be disbursed in six instalments till 2020.
Q: Inland regions saw large-scale protests against unemployment. What approach Tunisia should take up considering the lack of resources?
A: Social demands in Tunisia are closely linked to unemployment, particularly among youths. It is obvious that the policies embraced through the programme of the Fund have a string of priorities: maintaining stability and converting public spending into contribution through public investments to the improvement of basis infrastructure to help bolster the private sector across the country.
Q:  The fund projects 2.5% growth in Tunisia, do not you think that this rate is somewhat ambitious given the difficulties faced by the Tunisian economy in terms of intensification of investment?
A: The expected growth rate for Tunisia in 2017 will be 2.3% and will be based on the evaluation of the Fund’s teams during their last visit to Tunisia from April 7 to 18, 2017.
This rate should increase gradually to 3.5%, and this improvement will reflect structural reforms and the capacity of the private sector to become the engine of development again.
Q: What are the Fund’s growth projections for the MENA region?
A: Growth forecasts for 2017 have improved in the MENA region, primarily due to improved growth forecasts for the global economy and also reflects a rise in oil prices from $ 42 in 2016 to about US $ 55 in 2017, in addition to rising trade with major trading partners as a result of increased growth in both Europe and emerging countries.
Growth forecasts for 2017 for oil-importing countries in the MENA region will be 4% and will reach 4.4% in 2018, up from 3.7% in 2016
TAP

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