(Bloomberg) -- Tunisia can’t defend its currency “even if it wanted to,” and must instead focus on narrowing its trade deficit to revive the economy, according to central bank Governor Marouane El Abassi.
El Abassi, in his first news conference since being appointed last month, said the central bank raised its benchmark interest rate by 75 basis points this week to curb inflation, which he said risked becoming “uncontrollable.”
The dinar has weakened by about 19 percent against the euro from a year ago, helping to propel consumer prices, which rose an annual 7.1 percent in February. At the same time, foreign reserves have fallen to around 77 days of import cover, according to the central bank.
Rising prices are heaping even more pressure on the government as it looks to pacify a population growing impatient with the lackluster pace of economic growth following the 2011 uprising that ousted President Zine El Abidine Ben Ali. The central bank chief said he decided to raise rates because high inflation had the potential to hurt investment.
Investors have turned bearish on Tunisian assets this year. The yield on the central bank’s $1 billion of Eurobonds due in January 2025 has risen 142 basis points since early January to 7.07 percent. Tunisia’s dollar debt has made a loss of 4.5 percent this year, the most after Argentina and Peru in the Bloomberg Barclays Emerging Markets USD Sovereign Bond Index, which includes more than 70 nations.
The government’s efforts to revive the economy have focused on cutting spending, curbing subsidies and boosting investments -- measures backed by the International Monetary Fund, which in 2016 awarded Tunisia a $2.9 billion loan. Those steps are kindling for further unrest in a nation where youth unemployment is about double the overall rate of some 15 percent.
El Abassi said talks with the IMF are progressing well and that he expected the board to approve the release of the third installment when it meets on March 23.
The appointment of a new central banker had raised concerns in the market that Tunisia may delay a planned international bond issuance. But the bank’s head of reserves and markets, Bachir Trabelsi, said at a conference Thursday that the nation would begin a roadshow for the $1 billion issuance in the last week of March.
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