Tunisia Turns on Central Bank Chief Following Price Protests

(Bloomberg) -- Tunisia’s president asked parliament to vote on a new central bank chief, a move that could complicate a planned international bond sale seen as central to efforts to reform the struggling an economy while easing public anger over deepening hardships.

President Beji Caid Essebsi’s office said the request was submitted to lawmakers a day after Prime Minister Youssef Chahed sought his approval to replace governor Chedly Ayari. Officials have tapped Marouane El Abassi, an economics professor who was appointed World Bank representative in Libya in 2010, for the post. Abassi has also advised Tunisia’s ministries of trade and tourism, according to the World Bank’s website.

A delay to a billion-dollar eurobond sale scheduled for next week would be a blow for a cash-strapped government which last month faced major demonstrations as anger erupted over accelerating inflation and entrenched unemployment. Ayari and Finance Minister Ridha Chelghoum were scheduled to lead the marketing trip to London, Paris and Berlin, and the government hasn’t said if that will change.

“I think the timing is pretty bad. It sends a very bad signal,” said Riccardo Fabiani, senior analyst for the Middle East and North Africa at the New York-based Eurasia Group. “I wouldn’t be surprised if they decided to postpone the sale, also given what is going on in international markets.”

‘Serious Implications’

Tunis-based economist Ezzeddine Saidane predicted the sale would be postponed, and said a delay “will also have serious implications for the foreign-currency reserves of the country and the ability of Tunisia to pay its debts.”

Ayari, 79, took the helm at the central bank in 2012, a year after longtime President Zine Al-Abidine Ben Ali was ousted in the popular uprising that evolved into the Arab Spring. Many business people have criticized him for what they see as a slow response to crises and outmoded methods, but Fabiani said it was “reasonable to assume” he was being let go to shift blame for the economy’s lackluster performance away from the government.

The central bank kept its benchmark interest rate unchanged this week as the dinar stabilized after losing about 19 percent against the euro in the past year. Reserves, meanwhile, dropped to 11.9 billion dinars ($4.9 billion) on Feb. 7, covering 84 days of imports, from about 14.5 billion dinars a year ago.

“This decision is long overdue. We have been calling for the ouster of this governor for over three years,” said Bassem Loukil, chief executive officer of the Group Loukil conglomerate. El Abbasi “is a very respected economist and he has a good reputation at the international level, which is very important so he can project a good image,” he said.

Terrorist Attacks

Often hailed as a rare success story in the uprisings that swept the Middle East in 2011, Tunisia has seen its transition from dictatorship to democracy hampered by high unemployment, terrorist attacks and labor strife.

Inflation, fueled by subsidy cuts and tax increases, has accelerated to 6.9 percent, its highest level since at least 2011. The austerity measures have fueled violent protests that hobbled the implementation of economic reforms demanded by the International Monetary Fund as a condition for a $320 million loan installment. The latest protests subsided after the government offered about $70 million to help low-income households weather the price increases.

The North African nation’s foreign currency reserves are set to take a further hit as renewed strikes in Gafsa, the main phosphate producing area, cut production by more than two-thirds.

Economic growth bounced back to 2 percent last year, as the tourism industry began to recover from deadly militant attacks in 2015, and the government set out to cut the budget deficit and boost competitiveness. Prime Minister Chahed said he expects growth to reach 3 percent this year and return to pre-revolutionary levels of more than 5 percent by 2020 if reforms are fully implemented.

The key to achieving these goals is to boost investment and private-sector growth in order to cut youth unemployment of 30 percent. Replacing the central banker won’t promote either objective, Fabiani said.

“I don’t see why the monetary policy should change,” he said. “Basically the central bank just does what the IMF decides.”

To contact the reporters on this story: Tamim Elyan in Cairo at telyan@bloomberg.net, Jihen Laghmari in Cairo at jlaghmari@bloomberg.net, Ahmed Feteha in Cairo at afeteha@bloomberg.net.

To contact the editors responsible for this story: Lin Noueihed at lnoueihed@bloomberg.net, Alaa Shahine at asalha@bloomberg.net, Mark Williams, Stuart Biggs

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