Macroeconomic performance and outlook
Real GDP growth slowed to 1.5% in 2019 following two years of rebounds. Growth in the agriculture and fishing sectors slumped to 1.7% in 2019 from 9.8% in 2018. Growth was spurred primarily by tourism and financial services and, on the demand side, by private consumption.
The fiscal deficit improved slightly to 3.9% in 2019, from 4.6% in 2018. The current account deficit was 10% of GDP in 2019 and is projected to stay fairly high at 9.9% in 2020 and 8.4% in 2021. Despite the central bank policy of raising interest rates since 2017, inflation remained at 7.1% in 2019—and is projected to moderate to 6.7% in 2020 and 6.1% in 2021.
Unemployment was 15.3% during the first quarter of 2019 but has dropped slightly as the decline in unem- ployment among graduates continued. Unemployment among people ages 15 to 24 is 34.3%.
The poverty rate, which dropped from 20.5% in 2010 to 15.2% in 2016, increased by 30% from 2014 to 2018 due to increased living costs, according to the Center for Economic and Social Research. The Nord-Ouest region has been particularly affected with a poverty rate of 28.4% against 5.3% for the Greater Tunis region.
Continuing inequalities are destabilizing the social climate and impeding investment and growth. Reducing them implies accelerating the structural reforms initiated since 2011 and introducing specific measures aimed at more inclusive growth. Public spending needs prioritizing and better targeting to spearhead the economy.
Tailwinds and headwinds
Real GDP growth should recover to 2.1% in 2020 and 2.6% in 2021, spurred on the supply side by agriculture, phosphates, and tourism sectors. The nominal appreci- ation of the dinar to the euro (9%) and the dollar (5.8%) in the first quarter of 2019 should reduce the cost of energy imports (38.6% of total import costs) and the current account deficit.
Tunisia has many strengths, including proximity to Europe, qualified labor, diverse industries (aeronautics, chemicals, textiles), high agricultural and fishery poten- tial, and sizable deposits of phosphates, oil, and gas. The tourism industry (beach, business, mountain, oasis, eco-tourism, and seawater therapy) was until 2011 a significant source of growth and employment. In the medium term, it will benefit from the steady 5% growth in the global demand for tourism services.
The wide social and regional disparities brought to light in January 2011 have not narrowed. In 2019, unem- ployment remained high among college graduates, with large differences between coastal and interior regions. Women are more than twice as likely to be unemployed than men.
Public spending has increased significantly since 2011, prioritizing current expenditures over capital expenditures. This increase has been financed primarily by external borrowing. Public debt, the majority external (70%), increased by 95% between 2010 and 2019, placing Tunisia at risk of serious shocks and reducing liquidity available to the private sector.
Health sector preparedness
The 2019 Global Health Security Index gives Tunisia a score of 33.7 of 100, which ranks it 122 of 195 countries globally and 21 in Africa and among the countries the best prepared for the risk of a pandemic. For prevention, Tunisia learned from the 2005 avian influenza epidemic (H5N1) and created the National Observatory of New and Emerging Diseases, to monitor the international epidemio- logical situation and limit the introduction of rapid-spread diseases in the country. But it ranks poorly in the criteria of financing and health capacity in clinics, hospitals, and community care centers.
A national COVID–19 strategy was prepared as early as January 2020, together with a prevention, preparation, and response plan. The general objective was to reinforce detection and tracing of infected people and those in con- tact with them, as well as to provide medical care in order to stop the spread of COVID–19 across the country. On 17 March 2020, the government also decided to halt land, sea, and air transport throughout the country, with the exception of goods freight. This measure was reinforced by the complete lockdown of the population on 22 March and the declaration of a curfew.
The Tunisian authorities launched a significant package to support the economy and the most vulnerable house- holds. Estimated at 2% of GDP (around 2 billion dinars, or $695 million), the plan defers corporate tax returns, removes penalties for late tax payments, simplifies VAT refunds, and reschedules tax debt over seven years. Finan- cial support for businesses includes a 500 million dinar ($173.7 million) investment fund to support strategic busi- nesses, a 500 million dinar (173.7 million) guarantee fund for small enterprises in the tourism, transport, artisan, and cultural sectors, and a 100 million dinar ($34.7 million) investment fund to buy equipment for hospitals and public health establishments. On the social front, the government has announced the emergency release of 150 million dinars ($52.1 million) to assist the poorest families and people with disabilities or abandoned by their family. The plan also includes 300 million dinars ($104.3 million) in support for laid-off employees. The central bank has adopted targeted measures to support economic activity (six-month deferral of loan repayments from March 2020 for businesses and a 100 basis point cut in the key interest rate to 6.75%).
- There are two yield curves in Tunisia. The one produced by the Conseil des Marchés Financiers, which is derived from primary market, and the other provided by Tunisie Clearing which is based on data from both the primary and secondary markets. (Sources: CMF, Tunisie Clearing)
- The government securities yield curve extended to 15 years with three benchmark points along the curve (4-7 and 10 years).
- The strategy is to increase the share of domestic debt to 30% of total public debt.
- Tunisia is 11th in the ABMDI 2017 Ranking Report.
The government’s bond issuance strategy is to increase the share of domestic debt to 30% of total public debt.
By auction and by reopening methods, the government of Tunisia has built three maturities benchmarks. Despite the existence of a REPO market, the secondary market is not dynamic. Strategically, it plans to build a yield curve when the secondary market becomes transparent and dynamic. However, a regulatory agency, the Conseil des Marchés Financiers (CMF), currently simply builds a curve from the issues on the primary market.
In addition to the CMF’s yield curve, Tunisie Clearing (Tunisia’s clearing house) has developed a secondary market-based yield curve.
Yield curve calculation models
The curve supervision committee, made up of the Central Bank of Tunisia, the Financial Markets Council, the Tunisian Ministry of Finance and Compensation, officially launched the new version of the yield curve since March 6, 2020. Thus, it is now accessible on the websites of member institutions. As on the official site of the yield curve: http://www.tunisiayieldcurve.tn/public/
If the yield at a certain point on the curve has not been traded, linear interpolation is used to generate an appropriate yield.
Yield curve managed by
The yield curve generated by the Conseil des Marchés Financiers is on a weekly basis. The one generated by “Tunisie Clearing” is on a daily basis.
The yield curves can be accessed from the “Conseil des Marchés Financiers” and “Tunsie Clearing” websites.
Challenges in building an efficient yield curve
Following the publication of the first version of the curve, the Supervisory Committee continued to monitor and analyze its behavior on a daily basis.
Several shortcomings were noted, some of which could be alleviated by modifying the parameters, while others could not be alleviated because they are linked to the very modeling which did not make it possible to accompany the general movement of rising rates (in a shallow and disparate market context).
A new version of the yield curve has been implemented with the following objectives:
Simplification of assumptions in order to provide stakeholders with a tool that is easy to use and interpret;
Controlling volatility in an unstable market
The use of an application developed in-house and offering monitoring tools for the committee
The introduction of potential developments such as quotes from specialists in government securities.
Guide to Buying Bonds
Procedures for market participation
- The Ministry of Finance announces in advance the nominal amount of the auction and the maturity dates of the issue (the announcement is made one week before the auction of Assimilable Treasury Bonds and the Tuesday preceding the date of the auction of Short-term Treasury bonds)
- The auction of Assimilable Treasury Bonds (BTA) is held every first Tuesday of each month and the result is announced one day later. However, the auction of Short Term Treasury Bills (BTC) takes place every Thursday and the result is announced the same day.
- Following the implementation of the new Treasury Bills platform, each specialist in Treasury securities had their own access to the system. This enabled it to submit its bids first and to follow all the news related to the current auctions in the second place.
- In addition, once the auction announcement is placed on the system, all member organizations are notified and treasury securities specialists can then submit their bids. This can be done up to the platform closing date, from which time no submission is accepted.
- The submissions are grouped together and ranked in descending order based on price. For bids at the selected floor price, the Ministry of Finance may retain part of the total amount available to distribute it in proportion to the bids of the bidders.
- Just like the announcement of the auction, once the decision is made by the finance ministry all members will be notified through the recently introduced system.
Transactions on the secondary market are settled on T+1, T+2, T+3 basis. ON the Primary market, TBills follow a T+3 cycle while TBonds, T+5.
Income from movable capital and interest is subject to a withholding tax of 20% personal income tax and corporate tax.
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Treasury bills are issued by auction exclusively reserved for specialists in Treasury securities who could participate on their own account or on behalf of their clients. In addition to participating in auctions on the primary market, specialists in Treasury securities ensure the negotiability of Treasury bills and the liquidity of the secondary market.
Currently, the financial landscape in Tunisia has eight specialists in Treasury securities including seven local banks:
- Amen Bank
- Arab Tunisian Bank (ATB)
- Banque d’Habitat (BH)
- Société Tunisienne des Banques (STB)
- Banque Nationale Agricole (BNA)
- Banque Internationale Arabe de Tunisie (BIAT)
- Attijari Bank
- Tunisie Valeurs
Openness to international investors
Pursuant to the exchange regulations in force, the subscription by a foreign non-resident individual or legal body of debt securities issued by the state in Tunisia is subject to authorization of the BCT. However, the subscription and acquisition of BTA by foreigners through importing foreign currencies is permitted to a maximum rate of 20% of the biannual issuances. This rate is set by the Central Bank. The holders of these debt securities are guaranteed the transfer of their funds.
Capital controls exist in Tunisia. Nevertheless, foreign investors can acquire shares in local firms by purchasing through local brokers who get the agreements. Foreign investors can also acquire indirect investments through local mutual funds.
Restrictions on FX and profit repatriation
The Tunisian Dinar is not a fully convertible currency, it is pegged to a basket of currencies.