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.
- 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 50% of total public debt.
- Tunisia is 11th in the ABMDI 2017 Ranking Report.
The government’s strategy on bond issuance is focused on gradually increasing the share of domestic debt to 50% of public debt (currently the share of domestic debt is 38% of 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 yield curve in Tunisia is generated from actual issued yields at issuance. This is a market yield curve but only from the primary market.
Where there is no traded yield for a certain point along the yield curve, 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
Tunisia faces the following challenges in building an efficient yields curve:
- Market fragmentation: primary, secondary and repo market are all fragmented
- Narrow investor base
- Limited and illiquid secondary market
- Lack of transparency
Guide to Buying Bonds
Procedures for market participation
The Ministry of Finance publishes a semi-annual issuance calendar with the expected total amount for the issuances. A week before the auction, the Ministry of Finance announces the nominal amount to be auction and maturities to be issued. Treasury bond auctions are handled through the Treasury Department of the Ministry of Finance. Primary Dealers submit their bids physically in sealed envelopes on the first Tuesday of each month. If the submission date falls on a public holiday, the tenders are sent to the Ministry of Finance, within one business day prior to the submission date. The bids are opened on the first Wednesday of each month or, if applicable, the next business day after a public holiday. The Ministry of Finance groups and ranks the bids in descending order based on price. For bids at the limit price selected, the Ministry of Finance may withhold a portion of the total amount available to be distributed proportionally among the bidders in their bids.
Treasury bonds with maturities greater than one year may be traded on the Tunisian Stock Exchange (TSE). Access to the TSE requires going through a domestic broker.
Any transaction on the TSE exchange, whether a purchase or sale of shares or bonds is accompanied by transaction costs. These fees usually do not exceed 1% of the transaction amount.
The trading of securities on the stock exchange is done daily from Monday to Friday. The markets are open from 9am to 2:10 p.m.
The TSE has implemented the new version of the electronic trading system V900, aimed at enhancing surveillance, developing trading operations and increasing the capacity of the trading system. The new systems is characterized by high speed and efficiency in receiving and processing buy and sell orders, and more sophisticated coverage of long or short positions to protect against possible reversals (stop order). It is also linked to the clearing and settlement 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 were issued previously by tender exclusively for Primary Dealers (PDs) who can participate to the auction for their own account or on behalf of their clients. In addition to participating in the primary auctions, the PDs ensure their marketability of the Treasury Bills and the liquidity on the secondary market. But now, banks others than PDs can participate to the auction which lead to illiquidity of the secondary market.
Primary Dealers are selected from banks, brokers and financial institutions who are registered members of STICODEVAM. The following institutions are the designated PDs:
- Amen Invest
- Arab Financial Consultants
- Best Invest
- BNA Capitaux
- BIAT Capital
- Societe Maxula Bourse
- Attijari Intermediation
- Tunisie Valeurs
- UBCI Finance
- Axis Capital Bourse
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.