Real GDP growth rose to an estimated 2.6% in 2018 from 1.9% in 2017, spurred by agriculture (8.7% growth) and market services (3.2%). This trend is projected to continue in 2019 and 2020. On the demand side, investment (5% growth) and exports (2.7%) are projected to be the primary drivers of growth.
Tailwinds and headwinds
The budget deficit and the current account deficit both improved in 2018, and this trend is projected to continue in 2019 and 2020. But improvement will be slow because of a high wage bill as well as the structure of the trade deficit linked to import demand, which increased by 16% in the first eight months of 2018 compared with 2017. The dinar depreciated 19% against the US dollar and the euro in 2018. Inflation rose sharply in 2018 to an estimated 7.4% due to exchange rate passthrough, an increase in the value added tax, and higher oil prices but is projected to decline in 2019 after the central bank tightened monetary policy in the second quarter of 2018. The dinar depreciated 19% against the US dollar and the euro in 2018, stressing foreign exchange reserves.
In the medium term, the main challenge will be to reduce unemployment and regional disparities. Some 15.4% of the working-age population is unemployed, including 31% of college graduates. But there are large differences between coastal regions, where most investment and jobs are concentrated, and interior regions. Reducing social and regional disparities will require updating the existing development model and accelerating structural reforms. The role and scope of the government’s intervention in the economy need to be re-evaluated, with an emphasis on improving public spending efficiency by prioritizing expenditures likely to benefit the broader economy and the private sector in particular. Although public spending has increased considerably since 2011, the fiscal framework, which relies on borrowing to finance current expenditures instead of capital expenditures, remains largely unchanged. The public debt, the majority of which is external (70%), increased by 71% between 2010 and 2018, raising Tunisia’s external vulnerability.
Tunisia has several strengths that can be exploited. In addition to its geographic proximity to Europe, Tunisia also possesses agricultural and agrofood potential, which could spur growth and generate jobs. With an average production of 190,000 tons, Tunisia became the world’s second largest olive oil producer in 2017 behind Spain, and growing global demand could absorb double that amount. Tunisia also has substantial phosphate deposits and was the world’s fifth largest producer until 2011. It also has gas deposits for domestic consumption. The improving security situation is reopening possibilities for new investment in tourism. Finally, Tunisia has a diversified industrial base (aeronautics, chemical industry, and textiles), but it would need to be upgraded to play a decisive role in the structural transformation of the economy.
- 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.