TUNISIA : Currency to depreciate by 15% to 20% in 2019

TUNIS (Capital Markets in Africa) – Citi Research indicated that the Tunisian dinar (TND) has been under pressure since early 2018, as the exchange rate depreciated by 20% in 2018. It attributed the weakening of the dinar to the sustained fiscal and current account deficits, as well as to the very limited progress in economic reforms, even though the country has a financial agreement with the International Monetary Fund that is linked to achieving pre-set targets. Citi Research expected limited fiscal consolidation in 2019 year in the run-up to the national elections that are scheduled at the end of 2019, and as Parliament enacted a relatively expansionary budget for 2019. Also, Citi Research noted that official foreign currency reserves have declined to a critical level of less than three months of import cover.

Furthermore, Citi Research considered that, despite the previously mentioned challenges, it is still unclear if Tunisia has reached a critical economic or political point where the government will be forced to significantly adjust its exchange rate, similar to the adjustment that Egyptian authorities had to make to the Egyptian pound in November 2016. It noted that Tunisia has managed so far to avoid a currency adjustment due to its ability to attract considerable levels of international financial support, despite the slow pace of reforms. Overall Citi considered that the Tunisian dinar remains overvalued despite its significant depreciation since 2018. It expected the exchange rate to depreciate by only 15% to 20% and to reach TND3.5 against the US dollar by the end of this year, in case financial support from the international community persists.