Tunisia ready to weaken its currency after trade deficit expanded 57% in Q1 2017

African currencies have not fully recovered from the impact of a fall in commodity prices, among other issues that have affected economies in the region in recent times. Several countries in Africa have struggled to maintain the value of their currencies, using all forms of intervention to prevent continuous slide against the US dollar.

In Tunisia, where trade deficit expanded by 57 percent in the first quarter of 2017, the central bank has decided to reduce its interventions and allow the value of the dinar to steadily decline. The apex bank will, however, prevent a dramatic slide in the currency. It is expected that more exchange rate flexibility would help reduce the large trade deficit.

“The central bank is going to minimise its interventions to reduce the value of the dinar in a gradual slide of the dinar,” Finance Minister Lamia Zribi told local Express FM Radio. “But we will avoid a brutal devaluation like that in Egypt.” The dinar exchanged 2.3 to a dollar on Wednesday.

Tunisia’s new strategy is part of talks on reforms with the International Monetary Fund (IMF). The Fund is pushing Tunisia to reduce public spending. The country’s public-sector wages is among the highest in the world compared with gross domestic product, according to Reuters. The IMF also called for tighter monetary policy which it says would reduce inflationary pressures.

On Monday, the IMF agreed to release $320 million to the North African country, a delayed tranche of its $2.8 billion in loans, which had been held up by concerns over Tunisia’s lack of progress in its reforms.

An IMF statement said Tunisia had agreed to prioritize increasing tax revenue, reducing the public-sector wages through civil-service reforms (including early retirement) and reducing energy subsidies.