Moez LABIDI University of Monastir - Tunisia Tunisian Macroeconomics : Waiting for Political Stability & Structural Reforms THE POLITICAL ECONOMY OF TRANSFORMATION IN THE ERF REGION Tunis October 27-28, 2013
Feb 15, 2016
Moez LABIDIUniversity of Monastir - Tunisia
Tunisian Macroeconomics : Waiting for
Political Stability & Structural Reforms
THE POLITICAL ECONOMY OF TRANSFORMATION IN THE ERF REGION
Tunis October 27-28, 2013
1 - Economic policy facing the « revolution shock »
3 - « Confidence shock » vs « Distrust schock »
2
2 - The challenges of democratic transition in Tunisia
4 - Conclusion
Moez LABIDI - ERF - Tunis october 27-28 20132
1 - Economic policy facing the « revolution shock »
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3
Fiscal policy Expansionary spending policy
Wage increase
Massive public sector hiring
Bailout of businesses
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budget deficit
Political uncertaintyDownturn in fiscal revenuesIncreasing social demands
Public debt
[ 7,4 %] [ 48 %]
2013 2013
Public expenditures
[ + 65 %]
2010 - 2013
Monetary Policy : ultra-expansionary
Distortion in Monetary policy Transmission mechanisms
Political uncertaintyinsecurity
Banking fragility [NPL = 14 %]
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12,5 %
2 %
4,5 %
3,5 %
Interest rate Reserves requirements
TND 5 Billion
Liquidity injection
4 %CB lending rate
The upper limit of the corridor[ ]
Money Market
rate
Austerity
?Austérity
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Public consumption
Recruitment
Wages
Private consumption
Consumer credit
WagesC
I
X
Institutional cacophony
Rising insecurity
Strikes / Sit-inDomestic
Eurozone crisisExternal
Growth2013
[2.5 % - 3 % ]
Monetary policy
Fiscalpolicy
Central bank injections
Current expenditures
TND 5 billion
2010 2010
[ + 88 %]
Stabilize the exchange rate
Foreign exchange
reserves fall
Sell foreign currencies
Stabilize the foreign exchange reserves
Sharp currency depreciation
No market intervention
Exchange rate policy : Tunisian Central Bank faces dilemmaDownward pressure on
the dinar
7
2010 2013
147 days 103 daysDEC OCT
2010 2013
EUR/TNDUSD/TND
1.921.43
2.241.64
DEC OCT
1 - Economic policy facing the « revolution shock »
8
2 - The challenges of democratic transition in Tunisia
Moez LABIDI - ERF - Tunis october 27-28 20138
An urgent need for jobs and investment
Govermental limited resources
Current economic situation
Tunisians’ expectation
s
Social challenge
Seek refuge in easy solution
Deterioration in fiscal balances
Inability to generate a positive confidence shock
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Clearer political and economical vision New perspectives
gap
15,9 %
Unemployment Rate Overall University graduates
32 %
83 % of total revenue
Tax Revenue
Pressure on bank liquidity
Boosting investment
Purchasing power decrease Negative real interest rate
Low Saving rate
(17,3 % )
Financing needs Businesses bailout
Shortage of liquidity
Allocation of long-term resources
Central bank intervention
Deposit withdrawls (early 2011)Banks largely undercapitalized
A marginal Bond Market
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2013Inflation : 5.8 % SEP
Currency reserves decrease
Economy funding
foreign investment fallCurrent account deficit
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External debt
International markets
Multilateral / Bilateral
Regional development funding projects
Budget
Heavy External financing requirements
BB+
Ba2B
Speculative grade
?
- IM guaranteed
2012 - 2013 [- 21,2 %]8 months2012 [8 % of GDP ]
1 - Economic policy facing the « revolution shock »
3 - « Confidence shock » vs « Distrust schock »
12
2 - The challenges of democratic transition in Tunisia
Moez LABIDI - ERF - Tunis october 27-28 201312
Confidence shock
Distrust shock
Good governancein democratic transition processes
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« Confidence shock » verus « Distrust shock »
Poor governancein democratic transitionprocesses
Confidence shock
Distrust shock
Investment spending
Budget adrift
Protest fever(wages, Recruitment)
Positive consequence on the structural reforms agenda
Switch to a new development model
Shor
t
term
Long
ter
m
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Pass urgent reforms
More flexibility for the public finance
Investment spending
Keeping the old development model
Negative consequence on the structural reforms agenda
1 - Economic policy facing the « revolution shock »
3 - « Confidence shock » vs « Distrust schock »
15
2 - The challenges of democratic transition in Tunisia
4 - Conclusion
Moez LABIDI - ERF - Tunis october 27-28 201315
Interaction : Economical / Political
Economic policy succes : First Test / Second Test
Challenge : New development model / old development model
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1
2
3
Political transition
Economic transition
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Interaction : Political / Economic
Political
impasse
Financial
Impasse
Reforms
Blocking
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Avoid the spectre of « credit crunch »First Test
Generating a « confidence shock»Second Test
Economic policy succes
Success
Failure
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Confidence shock
Distrust shockPass
urgent reforms
New development model
Fiscal consolidationImproving macroeconomic balances
Undertake structural reforms
Old development model
Delays in urgent reforms
Budget adrift
Worsening macroeconomic balances
Block structural reforms
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Switch to a new development model?
Thank You