Tunisia - The Executive Board of the Central Bank of Tunisia (BCT) on July 31, 2024 decided to keep the Bank's key rate unchanged at 8%.

The Board underlined in a statement issued at the end of its meeting, that priority should now be given to consolidating the disinflationary process and preserving macroeconomic and financial stability.

The Board reviewed the latest economic and financial developments at national and international level.

It also reviewed the development of banking activity in 2023 and during the first half of 2024 in terms of financing the economy and mobilising savings, as well as the financial solidity and challenges facing the banking sector in the coming years.

In terms of consumer prices, after a pause in May 2024 (7.2% year-on-year), the inflation rate rose slightly to 7.3% in June 2024 from 9.3% a year earlier, due to the acceleration in fresh food prices.

As for the measure of core inflation 'excluding fresh food and products at administered prices,' it continued its downward trajectory, down from 7.3% in May to 7.2% in June 2024.

As regards the external sector, the Board points to the continued contraction of the current account deficit in the first half of 2024 to TND -2,388 million (or -1.4% of GDP), compared with TND -3,164 million (or -2% of GDP) a year earlier.

This development is due, notably, to the narrowing of the trade deficit (FOB-CAF) by 7.7% to TND -8,017 million, despite the worsening of the energy balance, which showed a deficit of TND -5,794 million at the end of the first six months of the current year.

Tourism receipts and Tunisian workers' remittances increased by 6.6% and 7.2%, respectively.

The net foreign exchange assets stood at TND 24,500 million (111 days of imports) on July 30, 2024, compared with TND 23,250 million (101 days of imports) a year earlier.

The Board examined in this connection, ways to further consolidate the stock of reserves.

In terms of bank financing, the Board expressed concern over the slowdown in lending to the economy during 2023 and the first half of 2024, which mainly involved loans to small and medium-sized enterprises (SMEs) and individuals, in line with the economic context and continuing inflationary pressures.

//Need to pool efforts of all stakeholders to support companies//

The Board underscored the need to pool the efforts of all stakeholders to support companies, ensure their viability and preserve jobs.

Meanwhile, it underlined the positive development of the banking sector's role in raising deposits, which have continued to grow at the same rate as in previous years, i.e. an average of 8%, thanks to the BCT's decision to raise the rate of interest on savings three times in 2022 and 2023.

'This situation, combined with the slowdown in credit growth, has helped improve the bank's liquidity situation,' explained the BCT.

The banking sector has also maintained its efforts to strengthen its financial solidity and risk coverage, as evidenced by the steady rise in the sector's overall solvency ratio, which has exceeded 14% (for a regulatory ratio of 10%), thanks to improvements in its performance indicators and the proactive measures decided by the BCT since the COVID-19 crisis to regulate dividend distribution policies.

This process has consolidated the conditions for financial stability and boosted the banks' ability to cope with the pressures generated by the renewed rise in the share of classified loans from 2023 onwards and the challenges posed by climate change.

The Board invited the BCT to complete as soon as possible the process of adapting the prudential framework to converge gradually with international standards and to ensure the integration of the environmental dimension and green finance in governance and bank financing practices.

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