Tunisia – PM Chahed sacks the central bank governor

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François Conradie | NKC African Economics

On Wednesday, February 7, Prime Minister Youssef Chahed sacked Chedly Ayari, governor of the Bank of Tunisia (BCT, central bank).

To be technical, Mr Ayari recommended to President Beji Caid Essebsi that Mr Ayari be sacked, and the president acted on his advice. He also accepted Mr Chahed’s nomination for Mr Ayari’s replacement: Marouane Abassi, a Sorbonne-educated career economist who has taught at Carthage University and who has most recently worked as the World Bank’s representative in Libya.

The change still needs to be ratified by the House of People’s Representatives but we consider ratification certain.

Mr Chahed’s decision came only hours after the European Union (EU) Parliament put Tunisia on a blacklist of countries in the world most exposed to money laundering and financing of terrorism. Mr Ayari had been governor of the Bank since 2012, when he returned from retirement at the request of the Constituent Assembly, the transitional legislature.

His advanced age (he is 84) and lack of progress on money laundering issues created expectations among many in Tunisia and abroad that he should be replaced, and the EU Parliament’s decision tipped the scales.

Corruption in Tunisia remains a central concern for the country’s ability to implement reforms and revive the ailing economy. Not only does corruption weaken the business environment but the lack of action to address these issues results in low confidence levels of the general society in its leaders.

A growing concern over basic human rights, inequality, and corruption, coupled with high unemployment, are expected to continue to fuel protests, thus further exacerbating the lack of reform efforts.

According to the World Economic Forum’s Global Competitiveness Index report, the most problematic factors for doing business in Tunisia are an inefficient government bureaucracy, corruption, policy instability, restrictive labour regulations, and government instability.

The change at the central bank is positive, on balance, even if many in Tunisia are decrying what they see as EU interference in their affairs. Mr Abassi will probably be in a better position to address money laundering issues than Mr Ayari, and will have a good working relationship with foreign financiers. This may have a positive effect on the rate Tunisia can end up having to pay when it issues bonds (current plans are for an €850m issuance in March).

Additionally, the successful issuing of the planned Eurobond will help slow the rapid decline in Tunisia’s foreign reserves, which have tumbled to roughly 2.8 months of import cover by end-January.

In turn, this could arrest the slide in the dinar against the euro over the short term, but the imminent need to adopt a more flexible exchange rate regime to improve the country’s trade balance and external position will raise inflationary pressures and interest rates.

Nevertheless, reforms are expected to continue at a snails-pace amid ongoing political and social difficulties, leaving a challenging environment for the new central bank governor to implement tighter monetary policy.