Two key aspects of economic policy serve as the foundation for this trajectory. The first is a massive (and costly) fiscal push that has resulted in four consecutive years with historically high deficits, driving the national debt to unmanageable levels.

The second issue is the government’s lack of support for economic activity, which is instilling fear in the productive sector and slowing down economic growth due to a deteriorating business climate and heightened macroeconomic risks.

Additionally, the mechanism that might trigger a financial storm is becoming more apparent. The government is being forced to borrow more money from banks, national bondholders, and the Central Bank to pay a larger portion of its deficit domestically as a result of the closure of external funding sources.

This is driving away private industry, slowing economic expansion, raising inflation, worsening the quality of bank balance sheets, and increasing the possibility of a significant devaluation of the Tunisian dinar. All conditions are set for a financial crisis impacting the banking sector, currency exchange rates, and national debt.

Saied’s populist appeal has been based on his public pledge to uphold two principles: staunchly opposing an International Monetary Fund (IMF) programme to prevent the hardships it would cause the populace due to austerity, and combating corruption by forcing the “corrupt business elite” to give up its allegedly ill-gotten wealth through a legal process that threatens to put business owners in jail if they refuse.

The populace, weary of a turbulent decade marked by a rise in domestic corruption and numerous external bailouts, has resonated with these two ideas. But Saied’s strategy has also resulted in a surge in debt and a slowdown in growth, both of which are currently hurting the economy.

A financial blowout is a real possibility as a result of all this. Tunisia is on the verge of depleting its financial reserves. Until the elections, there is no assurance that the situation will stay under control. If a financial crisis breaks out, the nation might face a terrifying combination of state insolvency, economic collapse, severe social harm, and significant political difficulties due to the need to distribute substantial losses across the population.

A decrease in economic growth and a worsening of social conditions, including lower real earnings and higher unemployment, have already been brought about by the consequences of bad policy. Due to these results, the government has increased the size of subsidies, which further solidifies the unsustainable nature of public finances and adds to a large fiscal imbalance.

As a result, the nation must make tough decisions. A bold reform programme to increase economic growth, strong and resolute political leadership to maintain social cohesion, and, ideally, assistance from Tunisia’s international allies are all necessary for a smooth landing.

The practice of growing budget deficits to keep the economy afloat has not stopped, despite the shift in the political landscape from democratisation to the return of authoritarianism. The power-sharing government that came to office during the 2011 revolt initially sought to increase fiscal expenditures.

In 2020, the pandemic marked a turning point in Tunisia’s public finance management as the budget deficit soared to 9.4% of GDP. Saied’s tenure in office, particularly following the July 2021 “political coup,” has increased unsustainability, even though swift action was required to reverse a trajectory that was headed toward financial collapse. In fact, the budget deficit has been about 8% of GDP for the last three years.

Saied alone is accountable for an economic strategy that has renounced all semblance of budgetary discipline since he gave himself complete authority. Even at the expense of losing almost all of Tunisia’s conventional funding sources, he has chosen to split from the IMF and has turned to monetising a sizable portion of the fiscal deficit, which could hasten inflation.

This circumstance also raises concerns regarding Tunisia’s public debt prospects, both in the short and medium terms. The future course of the public debt is still unclear at this point. The most recent IMF prediction from April 2024 does not anticipate a return to strong growth.

In 2024 and 2025, the IMF projects GDP growth to be 1.8% and 1.9%, respectively. This increase is significantly less than the low growth of 2.7% in 2021–2023. Additionally, the IMF predicts that while fiscal expenditures as a percentage of GDP would decline, state income will continue to rise in 2024–2025.

This outlook is a moderately optimistic scenario since it would allow Tunisia to stabilise its public debt at less than 80% of GDP by 2025 by gradually reducing its budget deficit.

Although the Tunisian Ministry of Finance envisions a similar scenario, it predicts a slower rate of increase in budget revenues in 2024–2026 (7.4%).

If it weren’t for domestic political restrictions, mainly due to Saied’s resistance to structural changes like reducing subsidies, turning to the IMF, and privatising public firms, both scenarios could be considered probable. The state finds it challenging to make significant changes, especially in the short term, as a result of these policies and the high rate of 11.2% growth in fiscal expenditures between 2021 and 2023.

The currency rate’s behaviour is a key factor in determining future possibilities. The decline in foreign exchange reserves, the decline in public accounts, and the government’s refusal to reestablish communication with the IMF all weakened the Tunisian dinar’s strength in 2023.

Since 2019, the prohibition on the dinar’s floating has led to an estimated 40% increase in the real exchange rate. The increase is because of the combination of inflation from the eurozone and cumulative inflation since 2019, which has resulted in an overvaluation of the dinar in relation to the euro. This implies that a significant adjustment is likely to occur at some point, as was the case in Egypt recently after the 2024 devaluation.

If devaluation occurs in Tunisia, it would result in a steep decline in real wages, a spike in inflation, and a rise in the domestic cost of repaying external debt, all of which would present difficult adjustment issues. Furthermore, one would anticipate that balance sheet implications would harm the financial sector in the event of devaluation.

First, the state’s foreign exchange loans would skyrocket, raising the risk to its sovereignty. Second, because SOEs are exposed to both domestic and foreign debt, the number of non-performing loans (NPLs) to public-sector businesses would also increase. According to the most recent report on public enterprises, the primary public firms’ debt has reached $7.2 billion (annexed to the budget legislation 2023). Tunisian banks provided $2.6 billion of this debt, with international banks providing the remaining amount.

Analysts are still baffled by the recent handling of foreign exchange reserves. The reserves have varied over the last three years, indicating that the Central Bank has profited from external deposits at different points. The amount, time, or expense of these procedures, as well as the deadline for repayment, are not specified, though.

Foreign currency reserves have been depleted more recently due to the cessation of external financing; they have decreased from 150 days of imports in July 2021 to 125 days of imports during the first nine months of 2022 and 92 days during the same period in 2023.

Furthermore, there is much ambiguity about the number of usable reserves and net reserves at the Central Bank, even if the gross reserves officially stood at $7.4 billion in February 2024. As was evident when the Central Bank had to pay 850 million euros on a Eurobond that matured in February 2024, it must now rely increasingly on foreign exchange reserves to handle the increasing servicing of the external debt.

As Tunisia nears a repayment milestone of several years, the debt service burden will only escalate. In 2024 alone, it will consume nearly all tourist income and diaspora payments. In the end, the stability of the dinar is at risk due to limited access to foreign credits, which could cause it to decline significantly in the upcoming months. Since the end of 2022, the central bank has maintained its key rate at 8% to implement an accommodating monetary policy.

The real interest rate, however, is marginally negative. This is not helping domestic savings, which have dropped to a historically low 8% of GDP due primarily to income losses. Short-term remittances could be pushed downward by the growing likelihood of a dinar devaluation, a step linked to low interest rates, as Tunisians living overseas either wait for a devaluation before sending money home or deal in an unofficial, parallel market. These actions might then trigger a run on reserves, which would eventually result in a steep devaluation and start a downward trend.

Allowing such an event to occur would put Tunisia in a financial crisis from which it would be impossible to recover. But, Lebanon’s experience serves as an extreme example of what might happen if unfavourable expectations are not promptly addressed.

It will be very difficult to finance both domestic and external deficits in the coming days. There is a significant financial deficit because just $1.5 billion of the $5 billion needed for 2024 has been raised externally. On the domestic front, the substantial planned borrowing will maintain inflation while also pushing out the private sector.

An increase in inflation could be the primary threat to the current financial system. In the end, inflation causes devaluation, which raises the cost of repaying the external debt. Increased foreign cash shortages would pose a greater threat to the system as a whole, increasing the likelihood of a run on reserves and, given their significant exposure to public debt, a run on banks as well.

Due to these circumstances, Tunisia is susceptible to even the smallest shock, whether it comes from within or beyond. Only in the very short run is the current state of affairs sustainable.

A significant investment drive would theoretically help Tunisia pay off its debt, but doing so would necessitate a significant shift in internal policies as well as a substantial package of assistance from foreign allies.

In 2025 and beyond, Tunisia will be increasingly likely to be forced to choose between two unpleasant options: restructuring its debt or pursuing austerity with IMF assistance.

The post Troubling times ahead for Tunisia appeared first on International Finance.

Yassir, which means ‘easy’ in Arabic, is known for offering on-demand services like ride-hailing, food/grocery delivery, and payments, in six countries and 50 cities. The venture is highly popular in Algeria, Morocco and Tunisia.

Yassir, as of November 2023, has more than 8 million users and 130,000 service partners, while rapidly expanding in Algeria, Canada, France, Morocco, Tunisia, Senegal and South Africa.

“Three out of five on-demand activities in Algeria, its first market, are made via the platform. The super app, which has 8 million users and 100,000 partners, raised USD 150 million last year, and is moving into banking and payments,” Yassir remarked.

Knowing The Superapp In Detail

Under ‘Yassir Express’, the venture delivers a variety of products, be it food items, electronic devices, cosmetic goods, bakery items, grocery and pet products or toys through a selection of stores and brand chains.

Using the app, the customer can search the store for the product he/she desires to order, choose the goods and fill the product basket, and then issue the order.

‘Yassir Business’ ensures that the client companies undertake professional travels at a lower cost and less effort.

“The trips of your employees are recorded in real time and at the expense of the company without having to present an invoice for each trip,” Yassir explained the service through these words.

Through ‘Yassir Business’, the client businesses no longer need to have a fleet of cars to manage their employees’ journeys. Yassir’s new, clean and comfortable vehicles, accompanied by professional and experienced drivers, will do the heavy lifting.

The solution also enables the businesses to eliminate cash for their employees’ travels, while maintaining a better follow-up and analysis of the transportation costs. In fact, the clients can also exercise their discretion on whether the business journey is needed or not, thereby controlling their expenses further.

“Have visibility and better tracking of personnel transportation costs. Reduce your car fleet costs by digitalizing the process via Yassir Business,” the start-up commented further.

Knowing The Venture’s Partner Network

As mentioned earlier, Yassir operates through a network of ‘Service Partners’. The model operates in a way where the service partners don’t need to report to managers in an office set-up. They become their own bosses.

All these professionals need to do is download the ‘Yassir Chauffeur’ mobile app and enter their personal information and the data on their vehicles. Yassir then contacts these individuals to receive their applications and train them.

The candidates need to submit documents like a vehicle registration card, vehicle inspection card, insurance card, background check record, proof of residency, health certificate, driver’s license and vehicle owner authorization.

And yes, the candidate’s car has to be clean and safe, apart from having the dual airbag (a must). After the inspection, the candidate gets trained on using the Yassir Chauffeur app.

To become a ‘Delivery Partner’, the applicant needs to have prior field experience, apart from possessing a two-wheeler and a driver’s licence. Restaurants too can include themselves in Yassir’s ‘Partner Network’ by filling up an online form, where they need to mention information like their contact details, owner’s name, cuisine they are specialised in etc.

Yassir In News

In August 2023, French football giant Paris Saint-Germain signed a global partnership deal with Yassir, something which will help the start-up to shore up its brand value.

For the three football seasons, North Africa’s largest on-demand services and payments company will benefit from the visibility due to the brand presence PSG has.

“As part of the rights acquired, Yassir will feature on the LEDs in the legendary Parc des Princes stadium and will have the opportunity to address Paris Saint-Germain’s 200 million followers, one of the largest communities in world sport, live on social media in a bid to attract even more customers with its innovative campaigns,” both the signatories informed the media.

Now, in November 2023, Yassir raises USD 150 million in Series B funding from a series of prominent global investors. The investment round was led by BOND, with participation from DN Capital, Dorsal Capital, Quiet Capital, Stanford Alumni Ventures (aka Spike Ventures) and Y Combinator.

Since 2017, the venture has raised USD 193.25 million and now has become the most valuable start-up in North Africa, and one of the highest-valued companies in Africa and the Middle East. Building upon these successes, Yassir now plans to expand its reach into the MENA region further.

The post Start-up of the Week: ‘Young’ Yassir becomes North Africa’s ‘Superapp’ appeared first on International Finance.

The MENA region was surprised by the upside in 2022 despite the string of global shocks. In a briefing at the IMF-World Bank Spring Meetings, Jihad Azour, director of the IMF’s Middle East and Central Asia Department, said, “We estimate that real GDP rose by 5.3%, reflecting strong domestic demand and a resurgence in oil production.”

“However, growth is projected to slow this year to 3.1% due to tight policies to restore macroeconomic stability, agreed OPEC+ production cuts, and the fallout from the recent deterioration in global financial conditions,” he said.

Development among MENA oil exporters is anticipated to decrease, from 5.7% in 2022 to 3.1% in 2023, as most of the countries’ critical development drivers transition from oil to non-hydrocarbon activity.

Growth is also forecast to decline in the region’s developing markets, falling from 5.1% in 2022 to 3.4% in 2023. In comparison, low-income nations will continue to lag growth at 1.3% this year as they battle with high commodity prices, macroeconomic instability, and nation-specific fragilities, according to Azour.

He claimed that although the GCC’s growth will be slower due to the OPEC+ production cuts, higher oil prices will compensate for the adverse effects on the fiscal and external balances. However, MENA oil importers may see more significant fiscal and international pressures due to increasing oil prices.

Azour also said that the countries in this part of the world face four challenges in 2023, which are dealing with the effects of inflation, global uncertainty, international financing difficulties, and economic reform developments.

He also explained that dealing with inflation may require increasing interest rates, which affects economic growth. At the same time, uncertainty and geopolitical tensions pervade all global horizons, and their consequences fall on everyone’s shoulders.

He claimed that inflation in the area is expected to hold steady at over 15% in 2023 after skyrocketing last year before mildly falling in 2024.

Meanwhile, talking about MENA, Italian Foreign Minister Antonio Tajani said that his country wants the IMF to start disbursing a loan to Tunisia without conditions.

During a press conference with his Tunisian counterpart, Antonio Tajani vowed to work on Tunisia’s behalf in negotiations with the IMF, repeating Italy’s proposal that the loan be delivered in two tranches and not be fully dependent on all reforms being in place.

“But not utterly conditional on…the conclusion of the reform process. Start financing, encourage the reforms,” he told reporters.

President Kais Saied recently rejected IMF “diktats”, which asked Tunisia to carry out economic reforms and subsidy cuts as terms for the stalled bailout.

Saeed said he would not hear “diktats” from abroad, warning that the subsidies could lead to unrest.

European leaders feared the collapse of the Tunisian economy could increase the migrant crisis further.

Tunisia’s debts amount to about 80% of its gross domestic product, and it reached a preliminary agreement with the IMF in October 2022 for a new USD 1.9 billion loan to help overcome the financial crisis.

However, talks did not bear any fruitful results after Tunisia failed to implement a reform program to restructure more than 100 indebted state-owned companies and lift subsidies on some essential goods and services.

The post IMF predicts slow growth for MENA economies appeared first on International Finance.

More specifically, in the first half of 2018 the sukuk issuance dropped by 15.3% by comparison with the same period last year. The question now confronting the GCC countries is—what this means to this year’s slowdown and the declining demand for funds: It seems the ‘absence of major issuances from the GCC countries seen in 2017’ is the chief reason to conclude in an unexpected decline. S&P Global Ratings Head of Islamic Finance, Dr. Mohamed Damak told Gulf News: “In the second half of 2018, we expect sukuk issuance volumes will continue to be slowed by the global tightening of liquidity conditions as well as by lower financing needs of some GCC countries as a result of oil prices stabilising at higher levels.”

“Overall, we think that the liquidity channelled to the sukuk market from developed markets will reduce and become more expensive.” Along the same lines, ”the US Federal Reserve is expected to hike its federal funds rate by another 50 basis points (bps) in the second half of 2018 after the two increases of the first half, while GCC central banks will probably mirror such an increase due to the fact that their currencies are pegged to the US dollar,” reported Gulf News.

“Currently, European and USbased investors account generally for about one-quarter of sukuk investment in terms of volume. At the same time, muted economic growth and declining lending activity in the GCC has shifted banks’ focus to capital market activities in hopes of achieving higher yields than with cash and money market instruments,” Damak remarked. Indeed, if there is one highlight to be noted from this unforeseen market drop: it is how jumbo issuances of some GCC countries have dominated the market, and, of course, the irksome impact these countries have on sukuk as a result of muting demand for funds. For example: Kingdom of Saudi Arabia, in particular, raised the highest share of sukuk worth $27 billion, which underpinned last year’s sharp increase in issuance. It shows that a decrease in demand for funds from GCC governments and corporates will hugely affect the ‘jumbo local and foreign currency issuance from the region’.

This brings us to other countries now. In understanding S&P’s global study on sukuk market, Malaysia is no different. In total, S&P expects the country’s volume of issuance to range between $70 billion and $80 billion this year, again in comparison to last year’s value at $97.9 billion. However, analysts say the country will continue to brace its market growth because of the government’s support toward Islamic Finance.

In apparently significant numbers, Islamic Finance is becoming quite popular across Africa because of increase in demand for funds, and investors have slowly become comfortable with Sharia-compliant products, observed Moody’s report. It is understood that Africa’s prominent Muslim population, which is largely underbanked is hoped to better the chance for Islamic banking assets which currently ‘represent less than 5 percent of total African banking assets’.

Nevertheless, “The number and size of Islamic banks in Africa will increase,” Nitish Bhojnagarwala, senior credit officer at Moody’s, said. Although the African banking sector has ‘witnessed an increase in the number of licensed Islamic banks in recent years’, its Islamic bonds constitute only 0.5% of the global sukuk market. Akin Majekodunmi, vice-president and senior credit officer at Moody’s, said: “The desire within Africa for stronger investment links with the fast-growing economies in the Gulf and Asia that have large Muslim populations with large pools of capital will help drive the issuance of sukuk on the continent.” The continent has raised $2.3 billion, since 2014. At a glance, “both sukuk issuance and Islamic banking assets’ are expected ‘to continue to grow quickly in Africa from a low base.”

But this is not it. For now, Moody’s has identified 18 countries with good potential for Islamic Finance growth including Egypt, Morocco, Algeria and Tunisia.

The post Sukuk spread its wings to Africa appeared first on International Finance.