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Moez LABIDI University of Monastir - Tunisia

THE POLITICAL ECONOMY OF TRANSFORMATION IN THE ERF REGION. Tunis October 27-28, 2013. Tunisian Macroeconomics : Waiting for Political Stability & Structural Reforms. Moez LABIDI University of Monastir - Tunisia. 2 - The challenges of democratic transition in Tunisia.

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Moez LABIDI University of Monastir - Tunisia

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  1. THE POLITICAL ECONOMY OF TRANSFORMATION IN THE ERF REGION Tunis October 27-28, 2013 TunisianMacroeconomics : Waiting for PoliticalStability & Structural Reforms Moez LABIDI University of Monastir - Tunisia

  2. 2 - The challenges of democratic transition in Tunisia 4 - Conclusion 1 - Economicpolicyfacing the « revolutionshock » 3 - « Confidence shock » vs « Distrustschock » 2 Moez LABIDI - ERF - Tunis october 27-28 2013

  3. 1 - Economicpolicyfacing the « revolutionshock » 3 Moez LABIDI - ERF - Tunis october 27-28 2013

  4. Fiscal policy Expansionaryspendingpolicy Public expenditures Bailout of businesses Wageincrease 2010 - 2013 [ + 65 %] Massive public sectorhiring Politicaluncertainty Downturn in fiscal revenues Increasing social demands 2013 2013 budget deficit Publicdebt [ 7,4 %] [ 48 %] 4 Moez LABIDI - ERF - Tunis october 27-28 2013

  5. Monetary Policy : ultra-expansionary Reservesrequirements Interest rate Liquidity injection 4,5 % TND 5 Billion 12,5 % 4 % CB lending rate Money Market rate ] [ 2 % 3,5 % The upperlimit of the corridor Politicaluncertainty insecurity Bankingfragility[NPL = 14 %] Distortion in Monetarypolicy Transmission mechanisms 5 Moez LABIDI - ERF - Tunis october 27-28 2013

  6. Fiscal policy Austérity Currentexpenditures ? Recruitment Wages Public consumption Austerity C I X Consumer credit Wages Privateconsumption Monetarypolicy Institutionalcacophony Risinginsecurity Growth Central bank injections 2013 TND 5 billion Domestic [2.5 % - 3 % ] Strikes / Sit-in 2010 2010 External Eurozonecrisis [ + 88%] 6 Moez LABIDI - ERF - Tunis october 27-28 2013

  7. Exchange rate policy : Tunisian Central Bank faces dilemma Downward pressure on the dinar Stabilize the exchange rate Stabilize the foreign exchange reserves Sellforeigncurrencies No market intervention Foreign exchange reservesfall Sharp currencydepreciation 2010 2013 2010 2013 DEC DEC OCT OCT EUR/TND 1.92 2.24 103 days 147 days USD/TND 1.43 1.64 7

  8. 2 - The challenges of democratic transition in Tunisia 1 - Economicpolicyfacing the « revolutionshock » 8 Moez LABIDI - ERF - Tunis october 27-28 2013

  9. Social challenge Unemployment Rate Overall Universitygraduates Tunisians’ expectations An urgent need for jobs and investment 15,9 % 32 % Clearerpolitical and economical vision New perspectives gap Seek refuge in easy solution Deterioration in fiscal balances Inability to generate a positive confidence shock Currenteconomic situation Tax Revenue Govermentallimitedresources 83 % of total revenue 9 Moez LABIDI - ERF - Tunis october 27-28 2013

  10. Pressure on bankliquidity Financingneeds Boostinginvestment Businesses bailout Allocation of long-termresources Shortage of liquidity Deposit withdrawls (early 2011) Banks largely undercapitalized A marginal Bond Market Central bank intervention LowSaving rate (17,3 % ) Purchasing power decrease Negative real interest rate 2013 Inflation : 5.8 % SEP 10 Moez LABIDI - ERF - Tunis october 27-28 2013

  11. HeavyExternalfinancingrequirements Economyfunding Budget Regionaldevelopmentfundingprojects International markets - IM guaranteed Externaldebt ? Currencyreservesdecrease Multilateral / Bilateral Ba2 B BB+ Speculative grade [- 21,2 %] 2012 - 2013 foreigninvestmentfall Currentaccountdeficit 8 months [8 % of GDP ] 2012 11 Moez LABIDI - ERF - Tunis october 27-28 2013

  12. 2 - The challenges of democratic transition in Tunisia 1 - Economicpolicyfacing the « revolutionshock » 3 - « Confidence shock » vs « Distrustschock » 12 Moez LABIDI - ERF - Tunis october 27-28 2013

  13. « Confidence shock » verus « Distrustshock » Good governance in democratic transition processes Poorgovernance in democratictransitionprocesses Confidence shock Distrustshock 13 Moez LABIDI - ERF - Tunis october 27-28 2013

  14. Confidence shock Distrustshock Pass urgent reforms Protestfever (wages, Recruitment) Investmentspending Investmentspending Short term More flexibility for the public finance Budget adrift Negativeconsequence on the structural reforms agenda Positiveconsequence on the structural reforms agenda Long term Keeping the olddevelopment model Switch to a new development model 14 Moez LABIDI - ERF - Tunis october 27-28 2013

  15. 2 - The challenges of democratic transition in Tunisia 4 - Conclusion 1 - Economicpolicyfacing the « revolutionshock » 3 - « Confidence shock » vs « Distrustschock » 15 Moez LABIDI - ERF - Tunis october 27-28 2013

  16. Interaction : Economical / Political 1 Economicpolicysucces : First Test / Second Test 2 Challenge : New development model / olddevelopment model 3 16 Moez LABIDI - ERF - Tunis october 27-28 2013

  17. Interaction : Political / Economic Political transition Economic transition 17 Moez LABIDI - ERF - Tunis october 27-28 2013

  18. Political impasse ReformsBlocking Financial Impasse 18 Moez LABIDI - ERF - Tunis october 27-28 2013

  19. Economicpolicysucces First Test Avoid the spectre of « creditcrunch » Second Test Generating a « confidence shock» Success Failure 19 Moez LABIDI - ERF - Tunis october 27-28 2013

  20. Switch to a new development model ? Confidence shock Distrustshock Pass urgent reforms Delays in urgent reforms Fiscal consolidation Improvingmacroeconomic balances Budget adrift Worseningmacroeconomic balances Undertake structural reforms Block structural reforms New development model Olddevelopment model 20 Moez LABIDI - ERF - Tunis october 27-28 2013

  21. Thank You

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