Tunisia’s central bank cut the benchmark interest rate for the first time since 2011 in an attempt to revive economic growth after militant attacks took a toll on tourism.
The central bank’s board lowered the key interest rate by 50 basis points, or half a percentage point, to 4.25 percent “to help provide the suitable environment to stimulate investments,” it said on its website. An expected drop in the rate of inflation made the decision possible, it said.
“The rate cut should help a bit with domestic demand, but it’s not enough on its own to revive economic growth," Razan Nasser, senior Middle East and North Africa economist at HSBC Holdings Plc, said by phone. “The main issue Tunisia is suffering from is lack of confidence. They need the return of tourists, they need foreign investments and those require stability and security."
While Tunisia has been spared most of the unrest that hit neighboring countries during the 2011 Arab Spring uprisings, its economy was hurt by two militant attacks that killed about 60 tourists this year. The tourism industry makes up about 7 percent of Tunisia’s economic output and employs 15 percent of the workforce, according to the International Monetary Fund.
Economic growth is excepted to slow to 0.5 percent this year before expanding 2.5 percent in 2016, the central bank said. High unemployment, coupled with the soaring cost of food, was the catalyst for the popular revolts that began in Tunisia in 2010 and spread to other countries in the Middle East including Egypt and Syria.
IMF Managing Director Christine Lagarde said last month that Tunisia’s growth rate is insufficient to cut the jobless rate.
The North African nation will start talks with the IMF for a loan of at least $1.7 billion dollars next month, central bank governor Chadli Ayari said in September. The government may also sell U.S.-backed bonds this year to shore up public finances.
The yield on Tunisia’s $1 billion of 5.75 percent Eurobonds due in 2025 climbed 6 basis points to 6.57 percent as of 12:14 p.m. in Tunis, the highest since it was sold in January, data compiled by Bloomberg show.
Investor sentiment will rise if the security situation improves in 2016, Alp Eke, senior economist at the National Bank of Abu Dhabi, said by e-mail. The rate cut, along with the continuation of IMF and African Development Bank programs, should help the economy reach the government’s growth target, he said.