Tunisian Dinar Devalued Amidst Persistent Economic Turbulence

The value of the Tunisian Dinar has recently reached one of its lowest points. One American Dollar is now exchanged at 1.5 Tunisian Dinars, the weakest it has been since June 2010.

Experts argue that the low exchange rate of the Tunisian Dinar relative to the American Dollar could be accounted for by a number of factors.

Skander Ounaies, economics professor at IHEC Carthage (University of Carthage) and former economist at Sovereign Wealth Fund of Kuwait – KIA (Kuwait Investment Authority), explained that the reduction of the Dinar’s value is, “either due to a rise in the value of the American Dollar without having any direct contact with the Dinar, or due to a decrease in the value of the Tunisian Dinar [caused by domestic factors affecting the economy].”

Professor Ounaies described a currency’s exchange rate as a reflection of the health of the economy it represents, and attributed the decrease the Tunisian Dinar’s value to numerous variables that have contributed to an unstable economic environment.

Following the ouster of Ben Ali, Tunisia has experienced a shaky socio-political and economic transition. Ounaies listed strikes, a lack of foreign and domestic investment, and a faltering tourism industry as the primary factors of the currency’s recent weakness. Remittances from Tunisians living abroad have also plunged in recent months due to the economic crisis in Europe. Ouanies cited the new government’s lack of focus in developing a comprehensive economic plan as having contributed to the lack of any visible improvement in the economic situation.

Other experts explain the Dinar’s drop as an indirect side-effect of fluctuating currency values in foreign markets. According to Hamadi Fehri, an economics professor at IHEC Carthage (University of Carthage) and former consultant of the International Commerce Fund, the drop in the Dinar’s value is due to fluctuations in the strength of the euro relative to the dollar.

Since 1992, the value of the Tunisian Dinar has been managed by a controlled float, pegged to a basket of currencies comprised of the country’s primary trading partners.

“I believe that external factors have contributed to this drop. It is due to the fluctuations in currency occurring in foreign markets. 90% of our commercial transactions are conducted with Europe so the devaluation of the Tunisian Dinar is an indirect consequence of external economic variability,” asserted Professor Fehri.

This decrease in the Tunisian Dinar’s value is expected to have repercussions on Tunisia’s import and export market, which will have a negative impact on the economy leading to a lower purchasing power.

“This currency drop is going to highly influence the costs associated with importing and exporting. Exporting will become cheaper, but this will only be beneficial to Tunisia if the country is actively manufacturing high demand products, such as those in the advanced technological sector. However, Tunisia primarily exports raw goods like olive oil and dates. Accordingly, imports are also going to become more expensive,” added Professor Ounaies.

Professor Fehri explained that though the current economic situation is difficult, it would have been even more severe if the Tunisian Dinar had dropped relative to the Euro instead, as Europe accounts for 55%-60% of Tunisia’s imports.

To counteract the recent trend, Fehri advised Tunisia to implement a low interest rate loan policy and provide incentives to attract investment.

“This situation will improve with the advent of increased capital return from foreign investment ” confirmed Ounaies.