Tunisia plans to issue more than $2bn in bonds in 2014, says central bank

Tunisia plans to issue around $1.8 billion in new foreign bonds with guarantees from the United States and Japan, and a $435 million sukuk, this year, in major steps to help its economy to recover after its 2011 uprising.

Three years after toppling autocratic leader Zine El-Abidine Ben Ali and inspiring other "Arab Spring" revolts, Tunisia has won support from Washington in its progress toward full democracy after approving a new constitution last week.

A new caretaker government has taken over to run the country until new elections later this year. But despite political progress, high living costs and a lack of economic opportunities are still the main concerns for many Tunisians.

The package of financing will be a major boost for the small North African country’s economic stability and growth to consolidate on the political gains that are seen by many as a model for transition in the region.

“The end of political crisis in Tunisia and the approval of the constitution and an independent government opened doors that were closed for Tunisian economy,” Chadli Ayari, the central bank governor, told Reuters in interview.

“We have operations to issue bonds this year, including bonds worth $880m with a guarantee from the United States and $1bn with the guarantee of Japan ... we have approval of the two governments and we will seek to do most of these operations in the first half of 2014.”

Washington has pledged to support the Tunisian economy and contribute to the success of the democratic transition in the birthplace of Arab Spring uprisings that followed in Libya, Egypt and Yemen, where violence and protests are still common.

In a signal of support, President Barack Obama on Monday invited Tunisian Prime Minister Mehdi Jomaa to visit Washington, days after his new Tunisian government replaced the Islamist party that took power after the 2011 uprising.

Ayari said between April and May, Tunisia could also issue for the first time an Islamic bond or sukuk worth 700m dinars ($435.85m) with the guarantee of the Islamic Development Bank.

Eye on inflation

The International Monetary Fund on Wednesday approved a $507m loan tranche for Tunisia, the second part of a $1.7bn credit agreed at the start of 2013.

Ayari said this year IMF will disburse 1.3bn Tunisian dinars ($809.44m), the last part of the 2013 deal.

International lenders had been waiting for progress in Tunisia's political transition but are also pressing the country to trim public subsidies and other state spending to cut a budget deficit that has reached 8.3 percent.

Ayari, who was appointed in July 2012, said that the World Bank will lend Tunisia this year $500m including $250m dollars in March. He also said the European Union will lend Tunisia 250m euros in the coming months.

Tunisia's foreign financing needs will be 5.5bn dinars ($3.42bn) in 2014, according to the central bank.

The governor said target inflation in 2014 is 5.4 percent, compared with 6.1 percent in 2013, adding that the bank is ready to raise interest rates again within months if consumer prices continue to rise.

Tunisia's central bank raised its benchmark interest rate to 4.5 percent from 4 percent in December, the second rise in 2013 to curb inflation, which reached 6.5 percent in March last year. Last month, inflation fell to 5.8 percent.

"We are ready to intervene again and hike benchmark interest rate over the months if inflation remains high, but we have also to stop the increase in public wages this year and launch austerity in the state budget to contribute to the reduction of inflation," he said.

Ayari said he expected the economy will grow 3.5 percent this year, down from a previous forecast of 4 percent.

"If political stability continues, we can achieve 3.5 percent," he said. "But it will not be enough to reduce unemployment."