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Tunisia Working with IMF on ‘Fair’ Economic Program 

Tunisian President Kais Saied arrives for the closing session of the New Global Financial Pact Summit, Friday, June 23, 2023 in Paris, France. (Reuters)
Tunisian President Kais Saied arrives for the closing session of the New Global Financial Pact Summit, Friday, June 23, 2023 in Paris, France. (Reuters)
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Tunisia Working with IMF on ‘Fair’ Economic Program 

Tunisian President Kais Saied arrives for the closing session of the New Global Financial Pact Summit, Friday, June 23, 2023 in Paris, France. (Reuters)
Tunisian President Kais Saied arrives for the closing session of the New Global Financial Pact Summit, Friday, June 23, 2023 in Paris, France. (Reuters)

Tunisia is working with the International Monetary Fund on a "fair" economic reform program that takes account of vulnerable groups, central bank governor Marouan Abassi said on Friday.

His comments come after Tunisian President Kais Saied told IMF Managing Director Kristalina Georgieva during a meeting in Paris on Thursday that the fund's conditions to provide financial support to the North African country risk sparking civil unrest, the presidency said on Friday.

Abassi's remarks confirm a Reuters report that Tunisia has put forward an alternative proposal to the lender after President Saied strongly rejected what he called IMF "diktats".

Talks on a $1.9 billion loan have been stalled since October when Tunisia and the IMF reached a preliminary agreement, with Saied rejecting the idea of subsidy cuts and speaking out against the sale of state-owned companies.

Saied reiterated in his meeting with Georgieva that any required cuts to subsidies, mostly on energy and food, could have detrimental effects on the country, recalling deadly riots that hit Tunisia in 1983 after the government raised the price of bread.

US Secretary of State Antony Blinken this month urged Tunisia to present a revised plan. The European Union announced it would offer 900 million euros ($978.03 million) in loans contingent on an IMF program.

Without a loan, Tunisia faces a full-blown balance of payments crisis.

Most debt is internal but there are foreign loan repayments due later this year, and credit ratings agencies have said Tunisia may default.

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Vujcic: ECB Should Not 'Overreact' if Inflation Edges Below 2%

FILE PHOTO: The European Central Bank (ECB) in Frankfurt, is photographed during a heavy rain storm ahead of the ECB council meeting later this week, Germany, March 14, 2023. REUTERS/Kai Pfaffenbach/File Photo
FILE PHOTO: The European Central Bank (ECB) in Frankfurt, is photographed during a heavy rain storm ahead of the ECB council meeting later this week, Germany, March 14, 2023. REUTERS/Kai Pfaffenbach/File Photo
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Vujcic: ECB Should Not 'Overreact' if Inflation Edges Below 2%

FILE PHOTO: The European Central Bank (ECB) in Frankfurt, is photographed during a heavy rain storm ahead of the ECB council meeting later this week, Germany, March 14, 2023. REUTERS/Kai Pfaffenbach/File Photo
FILE PHOTO: The European Central Bank (ECB) in Frankfurt, is photographed during a heavy rain storm ahead of the ECB council meeting later this week, Germany, March 14, 2023. REUTERS/Kai Pfaffenbach/File Photo

The European Central Bank should not "overreact" to euro-zone inflation edging below its 2% target as there are good reasons to believe it will come back up, ECB policymaker Boris Vujcic told Reuters.

The ECB cut interest rates on Thursday for the eighth time in a year but signaled at least a policy pause next month, despite projecting inflation at just 1.6% next year. Inflation in the 20 countries that share the euro was 1.9% in May, according to a flash reading published last week.

Vujcic, who is also Croatia's central bank governor, said price growth was likely to bounce back later and that monetary policy should not try to do "precision surgery" on small fluctuations from its goal.

"A few tens of basis points' deviation on either side of the target is not a problem," Vujcic said in an interview on Saturday in Dubrovnik. "Because you will always have small deviations. If you consider them as a problem, then you will overreact. This is not precision surgery."

Vujcic said it was reasonable to expect inflation to edge back up as energy prices find a bottom and the economy accelerates. Euro strength is also unlikely to have second-round effects on prices unless it lasts several quarters, Vujcic said.

Some ECB policymakers, especially Portugal's central bank governor Mario Centeno, worry that euro-zone inflation may slow too much.

Vujcic said he sees the risks surrounding the inflation outlook as "pretty balanced" but cautioned there was "complete uncertainty" surrounding global trade tensions with US President Donald Trump's administration.

Vujcic recalled advice he received as a young deputy governor from then-Federal Reserve Chair Alan Greenspan: a high rate of inflation was more dangerous than a low one. Greenspan cited two decades of relatively benign deflation in the late 19th century, which was partly due to improvements in productivity, Vujcic said.

"Nobody cared about low inflation because of the productivity growth," he said. "You have a monetary policy problem to bring it up. Yes, but why would you insist so much if you don't have a problem in the economy?"

The ECB is reviewing its long-term strategy, including the role of massive bond purchases, or quantitative easing, in reviving inflation when it is too low.

The ECB injected some 7 trillion euros ($8 trillion) of liquidity into the banking system through QE and other tools over the past decade. These schemes were blamed for inflating bubbles in real estate and setting up the central bank for sizeable losses.

"The next time around, people will take the lessons from the previous episode, and I think that the bar for QE would be higher," Vujcic said.

He said QE could help stabilize dysfunctional markets - such as during the 2008 financial crisis and the COVID-19 pandemic - but if used "for years and years to try and bring inflation up, its marginal efficiency declines".

Such calls for self-criticism are shared by some policymakers in the ECB's hawkish camp. But sources told Reuters they were unlikely to feature in the ECB's new strategy document, to be published this summer.