April 19, 2017 / 6:43 PM / 9 months ago

UPDATE 2-Tunisia dinar falls to historic low against euro

(Adds details)

By Tarek Amara

TUNIS, April 19 (Reuters) - Tunisia’s dinar currency hit a record low against the euro on Wednesday as a worsening trade deficit and lower remittances from overseas eroded the country’s foreign currency reserves.

The dinar traded at 2.53 against the euro and 2.36 against the dollar on Wednesday, according to central bank figures. On Tuesday it was 2.50 dinars versus the euro.

The local currency declined after Finance Minister Lamia Zribi said on Tuesday that the central bank would reduce interventions so that the value of the dinar gradually declines, though she said it would prevent a dramatic slide.

Zribi said the dinar value reflected the country’s economic situation and the lower reserves caused by the large trade deficit and a decrease in the remittances sent from Tunisians living abroad.

Tunisia’s trade deficit expanded by 57 percent to reach 3.87 billion dinars ($1.68 billion) in the first quarter of this year compared with the same period a year ago, following a jump in imports.

Tunisia’s foreign reserves stood at 12.51 billion Tunisian dinars ($5.43 billion), or the equivalent to cover 103 days of imports compared with 107 days in the same period a year ago, according to the central bank.

“This is an historic decline ... The dinar fell 13.6 percent in a year compared to the dollar and the euro, which is a large proportion,” local financial risk expert Mourad Hattab told Reuters.

He said the government should reduce the high level of imports to avoid “catastrophic results from the dinar’s drop”.

The IMF agreed this week to release a delayed $320 million tranche of Tunisia’s $2.8 billion in loans.

It called in a statement for tighter monetary policy that would counteract inflationary pressures, and said “greater exchange rate flexibility would help narrow the large trade deficit”. (Reporting by Tarek Amara; writing by Patrick Markey; editing by Gareth Jones)

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