Tunisia: risk of currency, sovereign debt crises growing

Tunisia’s fragile external position has deteriorated further since the onset of the Iran war and the dinar appears increasingly overvalued. Officials have tightened access to foreign currency in a bid to preserve depleted foreign exchange reserves, but these measures are likely to harm economic activity. A large depreciation in the dinar will eventually be needed, and the risk of a disorderly adjustment is growing. That in turn would probably trigger a sovereign default.