18 Tunisia

International Monetary Fund
Published Date:
April 2005
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Developing a Sound Governance and Institutional Framework

Objectives and coordination

923. The strategic reserves management objectives of the Central Bank of Tunisia (CBT) are based on the following key points:

  • Guarantee of the external liquidity of the economy;

  • Preservation of the reserves holdings; and

  • Maximization of return on reserves.


924. Liquidity of reserves is the main management objective of the CBT. Liquidity is required to ensure financing of external payments imbalances and to intervene in the local exchange market, in order to avoid sharp adjustments of the Tunisian dinar exchange rate.

925. The liquidity objective is met by targeting appropriate investment instruments and currency structure. The currency structure of reserves is set in accordance with the currency structure of the settlement balance as well as CBT and government liabilities.


926. In order to safeguard reserves, the CBT has implemented a rigorous selection policy of markets, assets, and counterparts. In addition, an operating control system is in place to monitor exposure limits for credit and market risks. Furthermore, the CBT has forbidden short position taking and financial instrument short sale practices. The use of derivatives is only allowed for hedging needs.


927. The CBT aims to maximize reserves portfolio return subject to its liquidity and security constraints. Investment policy focuses on a dynamic allocation of reserves, using permissible instruments, in line with international capital markets outlook.

928. Tunisia has low foreign exchange intervention needs, given the floating managed exchange rate regime of the Tunisian dinar and capital movement restrictions. This provides some flexibility in reserves investment policy. Thus, the CBT has stretched the upper limit on money market from three to six months and has extended investment activity to international bond markets. In an attempt to limit the exposure to bond market risks, especially with respect to the two primary objectives of liquidity and security, the investment scope has been limited to government and supranational bond markets with a deep and liquid secondary market, which guarantee the highest level of security (i.e., U.S., German, and French government bond markets).

Institutional framework

929. According to Tunisian law, management of foreign reserves comes under the Tunisian Central Bank’s purview. There is no other independent entity in charge of it. Governance, management, and surveillance of the Central Bank of Tunisia are undertaken by the Governor appointed by the President of the Republic, the Board of Directors, and a censor who is appointed by decree, respectively. The Governor sets the bank’s organization. The lastest administrative chart gives the following configuration of the reserves management department:

  • Governor

  • Deputy Governor

  • General Manager of External Finance

    • Deputy General Manager charged with Payments and Follow-Up

    • Manager of External Financing and Market Operations

    • Deputy Manager of Market Operations

    • Department of International Market Operations

    • Department of Domestic Market Operations

      • Deputy Manager of External Financing

      • Department of Private Financing and Specialized Organizations

      • Department of Public Financing

    • Manager of International Relations and Treasury

      • Deputy Manager of International Relations

        • Department of International Organizations

        • Department of Banking Relations and Counterparts Follow-Up

      • Deputy Manager of Treasury

        • Back Office

        • Department of Treasury Projections

    • Manager of Payments and External Debt

      • Deputy Manager of Current Payments

      • Deputy Manager of External Debt

    • Manager of External Transactions Follow-Up

      • Deputy Manager of External Payments Follow-Up

      • SWIFT and Messages Unit

930. Strategic decisions on overall objectives and principles of reserves management policy are set by the Governor on proposal of the concerned departments (currency distribution, asset classes, limits, risk monitoring, etc.).

931. The operational framework of the policies adopted, and all decisions regarding investment strategy, currency exposure, credit risk, dealing counterparties, custodian arrangements, permissible instruments, etc., have to be approved by senior managers and by the Governor, on proposals of the concerned departments.

932. The managers of the reserve management department ensure that all operational guidelines are followed, and senior management is kept informed of all deals done, on a daily basis. Portfolio position is communicated daily to senior management, and weekly to the Governor.

933. There is an explicit separation among the front office, back office, and the entity responsible for SWIFT and messages. Pursuance of Treasury orders is immediately checked by the back office. Observance of limits (credit limits, permissible instruments, etc.) is checked through controls from the chief dealer, the back office, senior management, the banking relations department, and through frequent reporting to the Governing Board.

Management of operational risk and controls

934. Supervision of risks is conducted through a system of formal limits and several controls.

935. First, dealing is centralized in a single location: the dealing room. Dealing risks are minimized by a formal separation between the front office, back office, and SWIFT and messages unit. Formal deposit limits are set for each counterparty in terms of amounts and maximum deposit periods. Settlement risk for bond operations is reduced through a systematic and immediate checking of a counterparty’s confirmations (security type, accrued interest, nominal and net amounts, value date), prompt processing, and settling through receive (or deliver) against payment settlement procedures. Custodial risk is reduced by choosing good international clearing institutes (Federal Reserve Bank of New York, Euroclear, Clearstream, Bank of Tokyo Mitsubishi), and by undertaking a thorough custodian follow-up and systematic control of custodian statements.

936. Information technology risk is reduced by limiting access to data files and information system, a daily backing up of data files, and similar precautions. Financial errors are minimized through prompt transaction processing and recording, back office control measures, as well as accounting checks on a daily basis.

Transparency and accountability

937. To enhance the efficiency of reserves management policy and to trim down operating risks, the CBT has implemented an appropriate operational system based on risk exposure limits, cautious and prompt settlement processing, control measures, and frequent reporting. This operational system is managed by means of a computer system.

938. Regarding settlement processing, short-term investment operations on the international money market are generally settled the next day. Long-term deposits and foreign exchange transactions are treated on a spot value date basis. Concerning securities, transactions are done on a three-day settlement basis. Nevertheless, instructions of all the transactions have to be processed the same day in order to provide the required time to follow up on the settlement and to intervene in case of misstatement.

939. In other respects, the CBT has centralized settlement processing through the main correspondent for each currency to have standard settlement instructions. This has allowed cutting the misstatement risk, especially from the counterparty’s side. The CBT has also diversified custodial risk by holding three security custody accounts with different institutions (Federal Reserve Bank of New York, Euroclear, Clearstream, Bank of Tokyo Mitsubishi). The terms and provisions governing the relationship of the CBT with these correspondents and custody institutions point out clearly their responsibilities vis-à-vis the CBT and the reporting arrangements.

940. To improve the reserves management operational efficiency (either at the processing level or at the monitoring one), the CBT has implemented an integrated computer system. This system integrates the management of front and back office functions, and accounting of the operations in international capital markets. The system guarantees real-time transaction processing. It produces all the required statements to confirm and settle the transactions done by the front office, updates the treasury statements, generates book entries, and manages formal limits. The system also produces a variety of reporting statements for control and follow-up of the commitments.

941. The system also provides a large range of activity, treasury, and statistical reports. These reports allow control of transactions processing, and follow-up of risk and return management tools such as limits, duration, and performance.

942. The system structure separates front and back office functions. At the front office level, transactions done are booked into the system. The back office has the charge of checking the deal’s accuracy and entries before the final validation of the transaction. The SWIFT and messages unit is independent from the back office, offering thus an additional way to reduce settlement risks. The back office also copes with the follow-up of accounting records, and the reconciliation of all received reports from correspondents and custodians.

943. This computer system provides a hierarchical authorization system, based on passwords and random codes access controls, which restrict the scope of access of operators according to their function needs. Besides, the system referential is centralized and managed exclusively at the back office level.

944. Data backup is performed on a daily basis into the general specified server and periodically on separate magnetic supports. Furthermore, the system is highly protected with sophisticated virus detection software, and with an auxiliary server. In addition, the CBT dealing room is protected with a card access system and equipped with fire detection instruments.

945. Audit function is led by an internal entity. This entity undertakes periodic missions in order to assess reserves management operations processing, in accordance with objectives, principles, and operational procedures approved by the Governing Board of the Bank. No external auditing has until now been undertaken.

Establishing a Capacity to Assess and Manage Risk

Risk management

Liquidity risk

946. Liquidity is guaranteed through an appropriate asset allocation and an adequate time horizon for investment operations. About 5 percent of foreign currency reserves is maintained liquid to meet unanticipated treasury needs. Excess liquidity is invested daily in short-term bank deposits (TomNext or OverNight). About 65 to 70 percent of the reserves are invested in the money market, through bank deposits of 1-week to 6-month periods, on the basis of anticipated fund flows. The remaining 25 to 30 percent of the reserves are invested in AAA sovereign government and supranational bonds.

Credit risk

947. Credit risk is managed through an adequate choice of counterparties with sound financial backgrounds. These counterparties are constantly followed, especially through several rating agencies reports. Quantitative limits on deposit amounts and investment periods are set for each counterparty according to its rating. A continuous follow-up of the counterparties is ensured by an independent department, and limits are updated accordingly. Credit risk is controlled through constraints on permissible investment instruments. Only sovereign AAA government and supranational issues are allowed. Agencies and corporate bonds are excluded from the bank’s assets.

Market risk

948. Foreign exchange risk is managed by matching the structure of reserves currencies to the currency structure of the balance of settlements. Adjustments are made when major discrepancies from the objective structure arise, or to take profit from substantial differentials in interest rates, or following the Governor’s decision after proposals of the reserves management department. Equities are completely excluded from the asset portfolio, making the portfolio immune from stock market risks.

949. Interest rate risks are diminished through a choice of double duration limits: one on the global portfolio of reserves (nine months), and the second on the bond portfolio (two to three years). Long-maturity bonds (above 10 years), which are most sensitive to interest rate movements, are excluded from the portfolio. Constraints on permissible instruments are also a factor diminishing interest rate risks.

950. The use of financial derivative instruments (swaps and options) is made only for hedging purposes.

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