Press Information Notice: IMF Concludes Article IV Consultation with Tunisia

June 5, 1997

Public Information Notices (PINs) are issued, (i) at the request of a member country, following the conclusion of the Article IV consultation for countries seeking to make known the views of the IMF to the public. This action is intended to strengthen IMF surveillance over the economic policies of member countries by increasing the transparency of the IMF's assessment of these policies; and (ii) following policy discussions in the Executive Board at the decision of the Board.

The IMF Executive Board concluded the 1997 Article IV consultation1 with Tunisia on May 23.


During the period of the VIIIth Development Plan (1992–96), Tunisia achieved annual economic growth of 4.5 percent on average, supported by steady implementation of comprehensive structural reforms and generally prudent macroeconomic policies. Financial imbalances narrowed and social indicators continued to improve, consistent with Tunisia’s emphasis within public expenditure on health and education. Inflation decelerated to less than 5 percent per year on average, and external debt declined from 55 to 52 percent of GDP between 1991 and 1996. Exports of goods and nonfactor services grew on average by 6.2 percent per year, and Tunisia maintained a broadly constant share of world merchandise exports.

However, the unemployment rate remained high at about 15 percent, as economic growth fell short of the objective (6 percent). Investment, in particular by the private sector and in manufacturing, was lower than expected. Total factor productivity also improved by less than had been programmed, partly owing to the impact of drought on agriculture, but also reflecting the gradual pace of structural reforms aimed at improving the functioning of domestic markets, opening the economy, and enhancing the role of the private sector.

In 1996, economic growth reached 6.9 percent reflecting the recovery in agriculture from two years of drought. Inflation fell and the external accounts improved significantly. However, fiscal performance was weaker than programmed and monetary and credit policies were more expansionary than envisaged. Notwithstanding the strong economic rebound, the government deficit (including social security operations) rose to 4.7 percent of GDP, from 4.4 percent of GDP in 1995. Revenue declined slightly, despite an increase in social security contributions by half a percent of GDP. Expenditure and net lending as a share of GDP remained unchanged from the previous year, although it exceeded the budgeted amount. Broad money expanded by 13.7 percent, notwithstanding continued repayments by the government of its outstanding bank credit; commercial banks continued strong provisioning for nonperforming loans.

Structural reforms proceeded, with solid progress in trade liberalization and the financial sector. Tariffs were lowered, including the first round of tariff reductions envisaged under the Association Agreement with the European Union, and quantitative import restrictions were reduced. The liberalization of bank lending interest rates was completed with the elimination of mandatory lending to priority sectors and associated preferential interest and refinancing rates. Privatization accelerated, mainly focusing on small enterprises. Further steps were made toward involving the private sector in activities previously reserved for public enterprises, through contracting out and the granting of concessions. To facilitate the implementation of structural reforms, social safety net provisions were also strengthened.

Executive Board Assessment

Executive Directors commended the authorities for maintaining macroeconomic stability while pursuing structural reforms aimed at establishing an open, market-based, and private sector driven economy. Directors welcomed the authorities’ intention to build on their achievements and to direct their medium-term strategy, as laid out in the draft Ninth Economic Development Plan, toward accelerating integration into the world economy, increasing the role of market forces, and widening the scope for private sector activity, while pursuing prudent macroeconomic policies. At the same time, Directors considered that further fiscal consolidation and a broadening and acceleration of structural reforms were needed to realize the authorities’ medium-term growth and employment objectives.

Directors stressed the need for further fiscal consolidation to preserve macroeconomic stability, free additional resources for private sector investment, and strengthen growth prospects. Some Directors expressed concern about the slippages in fiscal performance in 1996 with expenditure overruns and revenue shortfalls, especially against the background of robust growth. Directors welcomed the mini-budget being prepared by the authorities as a step in the right direction, but some thought that a more ambitious and front-loaded package might be needed. Directors stressed the need to reduce and better control spending, particularly with regard to wages, subsidies, and nonproductive spending. In that context, they highlighted the importance of a comprehensive reform of the civil service and a better targeted and rationalized system for food subsidies. On the revenue side, Directors suggested the early implementation of measures, including raising prices of fuel and basic foodstuffs, eliminating exemptions and broadening the coverage of the value-added tax, raising excises or value-added tax rates, and improving tax administration. In addition, some Directors also pointed to the need to identify and implement in a timely manner contingency measures to offset anticipated losses in tariff revenues.

Noting that the authorities had taken measures to correct the excessive growth of monetary aggregates in 1996, Directors emphasized the need for a tight monetary policy to contain inflationary pressures.They supported the authorities’ exchange rate policy and observed that competitiveness should be maintained through firm monetary and wage policies and improvements in productivity. They encouraged the authorities to widen the role of market forces in the interbank market for foreign exchange.

Directors welcomed the Association Agreement with the European Union and observed that it provided opportunities and challenges for the Tunisian economy. Reaping the full benefits of globalization and minimizing the transitional costs would require comprehensive structural reforms. Directors recommended labor market reforms, including greater flexibility in layoff procedures to ease the movement of labor toward sectors of comparative advantage. Directors were encouraged by the authorities’ intention to further reduce public sector involvement in the economy and disincentives to private investment. Further relaxation of regulations on foreign investment would help attract foreign direct investment, facilitate technology transfers, and improve access to markets abroad. Directors noted that already agreed wage increases for the next three years underscored the importance of improving productivity. Directors called for an acceleration and deepening of the privatization program, in particular through a broader sectoral coverage, a more effective implementation mechanism, and extending privatization to larger enterprises. They also stressed the need to lift remaining price controls.

To help avoid possible trade diversion effects and transitional increases in effective protection, some Directors recommended that import liberalization be extended on a broader geographical basis, and that tariff reduction for finished goods imports be advanced with respect to the existing schedule. More generally, noting that the level of effective protection remained relatively high, some Directors urged a faster pace of trade liberalization. Directors also urged that remaining quantitative import restrictions be abolished rapidly. It was observed that experience had shown that regional trade integration was most beneficial in the context of an open trading system vis-à-vis the rest of the world.

Directors commended the authorities’ progress in reforming the financial sector, but stressed the need for strong banking supervision and strict enforcement of prudential regulations, which were of utmost importance in setting the ground for the development of a competitive and sound financial system. Directors noted that the removal of remaining controls on deposit interest rates and the establishment of a well-functioning and clearly regulated settlement system in the secondary market for treasury paper would enhance the financial system’s ability to mobilize savings, intermediate resources efficiently, and prepare the move to full capital account convertibility.

Directors encouraged the authorities to continue their efforts to strengthen data dissemination and eventually subscribe to SDDS, and to improve data provision to the IMF.

Tunisia: Selected Economic Indicators

  1993 1994 1995 1996 1/

  In percent
Domestic Economy
Real GDP 2.2 3.3 2.4 6.9
GDP deflator 4.7 4.4 5.1 4.4
Consumer price index (CPI), average 4.0 4.7 6.3 3.7
  In millions of U.S. dollars 2/
External Economy
Imports of goods, f.o.b. 5,756 6,211 7,458 7,324
Exports of goods, f.o.b. 3,745 4,644 5,469 5,519
Current account, excl. Capital grants (in percent) -8.8 -4.2 -4.6 -3.0
Foreign direct investment, net 3/ 390 308 194 163
Capital account balance 1,270 1,171 963 961
External debt 7,694 8,839 9,848 9,900
Debt service ratio (in percent of current external receipts) 20.4 18.6 18.4 18.9
Real effective exchange rate (depreciation -) -3.7 0.7 2.1 0.5
Gross official reserves 888 1,480 1,633 1,858
  In percent of GDP 2/
Financial variables
Gross saving 19.8 20.1 19.9 21.7
Gross domestic investment 29.2 24.5 24.6 24.6
Change in money and quasi-money (M2) 7.0 7.8 6.0 13.7
Interest rate (money market rate, in percent) 10.5 8.8 8.8 7.8

1/ IMF staff estimates.
2/ Unless otherwise noted.
3/ In 1993 and 1994, include large inflows related to the building of a transmediterranean pipeline (Gazoduc), and development of an offshore gasfield (Miskar).

1 Under Article IV of the IMF’s Articles of Agreement, the IMF holds bilateral discussions with members, usually every year. A staff team visits the country, collects economic and financial information, and discusses with officials the country’s economic developments and policies. On return to headquarters, the staff prepares a report, which forms the basis for discussion by the Executive Board. At the conclusion of the discussion, the Managing Director, as Chairman of the Board, summarizes the views of directors, and this summary is transmitted to the country’s authorities. In this PIN, the main features of the Board’s discussion are described.


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