Press Information Notice: IMF Concludes Article IV Consultation with Tunisia

June 26, 1998

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.

On June 17, 1998, the IMF Executive Board concluded the Article IV consultation with Tunisia1.


The Tunisian economy performed well in 1997, continuing a strong track record of solid growth, prudent macroeconomic policies, and steady implementation of structural reforms. Economic growth reached 5.4 percent, reflecting strong exports helped by the recovery in Europe, and an exceptional olive harvest. CPI inflation remained low (3.7 percent) despite substantive increases in administered prices. The external current account deficit deteriorated slightly to 3.4 percent of GDP, reflecting unfavorable terms of trade developments, and a pick up in domestic investment. However, Tunisia was not affected adversely by the fallout from the Asian crisis and continued to tap international capital markets at relatively favorable terms. Official reserves rose to the equivalent of 3.3 months of imports.

Stability was underpinned by a broadly unchanged macroeconomic policy mix, that successfully targeted an unchanged real effective exchange rate anchored by prudent fiscal, monetary, and incomes policies. A substantive reduction of fiscal imbalances was achieved through pruning of low-priority investment and a reduction of food subsidies, following increases in administered prices for subsidized foodstuffs. A decline in the revenue ratio owing to lower nontax transfers and trade taxes was contained through measures strengthening domestic direct and indirect taxes. A tight monetary policy succeeded in reducing the rate of growth of credit broadly to the rate of growth of GDP, and wage increases under the current three-year wage agreement of around 4-5 percent were consistent with the inflation target.

Structural reforms proceeded, especially in the area of trade and investment liberalization. Quantitative restrictions on car imports were reduced as the first step towards complete elimination over three years under an agreement with the WTO, and a further round of tariff reductions, some beyond those called for under the Association Agreement with the EU, were partly extended to all origins. Limits on foreign equity participation in existing firms were raised to 49.9 percent, and limits on foreign investment in new agricultural companies to 66 percent of capital. The privatization process gained some momentum, and a comprehensive program to modernize and strengthen the banking system got underway, including the privatization of a medium-sized bank and further progress in strengthening the capital adequacy of banks. In the interbank foreign exchange market, forward operations linked to trade transactions were authorized within prudential limits. The increases in administered prices for foodstuffs were accompanied by increased cash transfers to the poorest segments of the population and higher minimum wages.

The IXth Economic Development Plan (1997–2001) was approved by the Parliament in July 1997. The Plan aims at raising average economic growth to more than 6 percent a year from 1999 based on a continued prudent macroeconomic policies reinforced by a strengthening of structural reforms.

Executive Board Assessment

Executive Directors commended the Tunisian authorities for continuing in 1997 prudent fiscal and monetary policies while implementing important structural reforms. They noted that this policy stance had contributed to continued solid growth, low inflation, and a sustainable external position in 1997. Directors remarked that these policies, combined with low levels of short-term debt, had helped shelter the economy from the fallout of financial turmoil in Asia. Directors commended the authorities, in particular, for the timely implementation of food and energy price increases and expenditure cuts needed to achieve fiscal consolidation. They also welcomed substantive progress in reducing tariff and nontariff barriers to trade, and in strengthening and modernizing the banking sector, but noted that the pace of privatization and price liberalization had remained slow.

Directors emphasized, however, that continued high unemployment underscored the need for a shift to a higher growth path, as planned under the IXth Economic Development Plan. Directors stressed that this would require continued prudent macroeconomic and income policies, and an acceleration of structural reforms, to help achieve the needed increases in national savings and investment, and to strengthen the role of the private sector. They placed emphasis on the importance of privatization and price decontrol, the further strengthening of the banking system, and the easing of labor market rigidities to facilitate the movement of labor toward more dynamic sectors.

Directors broadly endorsed the current macroeconomic policy mix of targeting a constant real exchange rate supported by prudent fiscal, monetary, and income policies, and considered that it remained consistent with the objectives of the plan. Directors noted that the present exchange rate regime had served the country well, but encouraged the authorities to improve competitiveness, through accelerated structural reforms. Some Directors encouraged theauthorities to allow for a greater scope for the play of market forces in exchange rate determination as a means to deepen the foreign exchange market. In this context, they noted the prospective gradual loss of preferential treatment of Tunisian exports in European markets, increasing competition from European as well as Asian producers, and the phasing out of trade protection in the context of the Association Agreement with the European Union (AAEU).

Directors stressed the need for prudent credit and interest rate policy in order to facilitate a further reduction in inflation. They also emphasized that fiscal consolidation remained key to boosting national saving and releasing additional resources to the private sector. The 1998 budget was an important step in this direction, and Directors welcomed the strengthening of domestic taxes and the efforts to improve tax collection, to offset the decline in taxes on international trade. Directors also stressed the importance of keeping expenditures under firm control.

In this context, Directors were encouraged by the planned shift of the privatization effort toward larger enterprises, starting with the planned sale of two large and profitable cement enterprises in 1998, greater use of public offerings, and the ongoing opening of the transport sector to the private sector. In this connection, some Directors noted that an early liberalization of cement prices would facilitate the planned privatization.

Directors were encouraged by ongoing steps to further open the economy, including the implementation of the tariff reduction under the AAEU and other trade agreements. Some Directors stressed that tariff reductions should extend to all origins to avoid trade diversion, but some considered that this should be seen as a medium-term objective. Directors commended the recent liberalization of foreign investment in the agriculture sector and recommended the rapid elimination of remaining controls on inward foreign direct investment and equity participation. In this regard, Directors welcomed the establishment of a forward foreign exchange market for trade-related transactions, and encouraged the authorities to phase out rapidly any remaining public involvement in insuring foreign borrowing against exchange rate risk.

Directors welcomed the authorities’ determination to strengthen the banking system. They urged the authorities to ensure that all banks meet fully, and as soon as possible, capital adequacy rules, other prudential regulations, and accounting standards in line with international norms. In dealing with nonperforming claims on public enterprises, Directors stressed the need to limit moral hazard by ensuring that a restructuring operation was perceived as exceptional. In this regard, they recommended the liquidation or privatization of the enterprises involved; greater management autonomy and eventual privatization of the public banks; and transparent accounting of the cost of any recapitalization exercise in the budget.

Directors encouraged the authorities to subscribe to the Special Data Dissemination Standard.

Tunisia: Selected Economic Indicators

  1994 1995 1996 1997

Domestic economy   In percent
Real GDP   3.3 2.4 6.9 5.4
GDP deflator   4.4 5.1 4.5 4.5
Consumer price index (CPI), period average   4.7 6.3 3.7 3.7
External economy   In millions of U.S. dollars 1/
Exports of goods, f.o.b.   4,643 5,469 5,519 5,559
Imports of goods, f.o.b.   6,210 7,458 7,278 7,488
Current account, excluding capital grants (in percent of GDP)   -4.2 -4.6 -2.7 -3.4
Foreign direct investment, net 2/   442 295 256 231
Capital account balance   1,218 981 883 748
Gross official reserves   1,495 1,637 1,941 2,008
External debt   8,844 9,848 9,887 9,735
Debt service ratio (in percent of current external receipts)   18.6 18.4 18.6 17.7
Real effective exchange rate (depreciation-)   0.8 2.1 0.7 -0.1
Financial variables   In percent of GDP 1/
Gross saving   20.1 19.9 21.6 22.7
Gross domestic investment   24.5 24.6 24.4 26.1
Change in broad money (M4) (in percent)   7.7 10.7 12.7 9.7
Interest rate (money market rate, in percent)   8.8 8.8 8.6 6.9

Sources: Data provided by the Tunisian authorities and IMF staff estimates.

1/ Unless otherwise noted.
In 1994, includes large inflows related to the building of a transmediterranean pipeline (Gazoduc), and development of an offshore gasfield (Miskar).

1Under 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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