Describes the preliminary findings of IMF staff at the conclusion of certain missions (official staff visits, in most cases to member countries). Missions are undertaken as part of regular (usually annual) consultations under Article IV of the IMF's Articles of Agreement, in the context of a request to use IMF resources (borrow from the IMF), as part of discussions of staff monitored programs, and as part of other staff reviews of economic developments.


Tunisia—2005 Article IV Consultation—Preliminary Conclusions of the IMF Mission

January 20, 2006

I. Introduction

1. The mission of the International Monetary Fund (IMF) that has been in Tunis since December 5, 2005 for the consultations required under Article IV of the Fund's Articles of Agreement would like to thank the Tunisian authorities for the warm welcome they have received and the quality of the discussions.

  Chart 1: Per capita real GDP

2. Tunisia has made significant progress toward its objective of catching up with the economic level of the lower-tier OECD countries. Real per capita income has increased by almost 20 percent since 2000, the unemployment rate continues to decline, and macroeconomic imbalances remain under control owing to the capacity of the fiscal, monetary, and exchange rate policies to respond rapidly to changing conditions and economic shocks.

3. However, all the conditions are not yet met to achieve this objective, and important economic policy challenges lie ahead. Although the growing openness of the economy and market-oriented economic policies have had good results thus far, their benefits could be eroded unless reforms are continued and deepened. An acceleration of reforms is necessary to fully integrate Tunisia into the world market, while maximizing the benefits and controlling the risks of this integration. The main challenges are:

  Chart 2: Per capita GDP, 2004

• Accelerating the annual rate of economic growth by at least 1 to 1.5 percentage points until 2010. Without this additional growth, the authorities' objective of bridging the gap between Tunisia and the OECD countries in terms of per capita income will remain elusive.

• Reducing unemployment, which increasingly affects university graduates. To achieve this, at a higher rate of growth, the economy must continue its transformation by developing the sectors that require skilled labor to respond to a growing demand for jobs from university graduates. This in turn will lead to higher productivity, the real engine for sustainable economic growth.

4. To face these challenges, reforms must be stepped up, particularly in the following four areas: 

• Improvement of the business climate. The level of private investment (domestic and foreign) remains low in comparison with more dynamic emerging countries. Simple, stable, and transparent rules are essential to make Tunisia more attractive to private investment.

• Strengthening of the banking and financial sector, particularly the level of nonperforming loans, which increases the cost of credit and hampers growth and investment, while at the same time slowing progress toward full convertibility of the dinar and a more dynamic monetary policy.

• Consolidation of the macroeconomic policies needed to advance the authorities' strategy of gradually liberalizing the external capital account. This will help to take better advantage of external savings to finance a higher level of investment while monitoring macroeconomic stability.

• Liberalization of the labor market. A more flexible labor market is needed to absorb the growing supply of skilled labor and to create a climate conducive to improved productivity levels.

5. In the short term, the management of anticipated privatization receipts and potential balance of payments surpluses are the key macroeconomic challenge.

II. Short-term Outlook and Macroeconomic Policy Challenges

6. Tunisia's macroeconomic performance has been favorable and its macroeconomic policies remain appropriate overall. Real GDP growth should accelerate in 2006 with the upturn in agriculture and the increase in industrial production and activity in the construction sector. Inflation remains under control. The external position is strengthening despite the negative, albeit limited, impact of the expiration of the Agreement on Textiles and Clothing (ATC), rising oil prices on the international markets, and stagnating demand in Europe. International reserves continue to grow (to more than 3½ months of imports of goods and services). The external debt remains high1, however although it should decline considerably in 2006 given the forecast for strong growth and assuming that a portion of privatization receipts is used to reduce the external debt burden. The management of these receipts and other foreign inflows should be taken into consideration in short-term macroeconomic policies.

7. The sizable privatizations planned for 2006 are both a challenge and an opportunity on many levels. The opening of part of the capital of Tunisie Télécom would give a positive signal to the private sector and could help to further improve the country's image to foreign investors. It is important to quickly establish a clear strategy for the use of the privatization receipts, while limiting their impact on the monetary aggregates. The mission encourages the authorities to take advantage of this opportunity to reduce the external debt burden. This would improve the markets' perception of Tunisia's country risk, which could in turn lead to a decline in the interest spread on bond issues on the international markets. The choice between accumulation of reserves and repayment of the external debt should not be limited to consideration of the relative cost of refinancing but should also take into account the benefits from reduced risk.

A. Fiscal Policy

  Chart 1: Public Debt

8. The central government fiscal deficit remains under control despite the impact of higher oil prices on subsidies and the recent increase in civil service wages. To limit this impact, the authorities continued to raise retail petroleum prices in 2005 and further increases are provided for in the 2006 budget law. In addition, measures were taken in 2005 to limit other spending and to improve revenue collection. The 2006 budget law, which is based on an oil price assumption of $60 a barrel, calls for an increase in the fiscal deficit of one-half percentage point of GDP, to 3.6 percent. However, the mission encourages the authorities to keep the deficit at 3 percent of GDP in order to achieve the target of reducing the public debt-to-GDP ratio to less than 50 percent in the medium term, from a current level of around 60 percent. This should be achievable, given the tax collection results in 2005, and the projected buoyancy of fiscal revenue. Moreover, financing of the deficit should continue to be based on domestic bond issues, despite privatization receipts, so as not to complicate monetary management.

B. Monetary and Exchange Policies

9. The Central Bank of Tunisia's (BCT) sterilization of excess liquidity helped to limit the impact of external flows on the money supply and inflation, while allowing a rate of growth of credit to the economy compatible with economic activity. The mission encourages the BCT to continue these efforts in view of any excess liquidity generated either by a partial use of privatization receipts for budgetary financing, or by other foreign financial flows. Such a policy would result in an increase in the money supply of around 10½ percent in 2006 and growth of credit to the economy of 7 percent, compatible with the anticipated level of economic activity, while keeping inflation under control. However, the mission estimates that in the event that these flows are persistent, monetary policy alone will not be sufficient. It would be essential to supplement these efforts with greater fiscal consolidation, higher levels of early external debt repayments, greater exchange rate flexibility, and more rapid liberalization of trade and finance.

10. Significant progress has been made in implementing the money targeting framework developed in cooperation with Fund staff. Base money targeting, which is the operational variable in the framework, has played a more important role in the conduct of monetary policy in 2005. The mission encourages the authorities to adopt this framework in 2006. However, it emphasizes that such a framework needs to allow for greater variations in money market interest rates within a broader band.

11. The depreciation of the real effective exchange rate has served the Tunisian economy well and supported the competitiveness of its exports. However, the mission encourages the BCT to give greater weight to market forces and allow flexibility of the exchange rate in both directions. It also encourages it to closely monitor changes in the real exchange rate and their impact on inflation.

III. Medium-Term Economic Outlook and Further Transformation of the Economy

12. The medium-term outlook reflects the government's ambitious objectives of strengthening the foundations for higher growth, which would make it possible to further reduce the unemployment rate by absorbing the growing demand for jobs from skilled workers. The mission shares the authorities' belief that achieving these goals will require further transformation of the Tunisian economy. This would require higher private investment and higher productivity. This could be achieved through (a) the new drive for reform currently under way, which aims to strengthen the financial system, improve the business climate, and enhance labor market flexibility; and (b) continued adaptation of macroeconomic policies to the constraints posed by Tunisia's integration into the world market.

13. From a quantitative point of view, the mission estimates that the authorities' growth targets (6.2 percent on average for the period 2006-10) require (a) an increase in investment of 1.4 percentage points of GDP; (b) an improvement in national savings of 1.8 percentage points of GDP, with a contribution from the government of 1.2 percentage points; and (c) gradual improvement in overall factor productivity. Foreign borrowing should decline in a context of ongoing fiscal consolidation, despite increased recourse by the private sector to external borrowing to finance its investment.

A. Strengthening of the Financial System

14. A sound, dynamic, and competitive financial sector is essential for achieving the medium-term growth and job creation goals and increasing the capacity of the Tunisian economy to weather domestic and external shocks. Although considerable progress has been made in recent years, the reforms should be continued so as to modernize and prepare the Tunisian financial system for integration into the international financial system. In particular, the high level of nonperforming loans (NPLs) acts as a constraint on the development of the financial system, the pursuit of macroeconomic reforms, and higher investment and growth.

15. In this context, the mission supports the government's strategy for improving the quality of banks' portfolios, which focuses on enhancing the credit culture, promoting good governance, and improving the legislative and judicial framework for loan recovery. In particular, it is pleased with the following measures taken by the authorities: (i) prohibition on banks to distribute dividends when they have insufficient provisions; (ii) enactment of the law to improve the security of financial relations, which aims to consolidate financial transparency and engender good corporate governance; (iii) amendment of the code of commercial and civil procedure to facilitate the court-ordered sale of assets and shorten debt collection delays; (iv) the full tax deductibility of provisions in 2006; and (v) continuation of the gradual withdrawal of the government from the banking sector with the privatization of Union Internationale des Banques and Banque du Sud. It also notes that the draft amendment to the banking law will strengthen bank governance by giving their boards of directors the means to ensure appropriate oversight over their management.

16. The consolidation and development of the financial sector will also improve the effectiveness of monetary policy, facilitate the transition to inflation targeting, and allow for progress toward the government's goal of full liberalization of capital transactions while minimizing the risks of financial instability. In this context, the amendment of the BCT charter aimed at making price stability the central bank's key objective and clarifying its role vis-à-vis the other supervisory authorities of the financial sector is encouraging.

17. However, the gradual approach taken until now has resulted in limited improvement in the prudential indicators for the banking sector. Following the increase resulting from the regional crisis in 2001, the ratio of nonperforming loans (NPLs) to total loans should decline by 2 ½ percentage points in 2005, to 21½  percent. The mission believes that it would be advisable to adopt a more vigorous approach to resolving the NPL problem, which not only increases the cost of credit, but constitute a significant source of vulnerability for the Tunisian economy. In particular, the mission encourages the authorities to: (i) strengthen the autonomy, management on a commercial basis, and governance of the government-owned banks; (ii) ensure the strict application of provisioning rules and sanctions; and (iii) accelerate the write-off of loan losses (based on the study made by the BCT on longstanding NPLs). The authorities are encouraged to consider the possibility of recapitalizing government-owned banks with a sizable impaired portfolio, after first strengthening their management and introducing safeguard measures to avoid a new accumulation of NPLs.

18. The updating of the Financial Sector Assessment Program (FSAP) in cooperation with the staffs of the IMF and World Bank scheduled for January 2006 will provide an opportunity to assess progress made since the 2001 FSAP and to define the phases that remain to be completed.

B. Strengthening of Macroeconomic Policy

External capital account liberalization

19. The continued gradual liberalization of the external capital account with a view to full convertibility of the dinar is encouraging. In particular, the mission welcomes the gradual opening of the Treasury bill market to nonresidents, the easing of conditions on borrowing abroad, and the elimination of authorizations for certain foreign investment operations. Completion of the first phase of the strategy for the liberalization of capital flows developed by the authorities in cooperation with Fund staff requires full liberalization of inward foreign direct investment.2 Progress to the next phase of this strategy, which consists of liberalizing Tunisian investments abroad and opening the economy to all foreign portfolio investment, can be achieved only after the transition to a floating exchange rate and once the financial system is sound and modern. At the same time, further progress is necessary in the conduct of monetary policy.

Monetary and exchange rate policy

20. The mission notes that it is imperative to implement money targeting, an intermediate step toward inflation targeting, given the proposed amendment of the central bank charter making price stability the key objective of the BCT.

21. A more dynamic monetary policy does, however, require developing the money and exchange markets. The resumption of short-term Treasury bill issues in March 2005 is an important step toward increasing the liquidity of the money market and building a yield curve. At the same time, the elimination of the ceiling on purchases of Treasury bills by the BCT in the draft charter of the BCT will facilitate building a securities portfolio for monetary policy operations, which should help develop the money market. Likewise, the elimination of the requirement to surrender foreign exchange proceeds and the increased use of foreign currency accounts for some categories of residents will contribute to the development of the exchange market. Nevertheless, the development of a deep and liquid exchange market requires abolishing the obligation for banks to transfer their end-of-day foreign exchange balances to the central bank (nivellement) and the elimination of exchange rate quotations by the BCT. This would give a greater role to market forces in determining the exchange rate.

22. In general, greater exchange and interest rate flexibility would provide incentives for market players to develop appropriate hedging instruments and better prepare for the transition to a floating exchange rate and complete liberalization of the capital account, both medium-term objectives of the authorities.

Fiscal reform

23. The mission encourages the authorities to step up the fiscal reforms necessary for achieving the objective of reducing the public debt burden. This objective is important for further increasing fiscal policy flexibility and limiting the risks involved in the transition to full convertibility of the dinar and a floating exchange rate. On the revenue side, the tax legislation should be simplified, exemptions and other tax incentives should be limited, and the tax administration should be modernized in line with the recommendations of the technical assistance provided by the IMF Fiscal Affaires Department. The mission welcomes the authorities' intention of implementing the following reforms: (i) expansion of the corporate income tax base and reduction of its rates; (ii) simplification of the VAT by reducing the number of rates; (iii) revision of tax incentives and closer alignment of on-shore/off-shore regimes; and (iv) reorganization of the tax administration to enhance its effectiveness and improve services to taxpayers. In this regard, efforts to computerize processes and the plan to create a large taxpayer unit are very positive developments. On the expenditure side, the authorities' strategy for more efficient energy use and the decision to gradually eliminate subsidies on the consumption of petroleum products and to liberalize their prices by 2008 should contribute to fiscal consolidation. To control the wage bill, the mission encourages the authorities to limit new hiring, pointing out that expanding civil service jobs is not a sustainable solution to the problem of unemployment among graduates.

C. Improvement in the Business Climate

24. A more dynamic private sector is essential for moving Tunisia to a path of higher growth in an increasingly competitive international environment. In this context, improving the business climate is key to increasing the level and quality of private investment. Accelerating the liberalization of international trade at the multilateral level and continuing the customs reform would help to reduce firms' cost of production. The mission welcomes the authorities' interest in receiving technical assistance for customs reform. The elimination of some tax rules, such as the limits on reimbursement of VAT credits and withholding at the source, would help to eliminate distortions and complications for companies and improve relations between the private sector and the administration. More generally, it is important to further simplify administrative procedures. The mission encourages the authorities to continue to work toward these objectives in cooperation with the World Bank, the European Union, and the African Development Bank in the context of ECAL IV.

D. Increased Labor Market Flexibility

25. The mission encourages the authorities to continue to enhance labor market flexibility with a view to raising the growth rate of real GDP. In its view, such a reform would facilitate the reallocation of labor in response to structural changes in the economy and would encourage the creation of skilled jobs and thus increase productivity. Greater labor market flexibility would also help to reduce the impact of the expiration of the ATC on employment in the medium term.

26. The mission is pleased with the active policies of the authorities to align the supply and demand for jobs and the reforms aimed at enhancing labor market flexibility at the recruitment level (temporary jobs). However, it believes that introducing such flexibility without easing complex regulations and procedures governing dismissals could hamper the creation of permanent jobs. It suggests that discussions be started on the easing of regulations on dismissals.

IV. Miscellaneous Issues

27. The mission congratulates the authorities for their efforts to increase economic policy transparency as exemplified by their customary agreement to the publication of the mission's preliminary conclusions and the final report on the consultations, and to the holding of a press conference by the mission.

28. The mission is pleased with Tunisia's participation in the conference on trade facilitation among Algeria, Morocco and Tunisia and underscores the importance of continuing economic integration in the Maghreb region.

29. The mission welcomes the finalization of the Report on the Observance of Standards and Codes (ROSC)—Data Module.

30. It was agreed that the next discussions for the Article IV Consultations would take place on a 12-month cycle.


Table 1. Tunisia: Selected Economic and Financial Indicators, 2003-2010

    Est. Proj. Proj. Proj. Proj. Proj. Proj.
2003 2004 2005 2006 2007 2008 2009 2010

Production and income (percent change)

               

Nominal GDP

7.6 8.8 6.2 9.0 8.4 8.5 8.6 8.7

Real GDP

5.6 6.0 4.2 5.8 6.0 6.2 6.4 6.5

GDP deflator

2.0 2.6 1.9 3.1 2.3 2.2 2.1 2.1

Consumer price index (CPI), average

2.8 3.6 2.0 2.9 2.0 2.0 2.0 2.0

Gross national savings (in percent of GDP)

22.0 21.9 22.1 21.7 22.3 22.7 23.0 23.5

Gross investment (in percent of GDP)

25.1 24.2 23.9 23.5 24.0 24.4 24.7 25.1
                 

External sector (percent change)

               

Exports of goods, f.o.b. (in $)

17.1 20.6 8.6 4.2 4.4 4.8 5.4 5.8

Imports of goods, f.o.b. (in $)

14.7 17.6 5.6 3.7 4.1 4.4 5.1 5.4

Exports of goods, f.o.b. (volume)

7.2 10.6 1.3 2.3 3.6 4.5 4.9 4.9

Import of goods, f.o.b. (volume)

3.4 7.3 -2.6 2.0 4.0 4.8 4.9 4.6

Trade balance (in percent of GDP)

-9.1 -8.7 -7.9 -7.8 -7.5 -7.2 -6.9 -6.6

Current account, excl. grants (in percent of GDP)

-2.9 -2.0 -1.8 -1.8 -1.7 -1.7 -1.7 -1.6

Foreign direct investment (percent of GDP)

2.2 2.2 2.3 5.9 2.2 2.2 2.2 2.2

Terms of trade (deterioration -)

-1.5 -0.5 ... ... ... ... ... ...

Real effective exchange rate (depreciation -) 1/

-4.1 -3.9 ... ... ... ... ... ...
                 

Central government (percent of GDP, unless otherwise indicated) 2/

               

Total revenue, excluding grants and privatization

23.6 23.9 23.9 23.6 23.4 23.2 23.2 23.1

Total expenditure and net lending

27.0 26.8 27.0 26.6 26.0 25.5 25.0 25.0

Central government balance, excl. grants and privatization

-3.4 -2.9 -3.1 -3.0 -2.7 -2.3 -1.9 -1.8

Central government balance, incl. grants, excl. privatization

-3.2 -2.6 -2.9 -2.8 -2.5 -2.1 -1.7 -1.7

Total government debt (foreign and domestic)

60.4 59.7 60.3 56.6 55.1 53.3 51.1 48.9

Foreign currency public debt (percent of total debt)

64.4 63.2 64.2 62.4 60.5 60.2 59.1 57.6
               

Money and credit (percent change)

               

Credit to the economy

4.6 5.3 7.5 7.0 ... ... ... ...

Broad money (M3) 3/

6.3 10.3 9.2 10.4 ... ... ... ...

Velocity of circulation (GDP/M3)

1.66 1.63 1.59 1.57 ... ... ... ...

Interest rate (money market rate, in percent, e.o.p)

5.00 5.00 ... ... ... ... ... ...
                 

Official reserves

               

Gross official reserves (US$ billions, e.o.p)

3.0 4.0 4.4 5.2 5.6 6.3 6.7 7.0

In months of imports of goods & services, c.i.f.

3.0 3.5 3.6 4.1 4.2 4.5 4.5 4.5
                 

Total external debt

               

External debt (US$ billions)

17.9 19.8 19.2 19.3 19.9 20.7 21.3 21.7

External debt (in percent of GDP)

67.2 67.8 69.5 66.2 63.5 61.4 58.5 55.4

Debt service ratio (percent of exports of GNFS)

15.1 16.2 15.6 17.3 15.9 14.5 15.6 15.7
                 

Memorandum items:

               

GDP at current prices (TD millions)

32,212 35,035 37,202 40,565 43,973 47,699 51,806 56,312

GDP at current prices (US$ billions)

25.0 28.1 28.8 29.6 31.5 33.9 36.5 39.4

GDP per capita (US$)

2,531 2,833 2,867 2,904 3,049 3,239 3,446 3,667

Unemployment rate ( in percent)

14.3 13.9 ... ... ... ... ... ...

Population (millions)

9.9 9.9 10.1 10.2 10.3 10.5 10.6 10.7

Poverty rate (World Bank, "core poverty", 2000)

4.1 ... ... ... ... ... ... ...

Exchange rate: dinar/US$ (average)

1.29 1.25 ... ... ... ... ... ...

Sources: Tunisian authorities; and Fund staff estimates and projections.

1/ Information Notice System

2/ Excludes the social security accounts.

3/ Financial system (Deposit money banks and Development banks).

Table 2. Tunisia: Balance of Payments, 2003-2010

  (In millions of U.S. dollars)
    Est. Proj. Proj. Proj. Proj. Proj. Proj.
  2003 2004 2005 2006 2007 2008 2009 2010

Current account

-730 -554 -533 -531 -533 -574 -605 -640

Trade balance

-2,270 -2,434 -2,279 -2,313 -2,374 -2,435 -2,518 -2,605

Exports

8,027 9,679 10,510 10,956 11,438 11,989 12,635 13,371

Energy

801 924 1,355 1,569 1,637 1,630 1,650 1,678

Non-energy

7,226 8,755 9,156 9,386 9,801 10,359 10,985 11,693

Imports

-10,297 -12,113 -12,790 -13,268 -13,812 -14,424 -15,153 -15,976

Energy

-1,130 -1,331 -1,905 -2,186 -2,257 -2,227 -2,232 -2,248

Non-energy

-9,166 -10,782 -10,885 -11,083 -11,555 -12,198 -12,920 -13,728

Services and Transfers (net)

1,539 1,880 1,747 1,782 1,842 1,861 1,913 1,965

Nonfactor

1,362 1,679 1,736 1,724 1,736 1,756 1,770 1,784

o/w Tourism

1,477 1,839 1,988 2,023 2,087 2,170 2,255 2,343

Factor Services and Transfers (net)

177 201 10 58 106 106 143 181

o/w Workers' remittances

1,250 1,431 1,451 1,460 1,522 1,588 1,654 1,722

o/w Interest payments on external debt

-572 -641 -755 -809 -824 -851 -886 -910
                 

Capital and financial account

1,115 1,528 1,031 1,385 942 1,215 1,018 938

Excluding grants

1,049 1,415 914 1,276 835 1,109 913 833

Capital account

59 107 111 104 102 101 101 100

Financial account

1,056 1,421 920 1,281 840 1,114 918 838

Direct foreign investment (net)

553 616 674 1,750 699 753 813 877

Medium and long term loans (net)

823 947 585 -204 320 518 295 187

Disbursement

1,891 2,437 2,044 1,532 1,932 2,002 2,043 2,075

Amortization

-1,068 -1,490 -1,459 -1,736 -1,612 -1,484 -1,749 -1,888

Short term capital

-289 -103 -339 -265 -179 -158 -190 -226

Errors and omissions

-32 -39 0 0 0 0 0 0
                 

Overall balance

385 974 498 854 410 641 414 298
                 

Changes in gross reserves 1/

-653 -1033 -347 -844 -410 -638 -408 -292

Use of IMF resources

0 0 0 0 0 0 0 0

Other assets, net (increase -)

-653 -1033 -347 -844 -410 -638 -408 -292
                 

Memorandum items:

               

Current account balance/GDP (in percent)

-2.9 -2.0 -1.8 -1.8 -1.7 -1.7 -1.7 -1.6

Reserves (in billions of $)

3.0 4.0 4.4 5.2 5.6 6.3 6.7 7.0

Reserves in months of imports of goods

3.3 3.8 3.9 4.5 4.6 4.9 5.0 4.9

Reserves in months of imports of goods &services

3.0 3.5 3.6 4.1 4.2 4.5 4.5 4.5

External medium-and long-term debt (in billions of $)

14.4 16.0 15.6 15.5 16.0 16.7 17.1 17.4

External medium-and long-term debt/GDP (in percent)

53.9 54.9 56.6 53.3 51.2 49.5 47.1 44.4

External Short-term debt (in billions of $)

3.6 3.8 3.6 3.7 3.9 4.0 4.1 4.3

External short-term debt/GDP (in percent)

13.3 12.9 13.0 12.8 12.3 11.9 11.4 11.0

Debt Service Ratio (as percent XGS, incl IMF)

15.1 16.2 15.6 17.3 15.9 14.5 15.6 15.7
                 

Real goods export growth (in percent)

7.2 10.6 1.3 2.3 3.6 4.5 4.9 4.9

Non-energy

5.4 10.4 0.9 2.2 3.7 4.8 5.2 5.2

Real goods import growth (in percent)

3.4 7.3 -2.6 2.0 4.0 4.8 4.9 4.6

Non-energy

0.6 7.8 -3.2 1.9 4.3 5.2 5.3 5.0

Sources: Tunisian authorities; and Fund staff estimates and projections.

1/ Differs from the overall balance because of valuation effects.

Table 3. Tunisia: Central Government Financial Operations, 2004-2010 1/


  Est. LdF compl Proj. LdF Projections
  2004 2005 2005 2006 2006 2007 2008 2009 2010

Total revenue and grants and privatization

8,577 9,019 9,149 9,640 11,157 10,502 11,318 12,243 13,241

Total revenue

8,379 8,799 8,899 9,396 9,563 10,273 11,089 12,014 13,012

Tax revenue

7,253 7,770 7,870 8,282 8,441 9,131 9,898 10,772 11,719

direct taxes

2,385 2,769 2,819 3,022 3,041 3,308 3,600 3,962 4,307

trade taxes

557 535 535 560 563 549 537 525 513

VAT

2,257 2,302 2,302 2,488 2,524 2,792 3,076 3,399 3,764

domestic

1,139 1,132 1,132 1,226 1,234 1,404 1,595 1,810 2,051

imports

1,119 1,170 1,170 1,262 1,290 1,388 1,481 1,589 1,713

excise

1,150 1,208 1,208 1,290 1,323 1,411 1,525 1,627 1,769

domestic

700 743 743 794 810 866 952 1,021 1,124

imports

451 466 466 496 513 545 573 607 645

other taxes

904 956 1,006 922 989 1,071 1,160 1,259 1,366

domestic

842 908 958 870 936 1,015 1,101 1,196 1,300

imports

62 48 48 52 53 56 59 63 67

Nontax revenue

1,117 1,022 1,022 1,106 1,114 1,142 1,191 1,241 1,293

Capital income

9 7 7 8 8 0 0 0 0
                   

Total expenditure and net lending

9,378 10,158 10,058 10,831 10,780 11,453 12,165 12,975 14,050

Total expenditure

9,411 10,111 10,011 10,783 10,732 11,405 12,117 12,927 14,002

Current expenditure

6,983 7,674 7,574 8,302 8,289 8,736 9,198 9,718 10,499

Wages and salaries

4,222 4,573 4,573 4,898 4,898 5,310 5,760 6,256 6,800

Goods and services

699 658 658 676 670 770 835 907 986

Interest payments

989 1,067 1,067 1,150 1,150 1,184 1,269 1,337 1,405

domestic

418 470 470 521 521 560 620 656 701

external

571 597 597 629 629 624 649 681 703

Transfers and subsidies

1,073 1,313 1,213 1,442 1,451 1,472 1,334 1,218 1,308

CGC

200 248 248 258 258 268 278 288 298

Petroleum subsidies

203 508 408 500 500 415 200 0 0

Other

670 557 557 684 693 789 856 930 1,010

Other expenditure (non allocated)

0 63 63 136 120 0 0 0 0

Capital expenditure

2,428 2,437 2,437 2,481 2,442 2,670 2,920 3,210 3,503

Direct investment

1,346 1,337 1,337 1,379 1,388 1,591 1,750 1,940 2,122

Capital transfers and equity

1,082 1,014 1,014 988 995 1,078 1,170 1,270 1,381

Other expenditure (non allocated)

0 86 86 114 60 0 0 0 0

Net lending

-33 48 48 48 48 48 48 48 48
                   

Central Govt deficit (-), excl grants and privatization

-999 -1,360 -1,160 -1,435 -1,217 -1,181 -1,076 -962 -1,038

Grants

73 85 85 94 94 94 94 94 94

Privatization Proceeds

125 135 165 150 1500 135 135 135 135
                   

Central Govt deficit (-), incl grants and privatization

-801 -1,140 -910 -1,191 377 -952 -847 -733 -809

Financing

801 1,140 910 1,191 -377 952 847 733 809

Foreign

207 482 463 -106 -679 85 361 113 24

Domestic

595 658 446 1,297 302 867 486 620 785
                   

Memorandum items:

                 

Balance of the central Gov., (including grants, excl priv)

-926 -1,275 -1,075 -1,341 -1,123 -1,087 -982 -868 -944

Central government primary balance

188 -73 157 -41 1,527 232 422 604 596

Central govt primary balance (excl grants and priv.)

-10 -293 -93 -285 -67 3 193 375 367

General government debt 2/

20,916 22,616 22,429 24,357 22,952 24,242 25,413 26,449 27,557

o/w domestic

7,707 8,530 8,039 9,958 8,638 9,567 10,123 10,821 11,692

external

13,209 14,086 14,390 14,399 14,314 14,676 15,290 15,628 15,864
                   

Nominal GDP

35,035 37,202 37,202 40,305 40,565 43,973 47,699 51,806 56,312

Nominal nonagricultural GDP

30,585 32,868 32,868 36,034 36,034 39,167 42,600 46,397 50,574

Oil price ($/barrel)

37.8 56.6 53.4 60.0 60.0 60.8 58.8 57.8 57.0

Imports

15,087 16,499 16,499 18,192 18,192 19,302 20,315 21,504 22,862
                   

Total revenue and grants and privatization

24.5 24.2 24.6 23.9 27.5 23.9 23.7 23.6 23.5

Total revenue

23.9 23.7 23.9 23.3 23.6 23.4 23.2 23.2 23.1

Tax revenue

20.7 20.9 21.2 20.5 20.8 20.8 20.8 20.8 20.8

direct taxes
(% of GDP)

6.8 7.4 7.6 7.5 7.5 7.5 7.5 7.6 7.6

trade taxes
(% of GDP)

1.6 1.4 1.4 1.4 1.4 1.2 1.1 1.0 0.9

trade taxes
(% of imports)

3.7 3.2 3.2 3.1 3.1 2.8 2.6 2.4 2.2

VAT
(% of GDP)

6.4 6.2 6.2 6.2 6.2 6.3 6.4 6.6 6.7

domestic
(% of GDP)

3.3 3.0 3.0 3.0 3.0 3.2 3.3 3.5 3.6

imports
(% of GDP)

3.2 3.1 3.1 3.1 3.2 3.2 3.1 3.1 3.0

imports
(% of imports)

7.4 7.1 7.1 6.9 7.1 7.2 7.3 7.4 7.5

excise
(% of GDP)

3.3 3.2 3.2 3.2 3.3 3.2 3.2 3.1 3.1

domestic
(% of GDP)

2.0 2.0 2.0 2.0 2.0 2.0 2.0 2.0 2.0

imports
(% of GDP)

1.3 1.3 1.3 1.2 1.3 1.2 1.2 1.2 1.1

imports
(% of imports)

3.0 2.8 2.8 2.7 2.8 2.8 2.8 2.8 2.8

other taxes
(% of GDP)

2.6 2.6 2.7 2.3 2.4 2.4 2.4 2.4 2.4

domestic
(% of GDP)

2.4 2.4 2.6 2.2 2.3 2.3 2.3 2.3 2.3

imports
(% of GDP)

0.2 0.1 0.1 0.1 0.1 0.1 0.1 0.1 0.1

imports
(% of imports)

0.4 0.3 0.3 0.3 0.3 0.3 0.3 0.3 0.3

Nontax revenue

3.2 2.7 2.7 2.7 2.7 2.6 2.5 2.4 2.3

Capital income

0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0
                   

Total expenditure and net lending

26.8 27.3 27.0 26.9 26.6 26.0 25.5 25.0 25.0

Total expenditure

26.9 27.2 26.9 26.8 26.5 25.9 25.4 25.0 24.9

Current expenditure

19.9 20.6 20.4 20.6 20.4 19.9 19.3 18.8 18.6

Wages and salaries

12.1 12.3 12.3 12.2 12.1 12.1 12.1 12.1 12.1

Goods and services

2.0 1.8 1.8 1.7 1.7 1.8 1.8 1.8 1.8

Interest payments

2.8 2.9 2.9 2.9 2.8 2.7 2.7 2.6 2.5

domestic

1.2 1.3 1.3 1.3 1.3 1.3 1.3 1.3 1.2

external

1.6 1.6 1.6 1.6 1.6 1.4 1.4 1.3 1.2

Transfers and subsidies

3.1 3.5 3.3 3.6 3.6 3.3 2.8 2.4 2.3

CGC

0.6 0.7 0.7 0.6 0.6 0.6 0.6 0.6 0.5

Petroleum subsidies

0.6 1.4 1.1 1.2 1.2 0.9 0.4 0.0 0.0

Other

1.9 1.5 1.5 1.7 1.7 1.8 1.8 1.8 1.8

Other expenditure (non allocated)

0.0 0.2 0.2 0.3 0.3 0.0 0.0 0.0 0.0

Capital expenditure

6.9 6.6 6.6 6.2 6.0 6.1 6.1 6.2 6.2

Direct investment

3.8 3.6 3.6 3.4 3.4 3.6 3.7 3.7 3.8

Capital transfers and equity

3.1 2.7 2.7 2.5 2.5 2.5 2.5 2.5 2.5

Other expenditure (non allocated)

0.0 0.2 0.2 0.3 0.1 0.0 0.0 0.0 0.0

Net lending

-0.1 0.1 0.1 0.1 0.1 0.1 0.1 0.1 0.1
                   

Central Govt deficit (-), excl grants and privatization

-2.9 -3.7 -3.1 -3.6 -3.0 -2.7 -2.3 -1.9 -1.8

Grants

0.2 0.2 0.2 0.2 0.2 0.2 0.2 0.2 0.2

Privatization Proceeds

0.4 0.4 0.4 0.4 3.7 0.3 0.3 0.3 0.2
                   

Central Govt deficit (-), incl grants and privatization

-2.3 -3.1 -2.4 -3.0 0.9 -2.2 -1.8 -1.4 -1.4

Financing

2.3 3.1 2.4 3.0 -0.9 2.2 1.8 1.4 1.4

Foreign

0.6 1.3 1.2 -0.3 -1.7 0.2 0.8 0.2 0.0

Domestic

1.7 1.8 1.2 3.2 0.7 2.0 1.0 1.2 1.4
                   

Memorandum items:

                 

Balance of the central Gov., (including grants, excl priv)

-2.6 -3.4 -2.9 -3.3 -2.8 -2.5 -2.1 -1.7 -1.7

Central government primary balance

0.5 -0.2 0.4 -0.1 3.8 0.5 0.9 1.2 1.1

Central govt primary balance (excl grants and priv.)

0.0 -0.8 -0.2 -0.7 -0.2 0.0 0.4 0.7 0.7

General government debt 2/

59.7 60.8 60.3 60.4 56.6 55.1 53.3 51.1 48.9

o/w domestic

22.0 22.9 21.6 24.7 21.3 21.8 21.2 20.9 20.8

external

37.7 37.9 38.7 35.7 35.3 33.4 32.1 30.2 28.2

Sources: Tunisian authorities; and Fund staff estimates and projections.
1/ Includes special funds, fonds de concours. Does not include the social security system (CSS).
2/ Gross debt: includes debt held by social security funds (CSS); excludes debt of public enterprises.

Table 4. Tunisia. Monetary Survey (Financial System), 2002-06

  2002 2003 2004 2005 2006

Foreign assets (net)

1,909 2,279 3,126 4,049 5,348

Foreign assets

4,154 4,547 5,802 6,963 8,356

BCT

3,134 3,629 4,843 5,918 7,278

Foreign liabilities

-2,246 -2,268 -2,675 -2,914 -3,007
           

Net Domestic Assets

16,392 17,178 18,340 19,396 20,541

Domestic credit

23,744 24,669 26,366 28,354 30,348

Credit to the government (net)

2,790 2,758 3,283 3,544 3,800

Central bank net credit

-290 -504 -597 -478 -478

Commercial banks

1,642 1,746 2,180 2,189 2,444

Credit to the economy

20,954 21,911 23,084 24,809 26,549
           

Other items (net)

-7,352 -7,491 -8,026 -8,958 -9,807
           

Money plus quasi-money (M2)

16,681 17,859 19,846 21,674 23,936

Money (M1)

6,618 6,992 7,686 8,394 9,269

Currency

2,518 2,663 2,968 3,241 3,580

Demand deposits

4,100 4,328 4,718 5,152 5,690

Quasi-money

10,063 10,868 12,161 13,281 14,666
           

Long-term deposits (M3-M2)

1,619 1,598 1,620 1,770 1,954
           

Broad Money (M3 ) 1/

18,301 19,457 21,467 23,444 25,890
           
  (Annual rate of change in percent)
           

Foreign assets (net)

19.5 19.4 37.2 29.5 32.1

Domestic credit

6.4 3.9 6.9 7.5 7.0

Credit to Government (net)

4.4 -1.2 19.0 8.0 7.2

Credit to the economy

6.7 4.6 5.3 7.5 7.0

Money and quasi-money (M2)

3.9 7.1 11.1 9.2 10.4

Broad Money (M3 )

5.2 6.3 10.3 9.2 10.4
           
  (Changes in percent of initial stock of M3)
           

Foreign assets (net)

1.8 2.0 4.4 4.3 5.5

Domestic credit

8.2 5.1 8.7 9.3 8.5

Credit to the government (net)

0.7 -0.2 2.7 1.2 1.1

Credit to the economy

7.6 5.2 6.0 8.0 7.4

Other items (net)

-4.9 -0.8 -2.8 -4.3 -3.6
           

Memorandum items:

Velocity (GDP/M3)

1.64 1.66 1.63 1.59 1.57

Multiplier (M3/M0)

5.70 5.74 5.65 5.81 5.33

GDP

29,933 32,212 35,035 37,202 40,565

Nominal GDP growth

4.1 7.6 8.8 6.2 9.0

Sources: Tunisian authorities; and Fund staff estimates and projections.
1/ M2 plus long term deposits.

Table 5. Tunisia: Medium-Term Growth Scenario, 2003-10

  2003 2004 2005 2006 2007 2008 2009 2010

Real GDP growth

5.6 6.0 4.2 5.8 6.0 6.2 6.4 6.5

Agriculture

21.5 10.1 -5.0 3.0 4.0 4.0 4.0 4.0

Nonagriculture

3.6 5.4 5.6 6.2 6.3 6.5 6.7 6.8

Unemployment rate

14.3 13.9 13.3 12.6 12.0 11.3 10.7 10.0

Inflation

2.8 3.6 2.0 2.9 2.0 2.0 2.0 2.0

Real export growth 1/

0.1 7.8 2.2 3.1 3.6 4.2 4.5 4.5
                 

Gross national savings

22.0 21.9 22.1 21.7 22.3 22.7 23.0 23.5

Consolidated government 2/

4.0 4.5 3.8 3.4 3.6 4.1 4.6 4.6

Rest of the economy

17.9 17.4 18.3 18.3 18.7 18.6 18.5 18.9
                 

Gross investment

25.1 24.2 23.9 23.5 24.0 24.4 24.7 25.1

Consolidated government

7.2 7.0 6.6 6.1 6.1 6.2 6.3 6.3

Rest of the economy

17.9 17.2 17.3 17.4 17.9 18.2 18.4 18.8
                 

Savings-investment gap

-3.2 -2.2 -1.8 -1.8 -1.7 -1.7 -1.7 -1.6

Consolidated government

-3.1 -2.5 -2.8 -2.7 -2.5 -2.1 -1.7 -1.7

Rest of the economy

0.0 0.3 1.0 0.9 0.8 0.4 0.0 0.1
                 

Memorandum items:

               

Balance of the consolidated government

-3.1 -2.5 -2.8 -2.7 -2.5 -2.1 -1.7 -1.7

External current account

-3.2 -2.2 -1.8 -1.8 -1.7 -1.7 -1.7 -1.6

Gross fixed capital formation

23.4 22.6 22.6 22.2 22.7 23.1 23.4 23.8

Sources: Tunisian authorities; and Fund staff estimates and projections.
1/ Goods and nonfactor services.
2/ Includes social security, excludes privatization receipts.

Appendix: Change in the Calculation Methodology for the Short-Term External Debt

Tunisia's short-term external liabilities, as presented by the authorities and in line with IMF standards, include short-term financial and commercial liabilities.

During the 2004 Article IV consultations, IMF staff drew the authorities' attention to the inconsistency between the level of short-term commercial liabilities presented by the authorities and short-term external flows recorded in receipts in the balance of payments. The inconsistency stemmed from the fact that the stock of short-term commercial liabilities was the same as the flows recorded in the balance of payments (see table). The IMF staff asked the BCT to review these statistics and decided to exclude short-term commercial liabilities from Tunisia's short-term external debt in the report on the 2004 Article IV Consultations, with a note to that effect.

The discussions between IMF and BCT staff during the ROSC-Data Module mission led to agreement on the need to change the methodology for the calculation of short-term commercial liabilities. The level of short-term commercial liabilities should represent a certain percentage of imports that is more or less constant over time (e.g., 12 percent in 2004 - see table). As imports take place using short-term import credits (1-4 months), at the end of each year a stock of 1-4 months of imports is carried over to the following year. During 1-4 months of the following year, these liabilities are repaid but additional liabilities are contracted and at the end of the year there is a new carry-over to the following year corresponding to 1-4 months of imports, and so forth. The stock of these liabilities increases with the level of imports while remaining at a more or less constant percentage of imports over time. This is the new methodology. It is not possible, for example, to have a negative stock of short-term commercial liabilities, as shown in 2004 according to the old statistics (see table).

Tunisia: Short-term Commercial External Liabilities:Stocks and Flows (TD millions, unless otherwise indicated)

 

2001 2002 2003 2004

Old BCT statistics

       

Balance of payments

       

Flows of short-term commercial liabilities (receipts)

260.8

70.0

128.9

(150.5)

Short-term external debt

       

Commercial liabilities

260.8

70.0

128.9

(150.5)

Idem (in % of imports of goods)

1.9

0.5

0.9

(0.9)

Idem (in % of GDP)

0.9

0.2

0.4

(0.4)

         

BCT statistics using the new methodology

       

Balance of payments

       

Flows of short-term commercial liabilities (receipts)

260.8

70.0

128.9

(150.5)

Short-term external debt

       

Commercial liabilities

1,861.0

1,932.0

2,061.0

1,910.0

Idem (in % of imports of goods)

13.6

14.3

14.7

12.0

Idem (in % of GDP)

6.5

6.5

6.4

5.5

         

Impact on short-term commercial liablilities (% of GDP)

5.6 6.2 6.0 5.9


1 See Appendix.

2 The strategy is aimed at liberalization of the capital account in three phases (see Tunisia-Staff Report for the 2004 Article IV Consultation, www.imf.org/external/country/TUN/index.htm).



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