Public Information Notice: IMF Executive Board Concludes 2007 Article IV Consultation with Tunisia

August 9, 2007

Public Information Notices (PINs) form part of the IMF's efforts to promote transparency of the IMF's views and analysis of economic developments and policies. With the consent of the country (or countries) concerned, PINs are issued after Executive Board discussions of Article IV consultations with member countries, of its surveillance of developments at the regional level, of post-program monitoring, and of ex post assessments of member countries with longer-term program engagements. PINs are also issued after Executive Board discussions of general policy matters, unless otherwise decided by the Executive Board in a particular case.

Public Information Notice (PIN) No. 07/99
August 9, 2007

On August 3, 2007, the Executive Board of the International Monetary Fund (IMF) concluded the Article IV consultation with Tunisia.1


Effective economic management and an outwards-oriented development strategy have contributed to placing Tunisia's economic performance over the past decade among the best in the region, with real GDP growth averaging almost 5 percent in a stable macroeconomic environment. Over the past two years, the Tunisian economy has shown resilience in the face of surging prices of oil and other imported commodities, sustaining relatively strong growth while maintaining macroeconomic stability.

Real GDP growth accelerated from 4 percent in 2005 to 5.4 percent in 2006 owing to a rebound in agricultural output, expansion of nontextile manufacturing, and vitality of the services sector. Robust income growth and abundant liquidity boosted domestic demand. However, the unemployment rate remained unchanged at 14.2 percent in 2006. Inflation declined rapidly after a spike in the first half of 2006, following the monetary policy tightening by the Central Bank of Tunisia in the second half. The current account deficit widened, but the balance of payments recorded a large surplus owing to privatization receipts, which helped reduce total external debt from 65.4 percent of GDP in 2005 to 59.1 percent in 2006. Fiscal policy has been prudent. Strong nontax revenue and expenditure restraint reduced the 2006 budget deficit to 2.9 percent of GDP, significantly lower than the 3.6 percent budget forecast.

Prudential indicators significantly improved in 2006 relative to 2003 with nonperforming loans (NPLs) as a ratio of total loans declining from 24 percent to 19.2 percent and provisions-to-NPLs ratio increasing from 43.1 percent to 49.2 percent.

The short- and medium-term outlook remain positive. Real GDP growth is projected to continue to accelerate to reach about 6 percent in 2007, owing to strong agricultural output, a recovery in textiles and clothing, and buoyant services sector exports. Inflation should remain subdued and the fiscal and external deficits would be broadly unchanged. However, the positive short-term outlook hinges on agricultural output returning to trend, oil prices remaining below $70 a barrel, and growth in the European Union—Tunisia's main export market—not faltering.

Tunisia's key challenge is to create enough jobs for the fast-growing university graduate population while reinserting the already large number of unemployed. This is the overarching objective of the recently released XIth Plan which seeks to boost annual growth to more than 6 percent during 2007-11 by continuing to move the Tunisian economy toward a knowledge-based, high value-added economy while deepening its global integration.

Tunisia continues to improve the quality and dissemination of statistical data and increase the transparency of its economic policies. Tunisia has published all Executive Board documents and staff mission statements in recent years.

Executive Board Assessment

Executive Directors agreed with the thrust of the staff appraisal. They commended the Tunisian authorities for their skillful macroeconomic management and commitment to structural reforms, which contributed to Tunisia's strong economic performance over the past decade. Growth has been steady, inflation has been contained, financial sector vulnerabilities are being addressed, and the public debt has been placed on a downward path. In the period ahead, the key challenge will be to reduce the relatively high level of unemployment, particularly among university graduates. Directors agreed that the authorities should continue their efforts to accelerate the pace of reforms and further strengthen the macroeconomic position, in order to raise growth and reduce unemployment, while enhancing the economy's flexibility and resilience as it becomes more integrated into the world economy.

Directors assessed the short- and medium-term outlook as positive, and the current macroeconomic policy mix as appropriate and consistent with external stability. They encouraged the authorities to remain vigilant to risks of overheating considering the recent increase in the price of petroleum products, the likely structural nature of excess liquidity, and the impact of sizable infrastructure projects. Close coordination of fiscal and monetary policies is important.

Directors praised the authorities for their prudent fiscal policy. Fiscal consolidation should continue in order to maintain long-term fiscal sustainability in the face of growing budget pressures, particularly from population ageing and declining nontax and tariff receipts. Accordingly, the tax base should be broadened, more efficient spending promoted, and early debt retirement pursued. Given expectations of persistently high oil prices in the medium to long term, increasingly costly fuel subsidies should be phased out.

Directors welcomed the recent measures to restore the financial position of the social security system over the medium term, and noted the importance of accelerating the planned comprehensive reform of the system. They observed that a more forward-looking fiscal framework would assist in the analysis of medium- and long-term budgetary issues related to population ageing.

Directors considered that the current level of the exchange rate is broadly appropriate. In view of the plans to move to inflation targeting over the medium term, Directors called on the authorities to continue enhancing the flexibility of the exchange rate and promoting development of the money and foreign exchange markets, by reducing the central bank's role in these markets. They also advised further price liberalization as the relatively high share of administered prices in the consumer price index could complicate the conduct of monetary policy, particularly in the context of an inflation targeting framework. Finally, Directors encouraged the central bank to continue informing market participants of the reform process and its implications, and to strengthen its research and forecasting capacity.

Directors welcomed the authorities' comprehensive strategy to reform the financial system based on the Financial Sector Assessment Program and its update, which has already had positive results. They supported the objectives of reducing the incidence of nonperforming loans and increasing provisioning on remaining nonperforming loans by end-2009, although the latter may require some bank recapitalization. A dynamic and efficient banking sector will be essential for higher growth and sound transition to a fully liberalized capital account. Directors encouraged the authorities to consider additional measures to strengthen bank management, revitalize credit culture, improve risk management, and further enhance financial transparency.

Directors commended the authorities for the progress made in integrating the Tunisian economy into the regional and global economy. They looked forward to further progress in simplifying and reducing multilateral tariffs. Continued efforts to make the labor market more flexible, liberalize the services sector, and improve the investment climate would strengthen the economy's competitiveness and overall flexibility, and help Tunisia take full advantage of the benefits of trade liberalization.

Directors welcomed the progress made in implementing measures to combat money laundering and the financing of terrorism, and supported the authorities' request for Fund technical assistance in this area.

It is expected that the next Article IV consultation with Tunisia will be held on the standard 12-month cycle.

Tunisia: Selected Economic Indicators, 2002-07
(Quota: SDR 286.5 million)
(Population: 10.0 million; 2005)
(Per capita GDP: $3,117; 2006)
(Poverty rate: 4.1 percent; 2000)
(Main export: textiles, electronic and mechanical goods, tourism; 2006)

          Est. Proj.
  2002 2003 2004 2005 2006 2007

Output and Prices

(Annual percentage change)

Real GDP (market prices)

1.7 5.6 6.0 4.0 5.4 6.0

Consumer price (end of period)

1.6 4.5 1.2 3.7 3.3 3.0

Consumer price (period average)

2.7 2.7 3.6 2.0 4.5 3.0

Investment and Saving

(In percent of GDP)

Gross capital formation

25.7 25.0 24.5 22.0 23.8 24.3

Of which: Government 1/

7.5 7.2 7.0 6.4 6.2 6.1

Gross national savings

22.1 22.1 22.5 20.9 21.5 21.8

Of which: Government 1/

4.7 4.1 4.5 3.3 3.2 3.0

Public Finances 2/

(In percent of GDP)

Total revenue, excluding grants and privatization

24.4 23.7 23.8 23.6 23.8 22.9


27.8 27.1 26.6 26.9 26.7 25.8

Central government balance (excluding grants and privatization receipts)

-3.5 -3.4 -2.8 -3.2 -2.9 -2.9

Central government primary balance (excluding grants and privatization receipts)

-0.4 -0.6 0.0 -0.4 -0.1 -0.4

Total government debt

61.5 60.5 59.4 58.3 54.0 52.5

Monetary Sector

(Annual percentage change, unless otherwise indicated)

Credit to the economy

6.7 4.6 5.3 6.3 6.7 7.9

Base money

1.8 5.5 12.2 21.9 17.5 17.1

Broad money

5.2 6.3 10.3 11.0 11.5 9.1

Velocity of broad money

1.6 1.7 1.6 1.6 1.5 1.5

Three-month treasury bill rate (period average, in percent)

6.1 5.5 5.1 5.1 5.1 ...

External Sector

(In percent of GDP, unless otherwise indicated)

Exports of goods (in US$, percentage change)

3.8 17.1 20.6 8.4 9.5 17.3

Imports of goods (in US$, percentage change)

-1.9 14.7 17.6 2.9 12.4 16.1

Merchandise trade balance

-10.1 -9.1 -8.6 -6.8 -8.2 -8.2

Current account excluding official transfers

-3.5 -2.9 -2.0 -1.1 -2.3 -2.5

Current account including official transfers

-3.2 -2.7 -1.6 -0.6 -1.9 -2.1

Foreign direct investment

3.6 2.1 2.1 2.6 10.3 2.6

Total external debt

67.5 66.8 66.5 65.4 59.1 58.9

Gross reserves (in US$ billions)

2.3 3.0 4.0 4.4 6.8 7.8

In months of next year imports of goods and services

2.7 3.0 3.5 3.7 5.1 5.0

In percent of short-term external debt (on remaining maturity basis)

56.9 67.4 81.7 98.1 115.7 122.3

Memorandum Items:


Nominal GDP (in US$ billions)

22.4 26.6 29.3 27.6 31.7 34.0

Unemployment rate (in percent)

14.9 14.3 13.9 14.2 14.2 14.1

Net imports of petroleum products (in US$ millions)

221.7 328.8 407.1 393.5 631.0 92.8

Local currency per U.S. dollar (period average)

1.4 1.3 1.2 1.3 -3.6 ...

Real effective exchange rate (annual average, percentage change)

-0.2 -5.0 -3.4 -4.5 -0.8 ...

Stock market index 3/

1119.2 1250.2 1331.8 1615.1 2331.1 2529.0

Sources: Tunisian authorities; and Fund staff estimates.

1/ Excluding public enterprises.

2/ The fiscal year is the calendar year.

3/ TUNINDEX (1000 = 4/1/1998). The 2007 data as of June 22, 2007.

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 Executive Directors, and this summary is transmitted to the country's authorities. This PIN summarizes the views of the Executive Board as expressed during the Executive Board discussion based on the staff report.


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