IMF Executive Board Concludes 2009 Article IV Consultation with Tunisia

Public Information Notice (PIN) No. 09/134
December 14, 2009

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.

On September 1, 2009, the Executive Board of the International Monetary Fund (IMF) concluded the Article IV consultation with Tunisia on a lapse of time basis.1


Sound economic policies and structural reforms underpinned by increasing trade openness allowed Tunisia to record higher growth in recent years and strengthen its footing to face the current global crisis. Tunisia enhanced its resilience with reduced public and external indebtedness and a largely improved reserves position. The Tunisian economy was relatively insulated from international financial contagion but is exposed to a slowdown in economic activity in its partner countries, particularly in Europe.

Although affected by the current crisis, Tunisia has weathered its impact relatively well so far. Real GDP growth slowed down from an average of 4.6 percent in 2008 to 0.5 percent in the first quarter of 2009, reflecting mainly a fall in exports of manufactured goods to EU countries. This drop was partially offset by buoyant growth in the mining and energy sectors and in some services. Domestic demand was sustained by investment and strong consumption fueled by salary increases. Inflation declined from an average of 5 percent in 2008 to 3½ percent (year-on-year) in June 2009 due to the fall in global food and fuel prices and an appropriate monetary policy.

The current account deficit, after widening in 2008, contracted in the first quarter of 2009 thanks to lower import prices and resilient tourism and remittances receipts. Despite somewhat smaller foreign investment inflows in early 2009, reserves reached US$9 billion at end-May 2009 (5.6 months of projected imports).

The fiscal deficit declined markedly in 2008 to 1.2 percent of GDP and the public debt-to-GDP ratio was further reduced from 50 percent in 2007 to 47½ percent in 2008. Revenue was boosted by buoyant customs duties levied on higher priced imports and strong corporate income tax receipts from high 2007 profits. Combined with lower interest payments, this more than offset expenditure overruns on subsidies for staple foods and petroleum products due to higher world prices.

Banks were not directly affected by the global financial crisis since they rely only slightly on external financing and their profitability increased in 2008, which contributed to a buoyant stock market. Credit to the economy further increased in the first quarter of 2009. Banks’ soundness indicators continued to improve in 2008, but the level of non performing loans (NPLs) remains relatively high.

The authorities promptly deployed measures to contain the impact of the global crisis, including with the recently adopted fiscal stimulus package of about 1.4 percent of GDP and a more accommodating monetary policy by the Central Bank of Tunisia (BCT) in 2009, with the objective to reach a 3 percent real GDP growth this year. The medium-term outlook is favorable, based on the projected global economic recovery.

Executive Board Assessment

Executive Directors commended the authorities for the good performance of the Tunisian economy in the context of the global crisis, due to strong fundamentals resulting from sound policies implemented over the years. Directors considered that the growth outlook is favorable but that Tunisia still faces downside risks—pertaining to the transmission of the recession in Europe and the speed of impact of fiscal stimulus—and challenges related to the still high level of unemployment.

Directors supported the authorities’ temporary expansionary fiscal stance to mitigate the impact of the global crisis and recommended that the fiscal stimulus be executed rapidly and have well-targeted expenditure in order to be most effective. They encouraged the authorities to consider extending the fiscal stimulus into 2010, given the still weak outlook anticipated in partner countries.

Directors welcomed the authorities’ steadfast resolve to revert to fiscal consolidation once growth firms up and bring the public debt-to-GDP ratio back to a declining trend. They noted that a key pillar of the strategy should be the reduction in subsidies, through the continued effective implementation of the new oil price adjustment mechanism and improved targeting of measures to support the poorer segment of the population. They also supported a timely reform of the pension system to avoid a future burden on the budget.

Directors considered that the BCT’s monetary policy stance has been appropriate, with a cautious easing in 2009 to accommodate demand support. They recommended close coordination with fiscal policy and a gradual approach in further monetary easing, taking into consideration potential renewed inflationary pressures and risks of deteriorating prudential indicators of the banking system. They encouraged the authorities to continue implementing the building blocks for the planned inflation-targeting framework.

Directors noted that the exchange rate remains broadly aligned with its fundamentals and the authorities policies are consistent with external stability. They encouraged the authorities to continue anchoring the exchange rate policy to their medium-term objective of a freely floating exchange rate.

Directors observed that prudential indicators of the banking sector continued to improve but that the level of NPLs remains relatively high. They commended the authorities for implementing regulations that prevented the emergence of new NPLs, but encouraged them to make more resolute efforts to reduce the older stock in order to further strengthen the banking system’s resilience, particularly given the gradual opening of the capital account. They recommended continued close monitoring of individual banks and supported the authorities’ plans for further enhancing the quality of bank services.

Directors recommended that the regulatory and supervisory frameworks continue to adapt to financial sector developments. They favored a more forward looking approach to banking supervision, including in the context of future implementation of Basel II. They considered that systematic and comprehensive stress testing was needed to better assess the potential vulnerabilities of the banking system and to prepare appropriate contingency plans.

Directors congratulated the Tunisian authorities’ for their pragmatic and steadfast approach to trade and financial integration, despite the currently adverse global environment. They noted that negotiations with the EU to extend the Association Agreement to services could become a key anchor for a gradual overhaul and liberalization of the services sectors and welcomed Tunisia’s active participation in the regional integration effort. They recommended reducing the most-favored nation tariffs to prevent trade diversion and enhance geographic diversification. Directors welcomed continued improvement in the business climate through ongoing tax and customs administration reforms and programs supported by International Financial Institutions.

Tunisia: Selected Economic Indicators, 2004–10

(Quota: SDR 286.5 million)
(Population: 10.3 million; 2008)
(Per capita GDP: $3,632; 2008)
(Poverty rate: 3.8 percent; 2005)
(Main export: electronic and mechanical goods, textiles, energy, tourism; 2008)
  2004 2005 2006 2007 2008 2009 2010





  Prel. Proj. Proj.

Output and Prices


Real GDP (market price)

6.0 4.1 5.3 6.3 4.6 3.0 4.0

Consumer prices (end of period)

1.2 3.7 3.3 5.3 4.1 3.5 3.4

Consumer prices (period average)

3.6 2.0 4.5 3.1 5.0 3.5 3.4

Investment and Saving


Gross capital formation

24.5 22.3 24.6 25.7 27.5 25.7 26.6

Of which: Nongovernment 1/

17.5 15.9 18.4 19.8 21.1 18.4 19.2

Gross national savings

21.8 21.3 22.6 23.2 23.3 22.5 24.0

Of which: Nongovernment 1/

17.3 18.0 19.6 20.3 17.9 19.0 20.4

Public Finances 2/


Revenue, excluding grants and privatization

23.8 23.6 23.4 23.8 26.2 23.7 23.3

Expenditure and net lending

26.6 26.8 26.5 26.7 27.3 27.5 27.0

Budget balance, excluding grants and privatization

-2.8 -3.2 -3.0 -2.9 -1.2 -3.8 -3.8

Primary balance, excluding grants and privatization

0.0 -0.4 -0.3 -0.3 1.1 -1.4 -1.5

Total government debt

59.4 58.1 53.7 50.0 47.5 48.7 49.0
  (Annual percentage change, unless otherwise indicated)

Monetary Sector


Credit to the economy

5.3 6.3 6.6 9.7 13.5 8.0

Base money

12.2 21.9 17.6 15.3 17.6 21.8

Broad money

10.3 11.0 11.4 12.5 14.4 10.9

Velocity of broad money

1.6 1.6 1.6 1.5 1.5 1.4

Three-month treasury bill rate (period average,


in percent) 3/

5.1 5.1 5.1 5.1 5.1 4.0
  (In percent of GDP, unless otherwise indicated)

External Sector


Exports of goods (in US$, percentage change)

20.7 9.8 9.9 29.6 26.6 -21.5 5.8

Imports of goods (in US$, percentage change)

18.3 3.4 12.8 26.9 28.7 -21.4 8.2

Merchandise trade balance

-8.8 -6.7 -8.1 -8.1 -9.8 -8.2 -9.3

Current account excluding official transfers

-2.7 -1.0 -2.0 -2.5 -4.2 -3.3 -2.6

Current account including official transfers

-2.3 -0.6 -1.5 -2.2 -4.0 -3.0 -2.3

Foreign direct investment 4/

2.1 2.2 3.2 6.0 5.3 3.1 3.2

Total external debt 5/

66.5 65.3 58.1 53.9 53.7 52.5 52.3

Gross reserves (in billions of U.S. dollars) 6/

4.0 4.4 6.8 7.9 9.0 9.7 11.0

In months of next year imports of goods and services

3.1 3.3 4.0 3.6 4.9 5.1 5.5

In percent of short-term external debt (on


remaining maturity basis)

82.2 88.3 136.7 146.4 150.3 171.2 173.7

Memorandum Items:


Nominal GDP (in US$ billions)

29.3 27.7 31.9 37.4 38.4 39.0 40.5

Unemployment rate (in percent)

13.9 14.2 14.3 14.1 14.2

Net imports of petroleum products (in millions


of U.S. dollars)

399.0 393.4 632.1 -106.3 676.8 -157.5 -354.1

Terms of trade (deterioration -)

-4.4 -2.3 -3.6 -1.9 1.0 3.9 -2.1

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

1.2 1.3 1.3 1.3 1.2

Real effective exchange rate (annual average,


percentage change)

-3.5 -4.6 -0.8 -2.8 -0.9

Stock market index 7/

1,331.8 1,615.1 2,331.1 2,614.1 2,892.4 3,589.4

Sources: Tunisian authorities; and IMF staff estimates.

1/ Includes public enterprises.

2/ The fiscal year is the calendar year.

3/ In 2009, average for March.

4/ Excludes privatization receipts.

5/ Includes bank deposits of non-residents, most of whom in Tunisia for a long-term horizon, estimated at 7.7 percent

of GDP in 2008.

6/ Includes privatization receipts, which were about US$2.2 billions in 2006 and averaged US$0.1 billion in 2005 and


7/ TUNINDEX (1000=4/1/1998). The 2009 data as of July 13, 2009.

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 year’s Article IV consultation was concluded on a lapse of time basis. Under the IMF’s lapse of time procedures, the Executive Board completes Article IV consultations without convening formal discussions. An explanation of any qualifiers used in summings up can be found here:


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