Statement by the IMF Mission on the 2007 Article IV Consultation with Tunisia

Press Release No. 07/121
June 6, 2007

An International Monetary Fund (IMF) mission issued the following statement on May 28, 2007 in Tunis at the conclusion of the 2007 Article IV staff consultation:

"An IMF mission headed by Mr. Abdelhak Senhadji has been in Tunis since May 14, 2007 to conduct the regular consultations under Article IV of the IMF Articles of Agreement, which requires an annual review of the economic policies of all IMF member countries. This review will conclude with the preparation of a report, which will be discussed for approval by the Executive Board of the IMF in July 2007.

"The preliminary conclusions of the mission as well as the final report on the consultation will be published on the IMF's website. They can be found, along with reports for previous years and other IMF publications on Tunisia, at the following Internet address: www.imf.org/external/country/TUN/index.htm.

"The discussions focused on economic policies as well as the short- and medium-term economic outlook. The mission held wide-ranging discussions with His Excellency Mr. Baccar, Governor of the Central Bank of Tunisia, as well as with His Excellency Mr. Kechiche, Minister of Finance, His Excellency Mr. Jouini, Minister of Development and International Cooperation, His Excellency Mr. Zenaidi, Minister of Trade and Handicrafts, His Excellency Mr. Laroussi, Minister of Employment, His Excellency Mr. Chelbi, Minister of Industry, Energy, and SMEs, His Excellency Mr. Haddad, Minister of Tourism, and His Excellency Mr. A Chaouch, Minister of Social Affairs. The mission also met with representatives of the banking sector and business community, as well as with social partners. IMF staff wish to express their deep appreciation to the Tunisian authorities for their excellent cooperation, the high quality of the discussions, and their customary hospitality and full availability.

"Efficient management of the economy has helped ensure relatively strong growth while preserving macroeconomic stability, thereby positioning Tunisia among the leading economic performers in the region. Tunisia's performance has gained recognition from international organizations such as the Davos Forum, which recently ranked Tunisia as the most competitive country in the region, as well as from the Japanese agency R&I, which raised Tunisia sovereign rating from BBB+ to A- in 2007.

"During the last two years, the Tunisian economy has shown great resilience in the face of rising prices for oil and other imported commodities, posting relatively strong growth while maintaining macroeconomic stability. The growth in real GDP has gathered momentum, moving from 4 percent in 2005 to 5.4 percent in 2006. Inflation spiked in 2006 as a result of soaring international oil prices, but it was swiftly restrained by monetary policy tightening in the second semester, falling to 2.4 percent on average over the first four months of 2007. The current account deficit remains sustainable although it increased from 1.1 percent in 2005 to 2.3 percent in 2006, due to rising oil prices. Excluding energy, the current account balance is near equilibrium. The balance of payments recorded a surplus nonetheless, partly attributable to privatization receipts. The use of a part of these receipts made it possible to reduce the total external debt (including short-term debt) from 65.4 percent of GDP in 2005 to 59.1 percent of GDP in 2006. The budget deficit for 2006 is estimated at 2.9 percent of GDP, well below the 3.6 percent projected in the Budget Law. Prudential indicators show that the banking sector has improved noticeably in 2006 compared to 2003; the ratio of nonperforming loans (NPLs) declined from 24 percent of total loans in 2003 to 19.2 percent in 2006.

"The short-term and medium-term outlook remains favorable. Growth in real GDP is expected to accelerate, reaching 6 percent in 2007, while inflation should be around 3 percent. The budget balance and current account balance are not expected to change significantly.

"Despite this good performance, the unemployment rate remains relatively high, particularly among young university graduates who continue to join the active population in growing numbers. To reduce the rate of unemployment below 10 percent, growth must increase significantly and be better geared towards creating more jobs for university graduates. The XIth five-year plan describes the authorities' medium-term strategy for boosting growth in order to move from 4¾ percent per year over the past decade to about 6.1 percent over the next five years. This growth acceleration is expected initially to stabilize or even slightly reduce unemployment, before lowering it significantly during the subsequent five-year period.

"The overall strategy is to keep moving the Tunisian economy toward a knowledge-based, high-value-added economy. This strategy has four key elements:

• Strengthen Tunisia's macroeconomic position;

• Continue the gradual liberalization of the Tunisian economy;

• stimulate private investment, particularly in high-value-added sectors; and

• Pursue reforms, with particular attention to education and training systems.

The IMF mission has focused on strengthening Tunisia's macroeconomic position and the necessary reforms to boost growth in the context of the ongoing deeper integration into the world economy."



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