## Tunisia: IMF country documentation (1tunea2020001)

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### Executive summary — context and macroeconomic impact
- Covid-19 aggravates Tunisia’s already elevated macroeconomic imbalances.
- Growth:
  - 2020 growth is expected to fall to -4.3 percent.
  - Authorities’ mid-February assumption was 1.5 percent of GDP.
- Urgent financing needs in 2020:
  - Fiscal financing need: 2.6 percent of GDP.
  - Balance of payments (BoP) financing need: 4.7 percent of GDP.
- Key pre-crisis indicators and vulnerabilities (end-2019 and recent):
  - Public debt: 72.3 percent of GDP.
  - External debt: 90.3 percent of GDP.
  - Unemployment rate: 15 percent.
  - Inflation: 5.8 percent in February 2020 (from 7.7 in June 2018).
  - Central Bank of Tunisia (CBT) refinancing: TD 9.8 billion (lowest level since 2017).
  - Real effective exchange rate overvaluation: 10-15 percent.
- Sectoral exposure:
  - Tourism: 7 percent of GDP with broad services spillovers.
  - Tourism export revenue and other exports (notably suppliers to Europe’s car and textile industry) are already suffering.
  - Financial sector coping with impaired assets, notably in tourism.

### RFI request, modality, and expected effects
- Authorities requested RFI assistance of SDR 545.2 million (US$753 million or 100 percent of quota).
- Purpose: budget support to address urgent fiscal and BoP needs and to finance crisis-response measures.
- Staff assessment:
  - Tunisia meets RFI eligibility requirements.
  - The RFI is the most appropriate instrument given timing constraints relative to the EFF expiration on May 19.
- Expected effects of the RFI:
  - Could fill most of the uncovered fiscal financing need.
  - Would cover about 44 percent of the expected BoP gap remaining after identified external financing.
  - Would help prevent reserve cover falling to the critical threshold of 3 months of imports; with RFI and mobilization of unidentified budget need, reserve cover could be maintained at 3.6 months.

### Policy response and use of funds (crisis-response measures)
- Immediate central government outlays in 2020 will temporarily increase by some TD 2.1 billion or 1.8 percent of GDP.
- Additional spending breakdown (percent of GDP):
  - Health emergency medical supplies and equipment: 0.3 percent of GDP.
  - Increasing strategic food reserve: 0.2 percent of GDP.
  - Income support for affected households (low-income, unemployed, self-employed): 0.8 percent of GDP.
  - Tax relief, credit lines, interest subsidies for firms, especially SMEs: 0.5 percent of GDP.
- CBT monetary response:
  - Policy rate lowered by 100 basis points on March 17 to 6.75 percent (about 1 percent in real terms).
  - CBT encouraged banks to renegotiate loan terms for distressed borrowers.

### Fiscal consolidation, reprioritization, and revenue impacts
- Fiscal consolidation and reprioritization measures:
  - Automatic monthly fuel price adjustment mechanism adopted (first applied by April 8); initial effect: 1.5 percent decline in pump prices for covered fuels.
  - Civil service wage bill trimmed by about TD 150 million (0.1 percent of GDP) via limits on hiring and promotions and reduced overtime outside crisis response.
  - Increase in tobacco prices resumed; may generate at least TD 200 million (0.2 percent of GDP).
  - Temporary reprogramming of low-priority non-health/non-education public investment worth about TD 3.4 billion (3 percent of GDP).
  - Non-allocated spending reduced to TD 111 million (0.1 percent of GDP).
- Revenue and expenditure impacts (summary):
  - Tax revenue projected to undershoot the budget target by some TD 5.2 billion due to emergency measures, lower growth, lower import values, and lower dividends from oil-sector firms.
  - Energy-related nontax revenue expected to decline (example figures in table: 776 vs 1,772, difference -996 in millions of dinars).

### Fiscal outcomes and external financing gap
- Fiscal deficit:
  - 2020 fiscal deficit expected to increase to 4.3 percent of GDP (versus 2.8 percent envisaged in the budget law).
- External financing:
  - Identified external loans and grants amount to US$2.5 billion out of a total external financing program of US$3.5 billion.
  - Remaining uncovered external financing need: about US$950 million or 2.6 percent of GDP.
- Balance of payments:
  - Staff projects the current account deficit to shrink to 7.5 percent of GDP in 2020 from 8.8 percent of GDP in 2019 due to import contraction and lower energy import bill.
  - Combined effects generate an overall BoP need of US$1.7 billion (4.7 percent of GDP), reflecting the overall BoP need plus an unidentified budget loan.

### Monetary policy and central bank commitments
- CBT stands ready to tighten monetary policy in case of:
  - a buildup of depreciation expectations,
  - risks of disorderly exchange rate adjustment, or
  - a surge in inflation.
- CBT commitments and actions:
  - Defend the disinflation path currently pursued by the CBT.
  - To preserve international reserves, refrain from large-scale FX interventions and consult with IMF staff if facing strong pressures on the FX market.
  - Pursue regular policy dialogue with IMF staff based on high-frequency data.
  - Monitor closely developments in the banking sector, particularly credit and deposit growth, and asset quality.
  - Loan classification and provisioning rules will not be eased.
  - Any loan guarantees and subsidies will be provided by the government rather than the CBT.

### Financial sector and banking soundness (selected indicators)
- Nonperforming Loans (NPLs) to total loans:
  - 2017: 13.4
  - 2018: 13.9
  - 2019 (Sep): 13.0
- Regulatory capital to risk-weighted assets (percent):
  - 2017: 11.9
  - 2018: 11.7
  - 2019 (Sep): 12.4
- Return on assets (ROA):
  - 2017: 0.9
  - 2018: 1.0
  - 2019 (Sep): 1.2
- Banks’ exposure to sovereign debt: 15 percent of GDP.
- SOEs represent about 10 percent of bank assets.

### Debt sustainability, risks, and stress-test findings
- Broad assessment:
  - Tunisia’s debt sustainability risks have increased substantially; Covid-19 reverses the 2019 downward trend in debt stocks.
- Key baseline and numeric facts:
  - Peak central government debt (baseline): 88.5 percent of GDP in 2021.
  - Average debt over 2010–14: 46 percent of GDP.
  - Public gross financing needs: 11.2 percent of GDP in 2020; projected 6.7 percent by 2025.
  - Real GDP growth shock in 2020: -4.3 percent.
  - Primary fiscal balance: expected -2.2 percent of GDP in 2020; target surplus 3.2 percent by 2024.
  - State guarantees: about 12 percent of GDP (excluded from baseline).
  - Contingent liability shock modeled as one-off 10 percent of GDP (3 percent GDP bank recapitalization + about 7 percent GDP realization of guarantees).
- Stress-test outcomes:
  - Debt-to-GDP could be pushed above 100 percent of GDP under a combined macro-fiscal shock.
  - A sharp real exchange rate depreciation (one-time 30 percent in the second year) propels the external debt ratio to 140 percent of GDP in 2022 before declining to 128 percent by end-2025.
  - Stochastic fan-chart analysis shows asymmetric distribution with outcomes that could remain durably above 80 percent of GDP under policy slippages.
- Factors mitigating sustainability risks:
  - Most external and public debt owed to official creditors, low average interest rates, relatively long maturities.
  - Substantial share of concessional debt and large grant element in new loans.
  - Relatively closed financial account (except for FDI and long-term flows).
  - Banks maintain long net open FX positions.

### Projections and key macroeconomic indicators (selected)
- Real GDP (constant 2010 prices):
  - 2019: 1.0
  - 2020 (Prel./Est.): -4.3
  - 2021 (Proj.): 4.1
  - 2022 (Proj.): 2.7
  - 2023 (Proj.): 2.7
  - 2024 (Proj.): 3.0
  - 2025 (Proj.): 3.3
- CPI inflation (average):
  - 2019: 6.7
  - 2020 (Est.): 6.2
  - 2021 (Proj.): 4.9
  - 2022 (Proj.): 4.3
  - 2023 (Proj.): 4.1
  - 2024 (Proj.): 4.0
  - 2025 (Proj.): 4.0
- Overall balance (incl. grants, percent of GDP):
  - 2019: -3.9
  - 2020: -4.3
  - 2021 (Proj.): -2.9
  - 2022 (Proj.): -2.8
  - 2023 (Proj.): -2.5
  - 2024 (Proj.): -1.7
  - 2025 (Proj.): -0.9
- Current account balance (percent of GDP):
  - 2019: -8.8
  - 2020: -7.5
  - 2021 (Proj.): -8.0
  - 2022 (Proj.): -9.1
  - 2023 (Proj.): -8.1
  - 2024 (Proj.): -7.9
  - 2025 (Proj.): -7.1
- Gross official reserves (end-of-period, billions of US$):
  - 2019: 5.6
  - 2020: 5.2
  - 2021 (Proj.): 7.4
  - 2022 (Proj.): 6.5
  - 2023 (Proj.): 7.4
  - 2024 (Proj.): 6.4
  - 2025 (Proj.): 6.5
- Reserve coverage (months of next year's imports of goods):
  - 2019: 3.0
  - 2020: 2.9
  - 2021 (Proj.): 5.7
  - 2022 (Proj.): 4.0
  - 2023 (Proj.): 4.0
  - 2024 (Proj.): 3.3
  - 2025 (Proj.): 3.7
- Gross central government debt (percent of GDP):
  - 2019: 72.3
  - 2020 (Prel.): 88.5
  - 2021 (Proj.): 76.1
  - 2022 (Proj.): 84.7
  - 2023 (Proj.): 86.7
  - 2024 (Proj.): 83.4
  - 2025 (Proj.): 79.6
- External debt (percent of GDP):
  - 2019: 97.3
  - 2020 (Prel.): 90.3
  - 2021 (Proj.): 109.9
  - 2022 (Proj.): 90.1
  - 2023 (Proj.): 107.8
  - 2024 (Proj.): 108.2
  - 2025 (Proj.): 107.2

### External debt profile and vulnerabilities (Annex II highlights)
- External debt expected to peak at 110 percent of GDP in 2020 and decline to 95 percent of GDP by end-2025.
- Change in external debt (percent of GDP) by year:
  - 2015: 4.4; 2016: 7.2; 2017: 11.8; 2018: 13.0; 2019: -7.0; 2020: 19.6; 2021: -1.7; 2022: -1.0; 2023: -2.9; 2024: -4.1; 2025: -5.0.
- External debt-to-exports ratio (percent):
  - 2015: 177.4; 2016: 184.3; 2017: 199.5; 2018: 198.6; 2019: 185.7; 2020: 275.0; 2021: 213.5; 2022: 207.4; 2023: 196.8; 2024: 185.3; 2025: 176.2.
- Composition (2018, selected):
  - Total external debt stock: 102,688 TD MioUS$; 34,293 Mio; 97.5 %GDP; 100 % of total.
  - By debtor (selected): Public: 75,215 TD MioUS$; 25,119 Mio; 71.5 %GDP; 73.2 % of total. Private: 27,473 TD MioUS$; 9,175 Mio; 26.1 %GDP; 26.8 % of total.
  - By currency (selected): US$: 22,797 TD MioUS$; 7,613 Mio; 21.7 %GDP; 22.2 % of total. EUR: 57,095 TD MioUS$; 19,067 Mio; 54.2 %GDP; 55.6 % of total.
  - By interest rate: Fixed rates: 73,114 TD MioUS$; 24,417 Mio; 69.5 %GDP; 71.2 % of total. Variable rates: 29,574 TD MioUS$; 9,876 Mio; 28.1 %GDP; 28.8 % of total.

### Policy recommendations, conditionality, and program prospects
- Authorities reiterated intention to request a successor EFF arrangement as soon as possible.
- Policy commitments for successor arrangement include:
  - Reforms to achieve higher and more inclusive growth.
  - Reduction of energy subsidies.
  - Containment of the civil service wage bill.
- Fiscal measures and structural reforms (post-crisis priorities):
  - Review fiscal emergency measures monthly to prevent permanence.
  - Durably reduce subsidies for electricity and natural gas while preserving social tariffs for electricity and maintaining subsidies on GPL bottles.
  - Achieve additional savings on the civil service wage bill; keep wage increases for 2021 and the medium term to below inflation and allow increases only if there is fiscal space.
  - Conduct an audit of the civil service to detect and reduce absenteeism and ghost workers.
- Financing and safeguards:
  - Mobilize further external donor support and make progress with safeguards in support of the RFI request.
  - Agreed to a safeguards assessment to be completed before any subsequent Fund program.
  - Updated MoU between CBT and Ministry of Finance to establish responsibilities for servicing IMF financial obligations in light of RFI funds being channeled to the budget.
- Sequencing and prospects:
  - RFI viewed as short-term bridge; successor EFF could start in the second semester of 2020.
  - Credit outstanding to the Fund would peak at 310 percent of quota (36 percent of gross reserves in 2020) before falling to 79 percent of quota by 2025.

### Staff appraisal, risks, and call for external support
- Staff appraisal:
  - Staff supports the RFI purchase of SDR 545.2 million (US$753 million or 100 percent of quota).
  - Staff supports immediate crisis-response measures focused on health, social safety nets, and firms in distress; encourages careful costing and monthly reviews.
  - Welcomes measures to increase budget space: automatic fuel price adjustment, savings in civil service wage bill, tobacco price hikes, and temporary rescheduling of lower-priority public investment.
- Risks:
  - Large downside risks from exceptional uncertainty around Covid-19 and potential spillovers from neighboring Libya.
  - Sharp declines in tourism, exports, remittances, FDI, and market access increase fiscal and external vulnerabilities.
- Staff calls on Tunisia’s external partners to "mobilize urgent additional financing" to:
  - address urgent fiscal needs,
  - meet Balance of Payments (BoP) needs,
  - mitigate large downside risks in a highly uncertain environment.

### Authorities’ fiscal, monetary and financial measures implemented (selected totals and items)
- Total measures: 2,050 (units as in source).
- Revenue measures total: 260 (selected items listed in source).
- Spending: 1,790 (of which Social spending: 1,450; Financial: 340).
  - Social spending items (selected):
    - Health care: 300 (Current spending: 300; CDC investment mechanism: TD 100 million).
    - Strategic stock of basic food items: 200.
    - Support for low-income families: 450 (one-off cash transfer TD 200 to 623,000 PNAFN households; TD 50 to 260,000 AMG-1 beneficiaries; other targeted transfers).
  - Financial support (selected):
    - Reduction of policy rate by 100 bps.
    - Establishment of a financing line for SMEs of TD 300 million.
    - Creation of an investment fund of TD 500 million (first closing TD 100 million).
    - State guarantee mechanism for new credits up to 500 MTD for affected sectors.
- Authorities estimate exceptional measures exceeding the equivalent of $700 million (1.8 percent of GDP).
  - Around $102 million allocated to address shortcomings in health equipment.
  - Equivalent of $155 million allocated to help technically unemployed workers and vulnerable and low-income households.
  - Government guarantee line amounting to $172 million for new loans.
  - Fund of $240 million to assist restructuring and capitalization of affected strategic firms.

*Source: Executive Summary, Letter of Intent, Annexes and staff report excerpts from Tunisia: IMF country documentation, April 6, 2020.*

### EXECUTIVE SUMMARY

### EXECUTIVE SUMMARY

### Context and macroeconomic impact
- The Covid-19 outbreak aggravates Tunisia’s already elevated macroeconomic imbalances.
- Growth:
  - 2020 growth is expected to fall to -4.3 percent.
  - Authorities’ mid-February assumption was 1.5 percent of GDP.
- Urgent financing needs in 2020:
  - Fiscal financing need: 2.6 percent of GDP.
  - Balance of payments (BoP) financing need: 4.7 percent of GDP.
- Key pre-crisis indicators and vulnerabilities (end-2019 and recent):
  - Public debt: 72.3 percent of GDP.
  - External debt: 90.3 percent of GDP.
  - Unemployment rate: 15 percent.
  - Inflation: 5.8 percent in February 2020 (from 7.7 in June 2018).
  - Central Bank of Tunisia (CBT) refinancing: TD 9.8 billion (lowest level since 2017).
  - Real effective exchange rate overvaluation: 10-15 percent.
- Sectoral exposure:
  - Tourism: 7 percent of GDP with broad services spillovers.
  - Tourism export revenue and other exports (notably suppliers to Europe’s car and textile industry) are already suffering.
  - Financial sector coping with impaired assets, notably in tourism.

### Request for financial assistance and modality
- Authorities requested RFI assistance of SDR 545.2 million (US$753 million or 100 percent of quota).
- Purpose: budget support to address urgent fiscal and BoP needs and to finance crisis-response measures.
- Staff assessment:
  - Tunisia meets RFI eligibility requirements.
  - The RFI is the most appropriate instrument given timing constraints relative to the EFF expiration on May 19.
- Expected effects of the RFI:
  - Could fill most of the uncovered fiscal financing need.
  - Would cover about 44 percent of the expected BoP gap remaining after identified external financing.
  - Would help prevent reserve cover falling to the critical threshold of 3 months of imports; with RFI and mobilization of unidentified budget need, reserve cover could be maintained at 3.6 months.

### Policy response and use of funds
- Immediate crisis-response spending and measures (LOI ¶5):
  - Central government outlays in 2020 will temporarily increase by some TD 2.1 billion or 1.8 percent of GDP.
  - Additional spending breakdown (percent of GDP):
    - Health emergency medical supplies and equipment: 0.3 percent of GDP.
    - Increasing strategic food reserve: 0.2 percent of GDP.
    - Income support for affected households (low-income, unemployed, self-employed): 0.8 percent of GDP.
    - Tax relief, credit lines, interest subsidies for firms, especially SMEs: 0.5 percent of GDP.
  - CBT monetary response:
    - Policy rate lowered by 100 basis points on March 17 to 6.75 percent (about 1 percent in real terms).
    - CBT encouraged banks to renegotiate loan terms for distressed borrowers.
- Fiscal consolidation and reprioritization measures:
  - Automatic monthly fuel price adjustment mechanism adopted (first applied by April 8), resulting in a 1.5 percent decline in pump prices for covered fuels and initiating subsidy elimination over time.
  - Civil service wage bill trimmed by about TD 150 million (0.1 percent of GDP) via limits on hiring and promotions and reduced overtime outside crisis response.
  - Increase in tobacco prices resumed; may generate at least TD 200 million (0.2 percent of GDP).
  - Temporary reprogramming of low-priority non-health/non-education public investment worth about TD 3.4 billion (3 percent of GDP).
  - Non-allocated spending reduced to TD 111 million (0.1 percent of GDP).

### Fiscal outcomes and external financing gap
- Revenue and expenditure impacts (summary):
  - Tax revenue is projected to undershoot the budget target by some TD 5.2 billion due to emergency measures, lower growth, lower import values, and lower dividends from oil-sector firms.
  - Energy-related nontax revenue expected to decline (example figures in table: 776 vs 1,772, difference -996 in millions of dinars).
- Fiscal deficit:
  - 2020 fiscal deficit expected to increase to 4.3 percent of GDP (versus 2.8 percent envisaged in the budget law).
- External financing:
  - Identified external loans and grants amount to US$2.5 billion out of a total external financing program of US$3.5 billion.
  - Remaining uncovered external financing need: about US$950 million or 2.6 percent of GDP.
- Balance of payments:
  - Staff projects the current account deficit to shrink to 7.5 percent of GDP in 2020 from 8.8 percent of GDP in 2019 due to import contraction and lower energy import bill.
  - Offsetting factors include a collapse in export and tourism revenue, reduced remittances, and likely declines in FDI and trade credit.
  - Combined effects generate an overall BoP need of US$1.7 billion (4.7 percent of GDP), reflecting the overall BoP need plus an unidentified budget loan.

### Commitment to follow-up policy program and conditionality
- Authorities reiterated intention to request a successor EFF arrangement as soon as possible.
- Policy commitments for successor arrangement include:
  - Reforms to achieve higher and more inclusive growth.
  - Reduction of energy subsidies.
  - Containment of the civil service wage bill.
  - Central Bank of Tunisia commitment:
    - Tighten monetary policy in case of a buildup of depreciation expectations or a surge in inflation.
    - Not ease banking sector regulations as part of the crisis response.

### Risks, sustainability, and staff appraisal
- Debt sustainability:
  - Tunisia’s capacity to repay the Fund remains adequate but downside risks are high.
  - Strong policy implementation will be critical for debt sustainability.
- Risks:
  - Large downside risks due to exceptional uncertainty around the Covid-19 shock and its economic fallout.
  - Potential health or security spillovers from neighboring Libya could compound domestic impacts.
  - Sharp declines in tourism, exports, remittances, FDI, and market access increase fiscal and external vulnerabilities.
- Role of RFI:
  - High-access RFI purchase mitigates risk of disorderly fiscal or BoP adjustment.
  - The RFI purchase would play a critical role in maintaining an adequate reserve buffer against shocks or in the event of a protracted recovery.

*Source: Executive Summary, Tunisia: IMF country documentation, April 6, 2020.*

### 9.      To reduce  risks to macroeconomic  stability and notably debt sustainability, the

### 9.      To reduce  risks to macroeconomic  stability and notably debt sustainability, the

### Fiscal measures and structural reforms
- Authorities will review the need for the fiscal emergency measures on a monthly basis to prevent them from becoming permanent (LOI ¶9).
- Two structural challenges to be addressed once the crisis subsides (LOI ¶9):
  - Durably reduce the subsidies for electricity and natural gas while:
    - preserving social tariffs for electricity, and
    - maintaining subsidies on GPL bottles.
  - Achieve additional savings on the civil service wage bill, supported by negotiations with the UGTT labor union, to:
    - keep wage increases for 2021 and the medium term to below inflation, and
    - allow wage increases only if there is fiscal space.
  - Conduct an audit of the civil service to detect and reduce absenteeism and ghost workers.

### Monetary policy and central bank (CBT) commitments
- The CBT stands ready to tighten monetary policy in case of:
  - a buildup of depreciation expectations,
  - risks of disorderly exchange rate adjustment, or
  - a surge in inflation (LOI ¶10).
- CBT commitments and actions (LOI ¶10):
  - Defend the disinflation path currently pursued by the CBT.
  - To preserve international reserves, refrain from large-scale FX interventions and consult with IMF staff if facing strong pressures on the FX market.
  - Pursue a regular policy dialogue with IMF staff based on high-frequency data to support timely decision making.
  - Monitor closely developments in the banking sector, particularly credit and deposit growth, and asset quality.
  - Loan classification and provisioning rules will not be eased.
  - Any loan guarantees and subsidies will be provided by the government rather than the CBT.

### External financing, safeguards, and budget operations
- Authorities intend to mobilize further external donor support and make progress with safeguards in support of the RFI request (LOI ¶11).
- Outreach plans and contingencies:
  - Reaching out to other IFIs and bilateral partners for additional concessional financing and grants to minimize pressures on the budget and international reserves (LOI ¶11).
  - Programmed bond issuance of US$750 million in 2020 could be difficult to carry out in the current environment; authorities hope a loan guarantee from a G7 country will support the bond (staff note).
  - If a G7 guarantee is not forthcoming, authorities may seek alternative financing that could involve a syndicated loan from international banks.
  - As a last resort, non-priority public investment might have to be cut further.
  - Authorities will avoid measures or policies that would compound Tunisia’s BOP difficulties (LOI ¶13).
  - Agreed to a safeguards assessment to be completed before any subsequent Fund program (LOI ¶14).
- Since the RFI disbursement will be channeled directly to the budget, the Memorandum of Understanding (MoU) signed in May 2016 between the CBT and the Ministry of Finance was updated to establish the framework agreement on responsibilities for servicing financial obligations to the IMF (LOI ¶14).

### Risks and debt sustainability
- Broad assessment (paragraph 12):
  - Tunisia’s debt sustainability risks have increased substantially (see Appendices I and II).
  - Debt stocks declined in 2019 due to an appreciating dinar and lower fiscal and external deficits; the Covid-19 shock will reverse this trend and increase Tunisia’s debt burden significantly through:
    - a steep fall in growth, and
    - deterioration of the primary fiscal balance in response to lower revenues and crisis-response measures.
  - Stress tests indicate that debt levels and the capacity to repay the Fund would deteriorate significantly if risks materialized from:
    - rapid real exchange rate depreciation,
    - fiscal and monetary policy slippages, and
    - contingent liabilities.
  - Outcomes are highly sensitive to changes in underlying assumptions.
- Factors mitigating sustainability risks:
  - Most external and public debt is owed to official creditors, reducing debt service obligations through a low average interest rate and relatively long maturities.
  - Risk of large exchange rate swings is mitigated through a relatively closed financial account except for FDI and long-term flows.
  - Banks’ exposure to sovereign debt remains low at 15 percent of GDP and the sector maintains long in net open FX positions, which shields the banking sector’s balance sheet from potential spillovers.
- Going forward, debt sustainability will depend crucially on maximizing financing on concessional terms and in the form of grants.

### Tunisia’s capacity to repay the Fund and program prospects
- Capacity with RFI purchase (paragraph 13):
  - Credit outstanding to the Fund would peak at 310 percent of quota (36 percent of gross reserves in 2020) before falling to 79 percent of quota by 2025.
  - The high exposure in the near term underlines the need for strong progress with macroeconomic adjustment.
- Program sequencing and objectives (paragraph 14):
  - Authorities are strongly committed to request a successor EFF arrangement as soon as possible (LOI ¶12).
  - The RFI would help mitigate immediate risks and cover urgent needs; a new EFF arrangement could build on this short-term response and support the medium-term policy agenda to resume the macroeconomic adjustment started over 2018-19 and support growth recovery.
  - A successor arrangement could start in the second semester of 2020.
- Safeguards progress (paragraph 15):
  - More progress is needed in implementing recommendations from previous safeguards assessments.
  - Priority recommendations to strengthen the internal audit and risk management functions remain outstanding.
  - The central bank has committed to transitioning to International Financial Reporting Standards; this work should be accelerated.
  - External audits continue to be completed on a timely basis.

### IMF staff appraisal and recommendations
- Staff appraisal highlights (paragraphs 16–19):
  - Staff respects the authorities’ pro-active efforts to mitigate the impact from the Covid-19 outbreak amid unprecedented uncertainty.
  - Authorities acted quickly to contain the spread of the virus and mitigate human, social, and economic tolls.
  - High uncertainty about the depth and length of the current crisis requires vigilance and flexibility; currently the biggest impact is expected in the second quarter followed by a swift recovery from the fourth quarter.
- Support for RFI (paragraph 17):
  - Staff supports the authorities’ request for a purchase under the RFI in the amount of SDR 545.2 million (US$753 million or 100 percent of quota).
  - The Covid-19 outbreak aggravated Tunisia’s macroeconomic imbalances and created urgent fiscal and BOP financing needs of 2.6 percent and 4.7 percent of GDP in 2020, respectively.
  - The RFI purchase could fill about 44 percent of the expected BoP gap that remains after accounting for identified financing from Tunisia’s other external partners.
  - Tunisia meets the eligibility requirements for the RFI; its debt is sustainable with continued strong policy implementation, and its capacity to repay the Fund remains adequate.
- Support for crisis-response measures and structural policies (paragraphs 18–19):
  - Staff agrees with the authorities’ immediate crisis-response measures and supports focus on the health sector, the social safety net, and firms in distress.
  - Encourages careful costing of measures and welcomes the intention to review measures monthly.
  - Welcomes pro-active steps to increase budget space and reduce BoP pressures through:
    - implementation of an automatic price adjustment mechanism for fuels,
    - savings in the civil service wage bill,
    - tobacco price hikes, and
    - a temporary and targeted rescheduling of lower-priority public investment.
  - Efficient communication by the authorities on these measures will be critical to ensure popular support.
  - Staff supports authorities’ commitment to macroeconomic stability and sustainable debt, including:
    - taking measures to durably reduce energy subsidies for electricity and natural gas in a socially conscious way,
    - achieving additional savings on the civil service wage bill, including keeping wage increases for 2021 and the medium term to below inflation and considering those only if there is fiscal space,
    - CBT’s commitment to tighten monetary policy in case of strong exchange rate or inflation pressures and to refrain from large-scale FX interventions consistent with protecting international reserves,
    - CBT’s commitment to preserve existing loan classification and provisioning rules, refrain from providing loan guarantees and subsidies, and monitor closely potential vulnerabilities in the banking sector.

*TUNISIA — INTERNATIONAL MONETARY FUND (excerpt)*

### 20.      Staff calls on Tunisia’s external partners to mobilize urgent additional financing.

### 20.      Staff calls on Tunisia’s external partners to mobilize urgent additional financing.

### Covid-19 shock and rationale for external financing
- Tunisia’s economy, already vulnerable before the Covid-19 shock, "will be hit hard by the virus outbreak with an unprecedented drop in growth."
- The country’s "financial means to organize an effective crisis response are limited."
- "Additional and timely financing from external partners will be critical to help address urgent fiscal and BoP needs and mitigate large downside risks in a highly uncertain environment, even in the presence of strong adjustment policies."

### Key macroeconomic and fiscal projections and indicators
- Real GDP (constant 2010 prices):
  - 2019: 1.0
  - 2020 (Prel./Est.): -4.3
  - 2021 (Proj.): 4.1
  - 2022 (Proj.): 2.7
  - 2023 (Proj.): 2.7
  - 2024 (Proj.): 3.0
  - 2025 (Proj.): 3.3
- CPI inflation (average):
  - 2019: 6.7
  - 2020 (Est.): 6.2
  - 2021 (Proj.): 4.9
  - 2022 (Proj.): 4.3
  - 2023 (Proj.): 4.1
  - 2024 (Proj.): 4.0
  - 2025 (Proj.): 4.0
- Overall balance (incl. grants, percent of GDP):
  - 2019: -3.9
  - 2020: -4.3
  - 2021 (Proj.): -2.9
  - 2022 (Proj.): -2.8
  - 2023 (Proj.): -2.5
  - 2024 (Proj.): -1.7
  - 2025 (Proj.): -0.9
- Current account balance (percent of GDP):
  - 2019: -8.8
  - 2020: -7.5
  - 2021 (Proj.): -8.0
  - 2022 (Proj.): -9.1
  - 2023 (Proj.): -8.1
  - 2024 (Proj.): -7.9
  - 2025 (Proj.): -7.1
- Gross official reserves (end-of-period, billions of US$):
  - 2019: 5.6
  - 2020: 5.2
  - 2021 (Proj.): 7.4
  - 2022 (Proj.): 6.5
  - 2023 (Proj.): 7.4
  - 2024 (Proj.): 6.4
  - 2025 (Proj.): 6.5
- Reserve coverage (months of next year's imports of goods):
  - 2019: 3.0
  - 2020: 2.9
  - 2021 (Proj.): 5.7
  - 2022 (Proj.): 4.0
  - 2023 (Proj.): 4.0
  - 2024 (Proj.): 3.3
  - 2025 (Proj.): 3.7
- Gross central government debt (percent of GDP):
  - 2019: 72.3
  - 2020 (Prel.): 88.5
  - 2021 (Proj.): 76.1
  - 2022 (Proj.): 84.7
  - 2023 (Proj.): 86.7
  - 2024 (Proj.): 83.4
  - 2025 (Proj.): 79.6
- External debt (percent of GDP):
  - 2019: 97.3
  - 2020 (Prel.): 90.3
  - 2021 (Proj.): 109.9
  - 2022 (Proj.): 90.1
  - 2023 (Proj.): 107.8
  - 2024 (Proj.): 108.2
  - 2025 (Proj.): 107.2

### Balance of payments and financing needs
- Current account (US$ millions, annual):
  - 2019 (Prel.): -4,080
  - 2020 (Proj.): -4,443
  - 2021 (Proj.): -3,413
  - 2022 (Proj.): -2,751
  - 2023 (Proj.): -2,910
  - 2024 (Proj.): -2,949
  - 2025 (Proj.): -2,792
- Trade balance (US$ millions, annual):
  - 2019: -5,308
  - 2020: -5,949
  - 2021: -5,427
  - 2022: -3,439
  - 2023: -4,760
  - 2024: -5,483
  - 2025: -5,637
- Total gross financing requirements (US$ millions):
  - 2019: 6,385
  - 2020: 6,453
  - 2021 (Proj.): 5,941
  - 2022 (Proj.): 989 (Q1), 2,891 (Q2), 1,121 (Q3), 1,105 (Q4) — annual 5,111
  - 2023 (Proj.): 5,794
- Total gross financing sources (US$ millions), 2019–21:
  - Foreign direct investment and portfolio (net): 747 (2019); 948 (2020); 811 (2021)
  - Disbursements: 4,426 (2019); 2,652 (2020); 3,478 (2021)
  - Drawdown of gross reserves ("-": accumulation): 348 (2019); 402 (2020); -2,231 (2021)

### Central government fiscal position (selected levels and flows)
- Total revenue and grants (percent of GDP):
  - 2019: 28.0
  - 2020: 26.4
  - 2021 (Proj.): 27.8
- Total expenditure and net lending (percent of GDP):
  - 2019: 31.9
  - 2020: 30.4
  - 2021 (Proj.): 31.5
- Wages and salaries (percent of GDP):
  - 2019: 16.5
  - 2020: 15.3
  - 2021 (Proj.): 14.4
- Interest payments (percent of GDP):
  - 2019: 2.8
  - 2020: 3.1
  - 2021 (Proj.): 3.3
- Primary balance (cash basis, incl. grants, percent of GDP):
  - 2019: -0.7
  - 2020: -1.2
  - 2021 (Proj.): -0.3

### Financial sector and banking soundness (selected indicators)
- Nonperforming Loans (NPLs) to total loans:
  - 2017: 13.4
  - 2018: 13.9
  - 2019 (Sep): 13.0
- Regulatory capital to risk-weighted assets (percent):
  - 2017: 11.9
  - 2018: 11.7
  - 2019 (Sep): 12.4
- Return on assets (ROA):
  - 2017: 0.9
  - 2018: 1.0
  - 2019 (Sep): 1.2

### Illustrative medium-term outlook (high-level)
- Gross national savings (percent of GDP):
  - 2019: 10.1
  - 2020: 10.1
  - 2021 (Proj.): 3.1
  - 2022 (Proj.): 6.6
  - 2023 (Proj.): 8.7
  - 2024 (Proj.): 10.3
  - 2025 (Proj.): 11.9
- Gross investment (percent of GDP):
  - 2019: 18.9
  - 2020: 10.6
  - 2021 (Proj.): 18.9
  - 2022 (Proj.): 20.5
  - 2023 (Proj.): 14.8
  - 2024 (Proj.): 16.6
  - 2025 (Proj.): 17.4

### Explicit staff recommendation
- Staff calls on Tunisia’s external partners to "mobilize urgent additional financing" to:
  - address urgent fiscal needs,
  - meet Balance of Payments (BoP) needs,
  - mitigate large downside risks in a highly uncertain environment.

*Source: IMF staff estimates and projections contained in "20.      Staff calls on Tunisia’s external partners to mobilize urgent additional financing."*

### Annex I. Public Debt Sustainability Analysis

### Annex I. Public Debt Sustainability Analysis

### Summary and baseline outlook
- Tunisia’s debt sustainability risks have increased substantially as the Covid-19 shock will reverse a downward trend in debt stocks observed in 2019.
- Under the baseline, central government debt is projected to peak at 88.5 percent of GDP in 2021 (from an average of 46 percent over 2010–14) before declining to below 70 percent by 2025, conditional on continuous policy efforts.
- Key baseline projections and trajectories (from Annex Table I.3):
  - Nominal gross public debt: 2018: 50.8; 2019: 78.2; 2020: 72.3; 2021: 88.5; 2022: 86.7; 2023: 83.4; 2024: 79.6; 2025: 75.1; (percent of GDP)
  - Public gross financing needs: 2018: 8.4; 2019: 10.8; 2020: 9.5; 2021: 11.2; 2022: 10.5; 2023: 8.2; 2024: 8.3; 2025: 6.7 (percent of GDP)
  - Real GDP growth: 2018: 2.1; 2019: 2.7; 2020: 1.0; 2021: -4.3; 2022: 4.1; 2023: 2.7; 2024: 3.0; 2025: 3.3 (percent)
  - Primary fiscal balance: 2020 expected deficit of -2.2 percent of GDP; staff indicates improving to a surplus of 3.2 percent by 2024 is crucial to lower debt-to-GDP below 70 percent by 2025.
  - Effective interest rate (defined as interest payments divided by debt stock): 2018: 4.4; 2019: 4.1; 2020: 3.9; 2021: 4.4; 2022: 4.2; 2023: 4.3; 2024: 4.6; 2025: 4.7 (percent)

### Main risks and stress-test findings
- Principal risk factors identified:
  - Rapid real exchange rate depreciation.
  - Fiscal and monetary policy slippages.
  - Contingent liabilities, notably from state-owned enterprises (SOEs) and government guarantees.
  - Sustained lower growth combined with other shocks.
- Stress-test outcomes and highlights:
  - Tunisia’s debt-to-GDP ratio exceeds the emerging market debt burden benchmark of 70 percent of GDP, signaling need for cautious policies.
  - Stress tests confirm vulnerability to interest rate risk, a growth shock, and real exchange rate depreciation.
  - Several standard tests plus two customized scenarios (slippages in fiscal and monetary policies in a fragile socio-political environment and a major security incident) show the debt-to-GDP ratio could deteriorate significantly and, in the case of a combined macro-fiscal shock, be pushed above 100 percent of GDP.
  - The contingent-liability test (one-off 10 percent of GDP shock) includes an additional three percent of GDP in bank recapitalization costs and realization of about 7 percent of GDP of government contingent liabilities to public enterprises.
  - The stochastic fan-chart analysis shows an asymmetric distribution with outcomes that could become durably entrenched above 80 percent of GDP under policy slippages.
- Sectoral contingent risk channels:
  - State guarantees are about 12 percent of GDP and are excluded from the baseline stock of debt; the contingent liability shock provides an estimate of the impact of most guarantees being called simultaneously.
  - SOEs represent about 10 percent of bank assets, posing indirect banking sector risks if SOE payment difficulties materialize.

### Factors mitigating debt vulnerabilities
- Composition and financing features that attenuate risks:
  - Almost half of public debt owed to bilateral donors and multilateral institutions with low average interest rates and relatively long maturities.
  - A substantial share of concessional debt and a large grant element in new loans.
  - Most Eurobond issuances are covered by third-party sovereign guarantees.
  - Relatively closed financial account (except for FDI and long-term flows), which mitigates risk of large exchange rate swings.
  - Banks’ exposure to sovereign debt is relatively low at 15 percent of GDP and the banking sector maintains long net open FX positions, providing a buffer against spillovers.
  - Domestic securities composition: treasury bills and bonds represent 29 percent of total public debt, most with maturities of five years or more.

### Policy recommendations and contingency planning
- Key policy prescriptions to preserve debt sustainability:
  - Continue strong fiscal consolidation measures as soon as the Covid-19 crisis abates.
  - Rapidly improve the primary fiscal balance from a deficit of -2.2 percent of GDP expected for 2020 to a surplus of 3.2 percent by 2024.
  - Mobilize new budget financing to the maximum extent possible on concessional terms or in the form of grants.
  - Implement effective contingency planning to respond pro-actively to unanticipated negative shocks, including a more protracted recovery from the virus outbreak.
  - Reprioritize spending to reduce discretionary/non-urgent expenditure while safeguarding social programs.
- Financing conditionality:
  - Debt sustainability in the period ahead will crucially depend on financing provided to Tunisia on concessional terms.

### External debt and recent developments
- External debt trajectory and composition notes (Annex II summary):
  - External debt rose after 2011, peaking at 97 percent of GDP in 2018.
  - Currency appreciation and a lower current account deficit moderated external debt to 90 percent of GDP at end-2019.
  - Most new debt commitments are with official creditors or backed by third-party guarantees, except for Eurobond issuances of:
    - US$1 billion in January 2015;
    - EUR 850 million in February 2017;
    - EUR 500 million in October 2018;
    - EUR 695 million in July 2019.

### Key numeric facts and stress-scenario markers
- Peak central government debt (baseline): 88.5 percent of GDP in 2021.
- Average debt over 2010–14: 46 percent of GDP.
- Public gross financing needs: 11.2 percent of GDP in 2020; projected 6.7 percent by 2025.
- Real GDP growth shock in 2020: -4.3 percent.
- Primary fiscal balance: expected -2.2 percent of GDP in 2020; target surplus 3.2 percent by 2024.
- State guarantees: about 12 percent of GDP (excluded from baseline).
- Contingent liability shock modeled as one-off 10 percent of GDP (3 percent GDP bank recapitalization + about 7 percent GDP realization of guarantees).
- Banks’ exposure to SOEs: SOEs represent about 10 percent of bank assets.
- Banks’ exposure to sovereign debt: 15 percent of GDP.
- Treasury bills and bonds share of total public debt: 29 percent.
- External debt: peaked at 97 percent of GDP in 2018; 90 percent of GDP at end-2019.

*Source: IMF staff (Annex I. Public Debt Sustainability Analysis).*

### 2.      External debt will continue to increase. On the  back of the recent Eurobond issuance and

### 2.      External debt will continue to increase.

### Projections of external debt
- External debt is expected to peak at 110 percent of GDP in 2020.
- After 2020, external debt is expected to gradually decline to 95 percent of GDP by the end of 2025 (Annex Table II.2).
- Change in external debt (percent of GDP) by year (Annex Table II.2):
  - 2015: 4.4
  - 2016: 7.2
  - 2017: 11.8
  - 2018: 13.0
  - 2019: -7.0
  - 2020: 19.6
  - 2021: -1.7
  - 2022: -1.0
  - 2023: -2.9
  - 2024: -4.1
  - 2025: -5.0
- Gross external financing need (in billions of US dollars) by year (Annex Table II.2):
  - 2015: 12.5
  - 2016: 12.2
  - 2017: 12.2
  - 2018: 13.2
  - 2019: 14.2
  - 2020: 14.3
  - 2021: 13.3
  - 2022: 12.7
  - 2023: 14.1
  - 2024: 15.4
  - 2025: 14.9
- External debt-to-exports ratio (in percent) by year (Annex Table II.2):
  - 2015: 177.4
  - 2016: 184.3
  - 2017: 199.5
  - 2018: 198.6
  - 2019: 185.7
  - 2020: 275.0
  - 2021: 213.5
  - 2022: 207.4
  - 2023: 196.8
  - 2024: 185.3
  - 2025: 176.2

### Resilience to shocks and stress-test results
- Tunisia’s external debt profile features:
  - low average interest rate,
  - relatively long maturities,
  - a substantial share of concessional debt,
  - a large grant element on new external debt (see IMF Country Report No.19/223).
- DSA results indicate external debt-to-GDP ratio remains below 113 percent of GDP throughout the projection period under all but the FX depreciation scenario.
- Scenario outcomes (Annex Table II.2 and Annex Figure II.1):
  - A negative combined shock to the real interest rate, growth and the current account increases the debt ratio to 100 percent of GDP by end-2025 compared with 95 percent under the baseline.
  - A sharp real exchange rate depreciation (one-time 30 percent in the second year of projection) propels the external debt ratio to 140 percent of GDP in 2022 before declining to 128 percent at the end of the projection horizon (Annex Figure II.1).
- Selected bound tests and alternative scenarios (Annex Table II.2):
  - B5. One time 30 percent real depreciation in 2021: debt ratio trajectory (percent of GDP) includes 137.3, 139.9, 136.9, 132.8, 128.3 (years shown in table).
  - A1. Key variables at historical averages in 2020–2025 produce series including 88.1, 92.8, 101.6, 109.0, 116.4, 124.5 (percent of GDP across projection years).
  - B2. Real GDP growth at baseline minus one-half standard deviation yields series including 88.1, 102.1, 107.3, 106.1, 103.5, 101.1 (percent of GDP across projection years).
  - B3. Non-interest current account at baseline minus one-half standard deviations yields series including 88.1, 109.5, 112.5, 110.3, 107.1, 104.1 (percent of GDP across projection years).

### Composition of external debt (Annex Table II.1, 2018)
- Total external debt stock: 102,688 TD MioUS$; 34,293 Mio; 97.5 %GDP; 100 % of total.
- By maturity:
  - MLT: 78,454 TD MioUS$; 26,200 Mio; 74.5 %GDP; 76.4 % of total.
  - ST: 24,234 TD MioUS$; 8,093 Mio; 23.0 %GDP; 23.6 % of total.
- By debtor:
  - Public: 75,215 TD MioUS$; 25,119 Mio; 71.5 %GDP; 73.2 % of total.
  - Administration: 60,773 TD MioUS$; 20,296 Mio; 57.7 %GDP; 59.2 % of total.
  - CG: 54,341 TD MioUS$; 18,148 Mio; 51.6 %GDP; 52.9 % of total.
  - CBT: 6,432 TD MioUS$; 2,148 Mio; 6.1 %GDP; 6.3 % of total.
  - SoEs: 14,442 TD MioUS$; 4,823 Mio; 13.7 %GDP; 14.1 % of total.
  - Private: 27,473 TD MioUS$; 9,175 Mio; 26.1 %GDP; 26.8 % of total.
- By currency (selected):
  - US$: 22,797 TD MioUS$; 7,613 Mio; 21.7 %GDP; 22.2 % of total.
  - EUR: 57,095 TD MioUS$; 19,067 Mio; 54.2 %GDP; 55.6 % of total.
  - JPY: 9,550 TD MioUS$; 3,189 Mio; 9.1 %GDP; 9.3 % of total.
  - Others: 13,247 TD MioUS$; 4,424 Mio; 12.6 %GDP; 12.9 % of total.
- By interest rate structure:
  - Fixed rates: 73,114 TD MioUS$; 24,417 Mio; 69.5 %GDP; 71.2 % of total.
  - Variable rates: 29,574 TD MioUS$; 9,876 Mio; 28.1 %GDP; 28.8 % of total.
- By creditor type (2017/2018 aggregates shown):
  - Total (selected row): 80,856 TD MioUS$; 32,552 Mio; 84.0 %GDP; 100.0 % of total (table format complex; figures preserved as presented).
  - Official: 45,323 TD MioUS$; 18,247 Mio; 47.1 %GDP; 56.1 % of total.
  - Multilateral: 32,852 TD MioUS$; 13,226 Mio; 34.1 %GDP; 40.6 % of total.
  - Bilateral: 12,471 TD MioUS$; 5,021 Mio; 13.0 %GDP; 15.4 % of total.
  - Private (Market): 17,198 TD MioUS$; 6,924 Mio; 17.9 %GDP; 21.3 % of total.
  - Memo items: GDP (Mio TD) 2017: 96,298; 2018: 105,268. TD/US$ (eop) 2017: 2.48; 2018: 2.99.

### Key macroeconomic assumptions (Annex Table II.2)
- Real GDP growth (in percent) by year:
  - 2015: 1.2
  - 2016: 1.2
  - 2017: 1.9
  - 2018: 2.7
  - 2019: 1.0
  - 2020: 1.9
  - 2021: 1.7
  - 2022: -4.3
  - 2023: 4.1
  - 2024: 2.7
  - 2025: 2.7
- Exchange rate appreciation (US dollar value of local currency, pct.change) (selected entries):
  - 2015: -8.4
  - 2016: -13.1
  - 2017: -5.8
  - 2018: -17.0
  - 2019: 7.0
  - 2020: -7.1
  - 2021: 6.5
  - 2022: -18.0
  - 2023: -5.5
  - 2024: -1.2
  - 2025: -1.2
- GDP deflator in US dollars (change in percent) (selected entries):
  - 2015: -4.2
  - 2016: -10.1
  - 2017: -1.4
  - 2018: -12.7
  - 2019: 13.9
  - 2020: -2.9
  - 2021: 7.4
  - 2022: -12.2
  - 2023: -0.8
  - 2024: 4.3
  - 2025: 3.1
- Growth of exports (US dollar terms, in percent) (selected entries):
  - 2015: -19.1
  - 2016: -3.2
  - 2017: 4.0
  - 2018: 10.4
  - 2019: -0.9
  - 2020: 0.0
  - 2021: 8.5
  - 2022: -30.9
  - 2023: 31.0
  - 2024: 9.2
  - 2025: 8.6

### Policy implications and vulnerabilities
- The external debt profile's favorable features (low interest rates, long maturities, concessional shares, grant element) make the debt robust to most shocks.
- The principal vulnerability is a large real exchange rate depreciation, which could sharply increase the external debt-to-GDP ratio (example: one-time 30 percent depreciation raises ratio to 140 percent in 2022).
- Policy focus implied by the analysis:
  - Maintain concessional and long-maturity financing where possible to preserve debt resilience.
  - Monitor and manage exchange rate dynamics to avoid sharp real depreciations.
  - Strengthen current account dynamics to support the projected gradual decline in external debt-to-GDP toward 95 percent by end-2025.

*Source: Tunisian authorities and IMF staff calculations, Annex Tables II.1–II.2, Annex Figure II.1, IMF Country Report No.19/223.*

### 11. To further reduce budget and BOP  pressures, we will intensify  our efforts to mobilize

### 1tunea2020001 - 11. To further reduce budget and BOP  pressures, we will intensify  our efforts to mobilize

### Additional financing and external support
- Intensify efforts to mobilize additional financing, especially from external official partners.
- Receiving pledges from several multilateral and bilateral partners to help with Covid-19 response.
- Working with partner governments on a potential guarantee for future sovereign bond issuances in the currently difficult international context.
- Will further step-up efforts to maximize financing from multilateral and bilateral sources.
- Support the call of the WBG/IMF on all official bilateral development partners to mobilize further financing.
- Established a National Solidarity Fund for grants from the Tunisian population, which already collected TD 140 million out of the TD 170 million expected for this year.

### RFI (Rapid Financing Instrument) and path to an EFF successor arrangement
- The RFI will pave the way for an EFF request to support efforts to resume macroeconomic adjustment and support sustainable and inclusive growth.
- The new government is committed to request an EFF successor arrangement as soon as possible, in support of its economic policy reform agenda under development.
- Authorities intend to continue the dialogue with the IMF on Tunisia’s balance-of-payments difficulties and will avoid measures that would compound these difficulties, specifically:
  - Will not impose new or intensify existing restrictions on the making of payments and transfers for international transactions.
  - Will not adopt trade restrictions for balance-of-payments purposes, multiple currency practices, or enter into bilateral payments agreements inconsistent with Article VIII of the IMF’s Articles of Agreement.

### Fiscal priorities and structural reform measures
- Fiscal priorities to reduce large debt burden and make the budget more supportive of growth and fairness will include:
  - Reduction of the large civil service wage bill as a percentage of GDP.
  - Phasing out of energy subsidies.
  - Reform of state-owned enterprises.
  - Implementation of an effective social safety net especially for low-income households.
- Measures to foster inclusive growth:
  - Introduce measures to revive the economy and support SMEs.
  - Enforce the rule of law and advance in the fight against corruption.
  - Improve public services especially in education, health, and digitization.
- To strengthen revenue and reduce budget burden:
  - Increased the price of tobacco in March.
  - Freezing non-statutory hiring and promotions and any salary increases beyond those previously agreed with the union.
  - $1.17 billion of public investment had to be postponed.
  - Introduced a mechanism for the automatic adjustment of fuel prices to free the budget from fuel subsidy burden.

### IMF safeguards, audits, and transparency commitments
- Commit to undergoing an update of the safeguards assessment that will be completed before approval of a new EFF arrangement.
- Will provide IMF staff with the Central Bank’s most recently completed external audit reports and authorize external auditors to hold discussions with IMF staff.
- Updated the existing memorandum of understanding between the Ministry of Finance and the Central Bank of Tunisia on respective responsibilities for servicing financial obligations to the IMF, since RFI funds will be used for budget financing.
- Authorize the IMF to publish this Letter of Intent and the staff report for the request for disbursement under the RFI.

### Fiscal, monetary and financial measures implemented to deal with Covid-19 (key items and totals)
- Total measures2,050
- Revenue: 260
  - Postponement of CIT filing to end-May, except for companies subject to the rate of 35%.
  - Encouragement of VAT e-filing.
  - Suspension, until the end of May, of all tax controls and adjustments, as well as time limits for contesting.
  - Acceleration of VAT reimbursements (through weekly rather than biweekly decision meetings and assurance of reimbursement within a month).100
  - Activation of the National Committee and regional reconciliation committees.
  - Rescheduling of tax arrears for up to 7 years.100
  - Suspension of penalties for delayed tax return for three months (starting on April 1).10
  - Immediate accreditation of tax certificated to businesses affected by the pandemic (without need to provide required documents).
  - Waiver of VAT for companies selling medicines (wholesalers and retailers).30
  - Extension of car road tax payment (to April 30).
  - Amnesty on customs offenses against industrial establishments convicted before March 20, 2020 (with the latter required to pay the amounts due to customs with a 10% fine).20
  - For all institutions, allow them to revalue their real estate and non-real estate assets included in their budgets according to their real value, while exempting the goodwill resulting from the revaluation provided that they do not sell them.
- Spending: 1,790
  - Social spending: 1,450
    - Health care.300
      - Current spending.300
      - Creation, at the initiative of the CDC, of ​​an investment mechanism of TD 100 million for the acquisition of equipment for hospitals and public health establishments.
    - Strategic stock of basic food items.200
    - Support for low-income families.450
      - One-off cash transfer of TD 200 to 623,000 PNAFN beneficiary households.
      - Discounted health care cards for AMG-2 beneficiaries.
      - One-off cash transfer of TD 50 to 260,000 AMG-1 beneficaries.
      - One-off cash transfer of TD 200 for families taking care of elderly people without support.
      - One-off cash transfer of TD 200 for families taking care of disabled family members.
      - Restoration and no cut of electricity, gas and water for 2 months for delinquent customers.
      - Support for homeless people.
    - Other.500
      - Support for unemployed (detail not yet provided).300
      - Support for the self-employed (fragile jobs).200
      - Report de paiement des crédits bancaires pour 6 mois pour les travailleurs ayant un revenu inférieur à 1000 dinars.
      - Maintenance of health coverage; and family and single salary premia.
      - Deferral of CNSS contributions until June.
  - Financial340
    - Reduction of the policy rate by 100 bps.
    - Establishment of a financing line for SMEs of TD 300 million.300
    - Activation of the mechanism for the State to take charge of the interest rate differential between the TMM and the effective interest rate, on investment loans for SMEs (max 3%).40
    - Creation of an investment fund of TD 500 million (with a first closing of TD 100 million) on the initiative of the Caisse des Dépôts et des Consignations.
    - Creation of a “bridging fund” of TD 100 million on the initiative of the CDC, for the repurchase of shares in investment funds for companies in strategic sectors.
    - State guarantee mechanism for new credits for management, operation and maintenance provided by the banking system until December 31, 2020, reimbursable over seven years, including two years of grace; total amount fixed at 500 MTD for sectors including tourism, transport, culture.
    - Postponement (not credit restructuring) of payment of the installments of credits between March and September for companies and craftsmen classified 0 and 1 and possibility for classes 2 and 3 case by case.
    - Deferral of bank credit payments between March and September for workers with a net income of less than TD 1,000 classified 0 and 1 and possibility to extend the postponement for clients classified 2 and 3, case by case.
    - Imposition on banks with a LTD ratio of more than 120% at the end of a quarter to lower the ratio level by 1% each quarter.
    - Free cash withdrawal from ATMs.
    - Suspension of any commission applied to the electronic payment of billers and merchants for any transaction less than or equal to TD 100.
    - Provision of a free bank card (and/or pre-paid card) to interested customers.
- Other: 0
  - Permission for fully exporting companies in the food and health sectors to increase their marketing ratio on the local market from 30% to 100% in 2020.
  - Permission for fully exporting companies in other sectors to increase their local market marketing ratio from 30% to 50% in 2020.
  - Exemption from late tax payment penalties for a period of up to 6 months of companies with public contracts whose implementation has been disrupted by the coronavirus.
  - Creation of a cell within the Presidency of the government to support the companies most affected by the pandemic (composition and mandate described).

### Economic impact, projections, and financing needs
- Authorities estimate exceptional measures exceeding the equivalent of $700 million (1.8 percent of GDP).
  - Around $102 million allocated to address shortcomings in health equipment.
  - Equivalent of $155 million allocated to help technically unemployed workers and vulnerable and low-income households.
- Banking sector agreed, in consultation with the central bank, to defer repayment of personal debt for up to six months.
- Measures for SMEs and self-employed:
  - Government guarantee line amounting to $172 million to enable companies to apply for new loans.
  - A fund of $240 million dedicated to assist in restructuring and capitalization of affected strategic firms once crisis is over.
- Monetary policy:
  - Central bank lowered the policy rate by 100 basis points while keeping the real interest rate in positive territory.
- Macroeconomic projection:
  - Tunisia will likely experience an unprecedented expected contraction of growth of 4.3 percent of GDP in 2020.
  - Expected shock on the tourism sector could wipe out $1.3 billion of FX revenues this year, and threaten an estimated 150,000 direct jobs and 250,000 indirect jobs.
- Fiscal and BOP outlook:
  - Projected fiscal deficit and increased BOP need will be larger than expected despite measures taken.
  - Support under the RFI will help cover part of immediate expenditure needs and maintain foreign exchange reserves at an adequate level.
  - Authorities will step-up efforts to maximize financing from other multilateral and bilateral sources.

### Conclusion and strategic outlook
- The pandemic has highlighted weaknesses and opportunities for future social and economic change; authorities are committed to seize these opportunities.
- The RFI is intended as a bridge to a more sustainable solution; authorities look forward to starting discussions with IMF staff on a successor program supporting a strategy focused on:
  - Strengthening macroeconomic and financial stability.
  - Promoting inclusion, equity, quality education and health system.
  - The rule of law.
  - Energy and digital transitions.

*Source: Tunisian authorities (Letter of Intent and staff report excerpts).*

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_Source: https://www.imf.org/-/media/files/publications/cr/2020/english/1tunea2020001.pdf_