## 1tunea2021001 ## Source details **Canonical URL:** [1tunea2021001](https://www.imf.org/-/media/files/publications/cr/2021/english/1tunea2021001.pdf) ## Other formats - [Markdown version](/-/media/files/publications/cr/2021/english/1tunea2021001.pdf.md) - [Structured JSON version](/-/media/files/publications/cr/2021/english/1tunea2021001.pdf.json) --- ### Key economic impact of Covid-19 (2020) - Real GDP contracted by an estimated 8.2 percent in 2020. - Unemployment rate jumped to 16.2 percent at end-September (from 14.9 percent at end-2019), disproportionally affecting low-skilled workers, women, and youth. - World Bank estimates poverty rate increased from 14 percent pre-Covid to over 20 percent in 2020. - UNICEF expects an increase in child poverty by 6–10 percentage points. - Inflation (average) slowed to 5.7 percent in 2020 (from 6.7 percent in 2019). - Tourism receipts collapsed by more than 60 percent; transport and tourism were hit hard. - In an INS/IFC business survey from 2020Q3: 5 percent of firms reported permanent closure and 37 percent felt uncertain about near-term prospects. ### Fiscal developments and public debt - Fiscal deficit (excluding grants) is estimated to have reached 11.5 percent of GDP in 2020. - Total revenue (including grants) recorded 26.9 percent of GDP in 2020 (from 27.7 percent in 2019). - Total expenditure and net lending rose to 37.5 percent of GDP in 2020 (from 31.6 percent in 2019). - Central government overall balance (including grants) was -10.6 percent of GDP in 2020. - Central government debt is estimated to have increased to nearly 87 percent of GDP (Text Table: Central government debt 71.8 ; 87.6 ; Diff. 15.8). - Civil service salary bill rose to 17.6 percent of GDP, with additional hiring (about 40 percent of which was in the health sector). Key fiscal figures (Text Table 1, percent of GDP) - Total revenue and grants: 2019 Act. 27.7 ; 2020 IMF Est. 26.9 ; Diff. -0.8 - Wages and salaries: 14.6 ; 17.6 ; 3.0 - Overall balance: -3.9 ; -10.6 ; -6.7 - Overall balance (excl. grants): -4.1 ; -11.5 ; -7.4 - Financing (net) domestic financing: 2.2 ; 9.4 ; 7.2 ### External sector and reserves - Current account deficit narrowed to 6.8 percent of GDP in 2020 (from -8.4 percent in 2019), driven by lower import demand and resilient remittances. - Foreign direct investment was 1.6 percent of GDP in 2020 (down from 2.1 percent in 2019). - Reserve coverage: 4.1 months of next year's imports of GNFS in 2020 (compared with 4.3 in 2019). - External debt stood at 94.7 percent of GDP in 2020. - Gross official reserves increased to about US$9 billion (4.6 months of imports) in 2020. - Real effective exchange rate appreciated by nearly 5 percent in 2020 (through October). External balance-sheet highlights (Appendix I) - NIIP deteriorated to 155 percent of GDP in 2019. - Foreign assets declined to 23 percent of GDP by 2019; foreign liabilities rose to 178 percent of GDP. - Government medium and long-term external debt rose to 52 percent of GDP; short-term credit quadrupled to 24 percent of GDP. - SOE external debt estimated at 20.5 percent of GDP in September 2020; SOE guarantees about 15 percent of GDP as of mid-2020. ### Policy response to Covid-19 and 2020–21 measures - Emergency measures of 4.3 percent of GDP aimed to support affected sectors and vulnerable populations. - Central Bank of Tunisia (CBT) cut policy rate twice to 6.25 percent and took accommodative regulatory actions. - An RFI disbursement in April 2020 supported reserves. Direct fiscal measures (about TD 2,588 million; 2.3 percent of 2020 GDP) - Revenue: -393 ; -0.4 - Additional revenue: 397 ; 0.4 - Foregone and deferred revenue: -790 ; -0.7 - Expenditure: 2,195 ; 2.0 - Additional financing for the health sector: 355 ; 0.3 - Support for affected businesses: 450 ; 0.4 - Support for unemployed: 300 ; 0.3 - Additional social spending: 1,090 ; 1.0 - Support for low-income families: 330 ; 0.3 - Strategic food stock replenishment: 600 ; 0.5 - Other: 160 ; 0.1 - Total budget cost: 2,588 ; 2.3 - Off-budget measures: 2,200 ; 2.0 - State guarantee for affected sectors: 1,500 ; 1.3 - Additional financing by CDC: 700 ; 0.6 Monetary and financial measures - CBT cut policy rate by 100 and 50 bps in March and October. - Banks asked to defer loan payments; fees for electronic payments and withdrawals suspended; dividend distribution deadline for banks deferred. - Some measures extended into 2021. ### Outlook and risks - Staff projects real GDP growth of 3.8 percent in 2021. - Considerable downside risks from pandemic duration, vaccination timing, and policy implementation. - Staff baseline projects a fiscal deficit (excl. grants) of 9.9 percent of GDP in 2021; authorities’ budget projects 6.6 percent of GDP (excl. grants). - 2021 gross fiscal financing needs (staff baseline): 18.3 percent of GDP; budget envisages covering about 70 percent of gross fiscal financing need (15.4 percent of GDP) through external borrowing, including market issuance of 5.3 percent of GDP (about US$2.2 billion). - Staff projects current account deficit to widen in 2021 as imports resume and reserves decline. Text Table 2 — Tunisia: Gross Financing Needs, 2021 (Staff baseline projection; percent of GDP) - Fiscal deficit (incl. grants): 9.3 - Amortization of external debt: 5.3 - Multilateral & bilateral: 2.5 - Market issuance: 2.8 - Amortization of domestic debt: 3.7 - Gross fiscal financing needs: 18.3 - External financing: 9.5 - Multilateral & bilateral: 5.0 - Market issuance: 4.5 - Domestic financing: 8.9 - Memorandum items: - Net external financing: 4.2 - Net domestic financing: 5.1 ### State-Owned Enterprises (SOEs) and fiscal risks - Large and untransparent SOE sector saddled with debt, guarantees, and arrears exacerbated by the pandemic. - Data on 30 SOEs show end-2019 debt of about 40 percent of GDP; government guarantees about 15 percent of GDP as of mid-2020. - SOEs require annual budgetary transfers amounting to 7–8 percent of GDP in recent years. - Stock of bank loans to SOEs about 17 percent of GDP; bank credit to SOEs grown to 9 percent of total bank loans. - At end-June 2020: - Stock of SOEs’ arrears to the government: TD 6.2 billion. - Stock of government arrears to SOEs: TD 8.8 billion. SOE reform priorities and triage - Immediate audit of arrears and clearance strategy starting with STIR, STEG, and the Office des Céréales. - Classify SOEs by viability, strategic importance, and nature; restructure, divest, or close non-viable entities. - Centralize monitoring and management in a single autonomous agency; strengthen corporate governance, financial reporting, and transparency. - Implement realistic pricing and phase out wasteful subsidies while preserving social tariffs. ### Monetary policy, financial stability, and financial sector vulnerabilities - CBT primary focus: achieve low and stable inflation via policy rate; intention to move to inflation targeting and requested assistance. - Staff urges avoidance of monetary financing of the budget. - Monetary policy recommendations: - Steer short-term interest rates toward inflation objective while preserving exchange rate flexibility. - Implement roadmap to inflation targeting. - Repeal limits on lending and deposit rates to strengthen monetary transmission. - Prepare gradual, conditions-based capital account liberalization. - Financial sector vulnerabilities: - High non-performing loans: 13.1 percent overall, and 17 percent for SOBs as of end-September 2020. - Relatively shallow capital buffers; tight liquidity though improved in 2020. - Three largest SOBs represent about 35 percent of total bank assets. - Stress testing showed banks’ capital ratios would decline but remain, on average, above regulatory minimums; collective provisions increased. Financial sector measures - New January 2021 methodology for collective provisions. - Stress testing in 2020; recommended further stress testing and a planned asset quality review in 2021. - NPL management: relax tax write-off conditions for fully provisioned NPLs; ensure transparency in NPL recording. ### Reform Scenario (Box 2) — objectives and quantitative targets - Scenario objective: restore sustainable macroeconomic positions; strengthen safety net; increase inclusive, job-rich growth via private-sector initiative and competition; tap digitalization and renewable energy. - Key quantitative targets and outcomes: - Central government debt ratio falling to about 85 percent of GDP over the medium term. - Primary balance (excl. grants) improving to about 1.6 percent of GDP. - Wage bill dropping to nearly 14.5 percent of GDP by 2025. - Limited net domestic financing of the budget (below 2 percent of GDP annually). - Inflation declining to 4 percent over the medium term. - International reserves maintaining a comfortable 4 months of import coverage. - Annual real GDP growth gradually increasing towards 3 percent. Baseline vs. Reform Scenario — selected indicators (2017–25) - Real GDP growth (percent), Reform Scenario: 2017: 1.9; 2018: 2.7; 2019: 1.0; 2020: -8.2; 2021: 3.9; 2022: 2.8; 2023: 2.8; 2024: 2.9; 2025: 3.0 - Overall fiscal balance excl. grants (percent of GDP), Reform Scenario: 2017: -6.2; 2018: -4.8; 2019: -4.1; 2020: -11.5; 2021: -6.7; 2022: -4.2; 2023: -3.4; 2024: -2.5; 2025: -1.7 - Primary balance excl. grants (percent of GDP), Reform Scenario: 2017: -4.1; 2018: -2.0; 2019: -2.0; 2020: -8.2; 2021: -3.4; 2022: -1.0; 2023: 0.1; 2024: 0.9; 2025: 1.6 - Gross central government debt (percent of GDP), Reform Scenario: 2017: 70.9; 2018: 77.5; 2019: 71.8; 2020: 87.6; 2021: 88.3; 2022: 88.3; 2023: 87.7; 2024: 86.5; 2025: 84.4 - Gross official reserves (billions of US$), Reform Scenario: 2017: 5.6; 2018: 5.2; 2019: 7.4; 2020: 9.0; 2021: 9.2; 2022: 9.3; 2023: 9.4; 2024: 9.7; 2025: 10.3 Medium-term reform scenario narrative - Phased energy subsidy removal with maintained social tariffs; SOE reforms and removal of (quasi-)monopolies; strengthen governance and anti-corruption; reorient fiscal spending toward social safety nets and public investment. ### Debt sustainability, stress tests, and risks - Public debt increased to 87.6 percent of GDP in 2020; baseline projects continued increases under limited reform. - Baseline DSA indicators (selected): - Gross central government debt (percent of GDP) baseline: 2018: 77.5 ; 2019: 71.8 ; 2020: 87.6 ; 2021: 91.2 ; 2022: 93.9 ; 2023: 96.5 ; 2024: 98.5 ; 2025: 99.7 - Public gross financing needs (percent of GDP) baseline: 2019: 10.7 ; 2020: 9.4 ; 2021: 17.2 ; 2022: 18.3 ; 2023: 15.5 ; 2024: 15.7 ; 2025: 15.9 - External debt sensitivity: - External debt estimated at 94.7 percent of GDP in 2020; baseline projects external debt rising to 99.2 percent in 2021 ; 101.2 percent in 2022 ; then moderate declines. - A simulated one-time 30 percent real depreciation in the second year of projection would increase external debt to about 152 percent of GDP in 2021 (and keep it high thereafter). - Stress tests indicate debt could exceed 100 percent of GDP before 2025 under adverse scenarios; contingent liability realization of 13 percent of GDP would raise gross financing needs to 35 percent in 2021. ### Civil service wage bill — scale, drivers, and implications - Wage bill: 10.7 percent of GDP in 2010 ; 14.6 percent of GDP in 2019 ; 17.6 percent of GDP in 2020 (est.). - Median for non-oil producing emerging markets: 8.7 percent (2020). - Wage bill consumed about 75 percent of tax revenues in 2020 (53 percent in 2010). - Composition of government spending, 2020: Wages and salaries 49% ; Goods and Services 5% ; Interest payments 11% ; Transfers and subsidies 18% ; Capital spending 17%. - Headcount growth: 2011–15: 5½ percent per year on average; 2020 headcount increase about 4 percent (about 40 percent due to health sector). - 2021 envisaged hiring: 16,500 civil servants (Ministry of Education 53% ; Interior Ministry 38%). - Legacy wage hikes: 2016–18: 1.2 percent of GDP ; February 2019 wage increase: about 1.5 percent of GDP ; 2020 additional salary decision: 0.3 percent of GDP. - Voluntary departures: about 6,600 left versus expected 20,000–25,000. - IMF staff advice: contain the wage bill via hiring limits, wage bargaining, audit to remove ghost workers, and civil service reform for staff reallocation. ### Governance, transparency, and anti-corruption measures - Strengthen anti-corruption and AML/CFT regimes; approve decree allowing public access to asset declarations for highest categories of civil servants. - Digitize government processes, strengthen investigative capacity by linking government databases, and resource anti-corruption agencies adequately. - Publish procurement and Covid-related spending data; Cour des Comptes plans audit of the public-private Covid-19 fund. ### Private sector, competitiveness, financial inclusion, and renewable energy - Promote private sector activity by lifting (quasi-)monopolies, removing regulatory hurdles, improving land administration, increasing financial inclusion, and leveraging digital technologies. - Authorities’ objective: meet 30 percent of Tunisia’s energy needs with renewable energy by 2030. - Staff encourages public-private initiatives to finance climate adaptation and mitigation projects, and revisiting carbon prices and taxation to reduce emissions. - Financial inclusion actions: broaden de-cashing, connect bank accounts to cards for low-income households, operationalize national collateral and credit registries, and adopt legislation on credit bureaus and secure transactions. ### Capacity development, external partners, and implementation considerations - Extensive IMF TA and METAC support across fiscal, financial, monetary, statistics, and SOE oversight areas (selected TA topics and dates listed). - World Bank, AfDB, EBRD engagement and financing noted; WBG lending committed: US$930 million in FY18 ; US$325 million in FY19 ; US$195 million in FY20. - Authorities emphasize reforms must be realistic and socially acceptable; national dialogue and social compact recommended to build public support. - Contingency planning: reprioritize spending, seek concessional financing, and maintain active donor dialogue. ### Conclusion (staff appraisal) - Immediate priorities: save lives and livelihoods, stabilize the economy, and prepare for vaccinations. - Start restoring fiscal and external sustainability while protecting the poor and preserving public investment. - Medium-term fiscal sustainability requires a strong and credible reform program; without it public debt and external vulnerabilities remain elevated. - Urgent, forceful implementation of fiscal consolidation, SOE reforms, wage-bill restraint, subsidy reform, and measures to increase private-sector-led growth are needed to rebuild buffers and foster inclusive growth. *Source: Tunisia — Staff Report for the 2021 Article IV Consultation (excerpts), content unit 1tunea2021001.* ### 16.2 percent at end-September, disproportionally affecting low-skilled workers, women, and ### 1tunea2021001 - 16.2 percent at end-September, disproportionally affecting low-skilled workers, women, and ### Key economic impact of Covid-19 (2020) - Real GDP contracted by an estimated 8.2 percent in 2020. - Unemployment rate jumped to 16.2 percent at end-September (from 14.9 percent at end-2019), disproportionally affecting low-skilled workers, women, and youth. - World Bank estimates poverty rate increased from 14 percent pre-Covid to over 20 percent in 2020. - UNICEF expects an increase in child poverty by 6–10 percentage points. - Inflation (average) slowed to 5.7 percent in 2020 (from 6.7 percent in 2019), reflecting contraction in domestic demand and lower international fuel prices. - Tourism and transport were hit hard; manufacturing declined in export-oriented automotive cable and textile industries. - In an INS/IFC business survey from 2020Q3: 5 percent of firms reported permanent closure and 37 percent felt uncertain about near-term prospects. ### Fiscal developments and public debt - Fiscal deficit (excluding grants) is estimated to have reached 11.5 percent of GDP in 2020. - Total revenue (including grants) recorded 26.9 percent of GDP in 2020 (from 27.7 percent in 2019). - Total expenditure and net lending rose to 37.5 percent of GDP in 2020 (from 31.6 percent in 2019). - Central government overall balance (including grants) was -10.6 percent of GDP in 2020. - Central government debt is estimated to have increased to nearly 87 percent of GDP. - Civil service salary bill rose to 17.6 percent of GDP, with additional hiring (about 40 percent of which was in the health sector, including to combat Covid-19). ### External sector and financial indicators - Current account deficit narrowed to 6.8 percent of GDP in 2020 (from -8.4 percent in 2019), driven by lower import demand and resilient remittances despite a strong hit on exports and collapsing tourism receipts. - Foreign direct investment was 1.6 percent of GDP in 2020 (down from 2.1 percent in 2019). - Reserve coverage: 4.1 months of next year's imports of GNFS in 2020 (compared with 4.3 in 2019). - External debt stood at 94.7 percent of GDP in 2020. ### Outlook and risks - GDP growth is projected to rebound to 3.8 percent in 2021 as the effects of the pandemic start to wane. - Considerable downside risks surround the projection, given uncertainty from the duration and intensity of the pandemic and the timing of the vaccination. - The medium-term outlook depends critically on the future path of fiscal policy and structural and governance reforms. - Staff notes that GDP could take years to return to pre-crisis levels if large imbalances are not addressed and key reforms delayed. - Authorities were securing 500,000 doses to start a first vaccination campaign in February and aiming to secure enough doses to vaccinate half of the population starting in April–May. ### Policy priorities and recommendations (Executive Board / Directors / Staff) - Immediate priority: save lives and livelihoods and stabilize the economy until the pandemic wanes; strict prioritization of spending given limited fiscal space. - Restore fiscal and debt sustainability and promote inclusive growth. - Fiscal policy and reforms should aim to reduce the fiscal deficit by: - Lowering the wage bill. - Limiting energy subsidies. - Prioritizing health and investment expenditure. - Protecting targeted social spending. - Make taxation more equitable and growth-friendly; clear accumulated arrears of the social security system. - Reform state-owned enterprises (SOEs) to reduce contingent liabilities: - Adopt a plan to reduce fiscal and financial risks of SOEs. - Strengthen corporate governance. - Improve financial reporting and transparency. - Monetary policy should focus on inflation by steering short-term interest rates while preserving exchange rate flexibility; avoid monetary financing of the budget. - Implement the roadmap to inflation targeting and prepare a gradual and conditions-based plan for capital account liberalization, while closely monitoring financial sector soundness. - Promote private sector activity to increase potential growth and create jobs by: - Lifting monopolies. - Removing regulatory hurdles. - Improving the business environment. - Increasing financial inclusion and leveraging digital technologies. - Strengthen governance: implement anti-corruption and AML/CFT regimes; ensure COVID-related expenditures are effective and transparent. - Invest in renewable energy to combat climate change. - Undertake a national dialogue with main stakeholders to design and implement a credible home-grown reform program that can garner external partner support; the size and pace of adjustment will depend on availability of international financing. *Source: Tunisia — Staff Report for the 2021 Article IV Consultation (excerpts).* ### 4. Tunisia’s current account deficit narrowed in 2020. Exports contracted amid weak ### 4. Tunisia’s current account deficit narrowed in 2020. Exports contracted amid weak ### Economic developments in 2020 - Exports contracted amid weak global demand. - Import compression and lower international energy prices resulted in a narrower trade deficit. - Transport and tourism receipts were hit hard; tourism receipts collapsed by more than 60 percent. - Remittances increased by almost 12 percent (y-o-y). - The current account deficit narrowed to about 6.8 percent of GDP. - Gross official reserves increased to about US$9 billion (4.6 months of imports). - The real effective exchange rate appreciated by nearly 5 percent in 2020 (through October), mainly due to the price differential with trading partners. ### Policy response to Covid-19 (Box 1: Policy Measures) - Emergency measures of 4.3 percent of GDP aimed to support affected economic sectors and poor and vulnerable populations. - The Central Bank of Tunisia (CBT) lowered its policy rate twice to 6.25 percent and took accommodative regulatory actions. - An RFI disbursement in April 2020 supported the authorities’ efforts and provided a buffer for international reserves. Direct fiscal measures (about TD 2.6 billion; 2.3 percent of GDP included in the 2020–21 budgets) - Revenue measures: - Introduced a Covid-19 dedicated fund (“Fund 1818”) financed by voluntary contributions. - Withheld one day of salary from all economic agents. - Increased the tax rate on the interest from bank deposits. - Introduced an exceptional 2 percent profit tax surcharge on financial companies for 2020–21. - Accelerated VAT reimbursements, rescheduled repayments of tax arrears, and temporarily suspended some penalties. - Expenditure measures: - Additional financing for the health sector to procure medical supplies and establish specialized Covid-19 units in hospitals. - Interest rate subsidy on investment loans for affected businesses and sectors, such as tourism. - Support for unemployed and self-employed people. - Expanded direct cash transfers to low-income households. - Replenished strategic food stocks. Off-budget measures - Guarantee repayment mechanism for new credits to affected enterprises. - Several off-budget funds to finance businesses in priority sectors and procure medical equipment (financing for the latter provided by the Caisse des Dépôts et Consignations (CDC)). Monetary and financial measures - The CBT cut the policy rate by 100 and 50 bps in March and October, respectively. - Requested banks to temporarily defer payments on loans (incl. the tourism sector). - Suspended fees for electronic payments and withdrawals. - Deferred the dividend distribution deadline for banks. - Allowed banks breaching the maximum loan-to-deposit ratio more time to reach it. - Some measures were extended into 2021. 2020-21 Covid-related measures (TD million; Percent of 2020 GDP) - Revenue: -393 ; -0.4 - Additional revenue: 397 ; 0.4 - Foregone and deferred revenue: -790 ; -0.7 - Expenditure: 2,195 ; 2.0 - Additional financing for the health sector: 355 ; 0.3 - Support for affected businesses: 450 ; 0.4 - Support for unemployed: 300 ; 0.3 - Additional social spending: 1,090 ; 1.0 - Support for low-income families: 330 ; 0.3 - Strategic food stock replenishment: 600 ; 0.5 - Other: 160 ; 0.1 - Total budget cost: 2,588 ; 2.3 - Off-budget measures: 2,200 ; 2.0 - State guarantee for affected sectors: 1,500 ; 1.3 - Additional financing by CDC: 700 ; 0.6 _Source: Tunisian authorities and IMF staff estimates and calculations._ ### Fiscal developments and public debt - The fiscal deficit (excl. grants) reached 11.5 percent of GDP in 2020 (staff estimate). - Revenue (excl. grants) dropped by about 9 percent (y-o-y) through October 2020, driven by lower tax intake. - Additional hiring (about 40 percent in the health sector) pushed the civil service salary bill to 17.6 percent of GDP. - Higher outlays on salaries and crisis-response measures were offset by lower investment spending and energy subsidies due to lower oil prices. - Authorities relied heavily on domestic financing sources (9.4 percent of GDP). - Parliament voted to allow the CBT, on an exceptional basis, to lend TD 2.81 billion (2.5 percent of GDP) directly to the Treasury. - Central government public debt increased from 72 percent of GDP in 2019 to nearly 87 percent of GDP by end-2020. Text Table 1. Tunisia: Fiscal Developments, 2019–20 (In percent of GDP) - Total revenue and grants: 2019 Act. 27.7 ; 2020 IMF Est. 26.9 ; Diff. -0.8 - Revenue: 27.5 ; 26.0 ; -1.6 - Tax revenue: 25.1 ; 23.6 ; -1.6 - Nontax revenue: 2.4 ; 2.4 ; 0.0 - Grants: 0.2 ; 1.0 ; 0.7 - Total expenditure and net lending: 31.6 ; 37.5 ; 5.9 - Total expenditure: 31.7 ; 37.1 ; 5.5 - Current expenditure: 26.3 ; 31.0 ; 4.7 - Wages and salaries: 14.6 ; 17.6 ; 3.0 - Goods and services: 1.4 ; 1.8 ; 0.4 - Interest payments: 2.8 ; 3.4 ; 0.6 - Transfers and subsidies: 7.6 ; 7.6 ; 0.0 - Capital expenditure: 5.3 ; 6.1 ; 0.8 - Net lending: -0.1 ; 0.3 ; 0.4 - Overall balance: -3.9 ; -10.6 ; -6.7 - Primary balance: -1.1 ; -7.2 ; -6.1 - Financing (net): 4.6 ; 10.6 ; 6.0 - Foreign financing: 2.4 ; 1.2 ; -1.2 - Domestic financing: 2.2 ; 9.4 ; 7.2 - Overall balance (excl. grants): -4.1 ; -11.5 ; -7.4 - Primary balance (excl. grants): -1.3 ; -8.2 ; -6.9 - Central government debt: 71.8 ; 87.6 ; 15.8 ### State-Owned Enterprises (SOEs) and fiscal risks - The large and untransparent SOE sector is saddled with debt, government guarantees, and arrears; these were exacerbated by the pandemic. - Data on 30 SOEs show end-2019 debt of about 40 percent of GDP (likely increased in 2020), with about 15 percent of GDP covered by government guarantees as of mid-2020. - SOEs require substantial annual budgetary transfers amounting to 7–8 percent of GDP in recent years. - SOEs resort to bank financing; the stock of bank loans to SOEs is about 17 percent of GDP. - At end-June 2020: - Stock of SOEs’ arrears to the government: TD 6.2 billion. - Stock of government arrears to SOEs: TD 8.8 billion. - SOE weaknesses include poor financial management and governance, pricing policy that does not cover costs, bloated costs (e.g., significant hiring for socio-political purposes), inadequate financial information, and supervision spread over several line ministries. ### Financial sector resilience and vulnerabilities - The financial sector has been supported by CBT accommodation and relief in prudential provisions; full impact of the pandemic remains to be seen. - Underlying vulnerabilities entering the crisis: - High non-performing loans: 13.1 percent overall, and 17 percent for SOBs as of end-September 2020. - Substantial exposure to credit risk to affected sectors and SOEs. - Relatively shallow capital buffers. - Tight liquidity (though improved in 2020). - The three largest SOBs represent about 35 percent of total bank assets. - Bank credit to SOEs has grown to 9 percent of total bank loans, increasing concentration and sovereign-bank linkages. ### Outlook—Modest recovery and significant risks - Staff projects real GDP growth of 3.8 percent in 2021, with some rebound in domestic demand and most sectors hit by the crisis; agricultural output expected to decline due to cyclical factors. - The current account deficit would widen as imports resume while international reserves would decline. - The 2021 budget projects a decline in the fiscal deficit (excl. grants) to 6.6 percent of GDP; however, the budget does not specify how such savings will be achieved and excludes some potential hires and arrears clearance. - Staff projects a baseline fiscal deficit (excl. grants) of 9.9 percent of GDP in 2021. Financing challenges for 2021 - The 2021 budget expects to cover about 70 percent of the gross fiscal financing need (15.4 percent of GDP) through external borrowing, including market issuance of 5.3 percent of GDP (about US$2.2 billion). - Staff’s baseline projects a higher fiscal financing need of 18.3 percent of GDP in 2021 (compared with 17.2 percent of GDP in 2020), with relatively more domestic financing than the budget envisages. - Contingent measures (on revenue and spending) may be needed if financing proves challenging. Text Table 2. Tunisia: Gross Financing Needs, 2021 (Staff baseline projection; percent of GDP) - Fiscal deficit (incl. grants): 9.3 - Amortization of external debt: 5.3 - Multilateral & bilateral: 2.5 - Market issuance: 2.8 - Amortization of domestic debt: 3.7 - Gross fiscal financing needs: 18.3 - External financing: 9.5 - Multilateral & bilateral: 5.0 - Market issuance: 4.5 - Domestic financing: 8.9 - Memorandum items: - Net external financing: 4.2 - Net domestic financing: 5.1 External position and vulnerabilities - Staff estimates the 2020 current account “gap” of about -3.4 percent of GDP; this gap corresponds to a real effective exchange rate overvaluation in the order of 5–10 percent. - External sector sustainability remains a source of macroeconomic vulnerability. Medium-term outlook conditional on reforms - Without a medium-term reform program, staff assumes limited reform appetite, resulting in: - Annual growth of barely two percent. - High fiscal deficits, growing contingent liabilities, and hard to fill financing needs. - Continued heavy reliance on domestic financing, with risks of a sovereign/bank feedback loop and unsustainable public debt. - Large current account deficits, dwindling reserves, untenable pressure on the exchange rate, and rising inflation. Text Table 3. Tunisia: Selected Economic Indicators: Baseline Scenario, 2017–25 (selected rows) - Real GDP growth (percent): 2017 1.9 ; 2018 2.7 ; 2019 1.0 ; 2020 -8.2 ; 2021 3.8 ; 2022 2.4 ; 2023 2.0 ; 2024 1.8 ; 2025 1.8 - Consumer price index growth (period average, in percent): 2017 5.3 ; 2018 7.3 ; 2019 6.7 ; 2020 5.7 ; 2021 5.8 ; 2022 6.3 ; 2023 6.9 ; 2024 7.3 ; 2025 7.5 - Overall fiscal balance excl. grants (percent of GDP): 2017 -6.2 ; 2018 -4.8 ; 2019 -4.1 ; 2020 -11.5 ; 2021 -9.9 ; 2022 -7.1 ; 2023 -6.7 ; 2024 -6.2 ; 2025 -5.8 - Primary balance excl. grants (percent of GDP): 2017 -4.1 ; 2018 -2.0 ; 2019 -2.0 ; 2020 -8.2 ; 2021 -6.5 ; 2022 -3.2 ; 2023 -2.2 ; 2024 -1.2 ; 2025 -0.5 - Gross central government debt (percent of GDP): 2017 70.9 ; 2018 77.5 ; 2019 71.8 ; 2020 87.6 ; 2021 91.2 ; 2022 93.9 ; 2023 96.5 ; 2024 98.5 ; 2025 99.7 - External debt (percent of GDP): 2017 84.6 ; 2018 97.4 ; 2019 92.8 ; 2020 94.7 ; 2021 99.2 ; 2022 101.2 ; 2023 99.3 ; 2024 96.7 ; 2025 95.7 - Current account balance (percent of GDP): 2017 -10.3 ; 2018 -11.1 ; 2019 -8.4 ; 2020 -6.8 ; 2021 -9.5 ; 2022 -9.4 ; 2023 -9.3 ; 2024 -9.2 ; 2025 -9.0 - Gross official reserves (billions of US$): 2017 5.6 ; 2018 5.2 ; 2019 7.4 ; 2020 9.0 ; 2021 8.4 ; 2022 7.6 ; 2023 6.7 ; 2024 5.6 ; 2025 4.7 - Gross official reserves (months of next year's imports of GNFS): 2017 2.6 ; 2018 2.5 ; 2019 4.3 ; 2020 4.1 ; 2021 3.7 ; 2022 3.2 ; 2023 2.8 ; 2024 2.2 ; 2025 1.8 - Gross official reserves (percent of IMF reserve adequacy metrics) 1/: 2017 88.4 ; 2018 76.6 ; 2019 96.6 ; 2020 113.6 ; 2021 97.6 ; 2022 82.0 ; 2023 71.6 ; 2024 61.8 ; 2025 53.2 ### Authorities’ views - Authorities expected real GDP growth of 4 percent in 2021 and saw further upside, citing cushioning impact of emergency measures and renewed gas production at the Nawara field. - Authorities expected a lower current account deficit in 2021, in the range of 7–8 percent of GDP. - Over the medium term, authorities envisaged annual real GDP growth of 3.0–3.5 percent, a fiscal deficit gradually falling to 3 percent of GDP, and a public debt ratio topping off at around 90 percent of GDP. ### Policy discussions and recommendations Immediate priorities - Continue to save lives and livelihoods and prepare for vaccination delivery. - Urgently address unsustainable fiscal and external imbalances while enhancing social protection and strengthening health and education systems. Policy measures recommended - Strict prioritization of spending in favor of health and social safety nets. - Reduce the fiscal deficit, starting in 2021, by tackling: - The civil service wage bill. - Ill-targeted subsidies. - Loss-making SOEs. - Strengthen tax equity and reorient spending toward investment in education, health, and infrastructure. - Promote good governance and competition to support recovery and job-rich growth. - The CBT should stop financing the government, continue focusing on achieving low inflation while maintaining exchange rate flexibility, and closely monitor and manage evolving financial stability risks. - Exchange rate flexibility together with deep structural reforms—fiscal consolidation, SOE reforms, and policies to increase private sector participation and competition—are needed to bring the external position back into balance over the medium term. - Urgent action is needed to advance structural reforms, given the significant effort and time required. Social compact and reform implementation - A strong and credible medium-term reform program should be consulted and communicated broadly and supported by a social compact covering: - Public sector wage negotiations. - Subsidy and SOE reform. - Informality. - Tax policy (including equity). - Anti-corruption. - Business environment improvements. - The authorities’ medium-term reform program could be supported by technical assistance from development partners, including the IMF, and complemented by a debt management strategy. Medium-term reform scenario (staff discussed with authorities) - The scenario balances feasibility in Tunisia’s fragile socio-political context with the effort needed to restore macroeconomic balances. - The scenario would bring fiscal deficits and public debt down towards sustainable levels over the medium term (public debt below 85 percent of GDP). - The primary fiscal balance (excl. grants) would improve from -8.2 percent of GDP in 2020 to higher levels under the scenario (details in Text Table 4 and Tables 10–11 in the source). _Source: Tunisian authorities and IMF staff estimates and calculations._ ### 1.6 percent of GDP in 2025, (i.e., some 5 pps. of GDP, excluding one-off arrears clearance and ### 1.6 percent of GDP in 2025, (i.e., some 5 pps. of GDP, excluding one-off arrears clearance and ### Box 2 — Summary of the Reform Scenario - Scenario objective: restore sustainable macroeconomic positions, strengthen safety net, increase inclusive and job-rich growth via private-sector initiative and competition, and tap emerging sectors (digitalization, renewable energy) to help address climate change. - Key quantitative targets and outcomes: - Central government debt ratio falling to about 85 percent of GDP over the medium term. - Primary balance (excl. grants) improving to about 1.6 percent of GDP. - Wage bill dropping to nearly 14.5 percent of GDP by 2025. - Limited net domestic financing of the budget (below 2 percent of GDP annually). - Inflation declining to 4 percent over the medium term. - International reserves maintaining a comfortable 4 months of import coverage. - Annual real GDP growth gradually increasing towards 3 percent. - Structural and governance elements: - Phased-out energy subsidies with maintained social tariffs. - Reforms of loss-making SOEs and removal of (quasi-)monopolies maintained by SOEs. - Strengthening of good governance and anti-corruption efforts. - Fiscal reorientation to support social safety net and public investment. ### Baseline vs. Reform Scenario — Selected Indicators (2017–25) - Real GDP growth (percent): 2017: 1.9; 2018: 2.7; 2019: 1.0; 2020: -8.2; 2021: 3.9; 2022: 2.8; 2023: 2.8; 2024: 2.9; 2025: 3.0 - Consumer price index growth (period average, in percent): 2017: 5.3; 2018: 7.3; 2019: 6.7; 2020: 5.7; 2021: 5.9; 2022: 5.7; 2023: 5.3; 2024: 4.6; 2025: 4.2 - Overall fiscal balance excl. grants (percent of GDP): 2017: -6.2; 2018: -4.8; 2019: -4.1; 2020: -11.5; 2021: -6.7; 2022: -4.2; 2023: -3.4; 2024: -2.5; 2025: -1.7 - Primary balance excl. grants (percent of GDP): 2017: -4.1; 2018: -2.0; 2019: -2.0; 2020: -8.2; 2021: -3.4; 2022: -1.0; 2023: 0.1; 2024: 0.9; 2025: 1.6 - Gross central government debt (percent of GDP): 2017: 70.9; 2018: 77.5; 2019: 71.8; 2020: 87.6; 2021: 88.3; 2022: 88.3; 2023: 87.7; 2024: 86.5; 2025: 84.4 - External debt (percent of GDP): 2017: 84.6; 2018: 97.4; 2019: 92.8; 2020: 94.7; 2021: 102.0; 2022: 104.5; 2023: 102.2; 2024: 98.7; 2025: 96.5 - Current account balance (percent of GDP): 2017: -10.3; 2018: -11.1; 2019: -8.4; 2020: -6.8; 2021: -8.4; 2022: -7.8; 2023: -7.2; 2024: -6.8; 2025: -5.8 - Gross official reserves (billions of US$): 2017: 5.6; 2018: 5.2; 2019: 7.4; 2020: 9.0; 2021: 9.2; 2022: 9.3; 2023: 9.4; 2024: 9.7; 2025: 10.3 - Gross official reserves (months of next year's imports of GNFS): 2017: 2.6; 2018: 2.5; 2019: 4.3; 2020: 4.2; 2021: 4.1; 2022: 4.0; 2023: 3.9; 2024: 3.9; 2025: 3.9 - Gross official reserves (percent of IMF reserve adequacy metrics) 1/: 2017: 88.4; 2018: 76.4; 2019: 96.4; 2020: 113.4; 2021: 107.5; 2022: 100.9; 2023: 100.3; 2024: 106.0; 2025: 122.3 - 1/ Assuming capital controls and a flexible exchange rate. ### A. Immediate Priorities: Saving Lives and Stabilizing the Economy - 2021 fiscal targeting and rationale: - Target fiscal deficit: 6.7 percent of GDP in 2021. - Expected improvement in primary deficit (excl. grants) by about 4.8 percent of GDP, partly due to non-recurrence of one-off 2020 expenditures of 2.1 percent of GDP. - Short-term fiscal measures (priorities: health and protection of vulnerable populations): - Wage bill: - Reduce civil service wage bill to 16.8 percent of GDP (versus staff’s baseline of 17.5 percent). - Pre-announced management rules suggested: freezing promotions for one year; replacement ratio of 1:4; stopping hiring for purely socio-political reasons; staggering hiring over the fiscal year; limiting any potential salary increases to half of inflation, starting in 2021. - Staff caution: avoid creating new public agencies to reduce the wage bill due to contingent liabilities. - Energy subsidies: - 2021 budget foresees energy subsidies decline to 0.3 percent of GDP, with monthly price changes limited to 2 percent under the automatic fuel price adjustment mechanism. - Staff advice: reform the adjustment mechanism for the three main fuels to let pump prices move more closely with import prices and widen the band for monthly price adjustments; consider increasing electricity and gas tariffs while preserving social tariffs for poor households. - Transfers and other subsidies: - Expand social spending and accelerate better targeting of transfers (including expanding the AMEN database). - Monitor transfers to SOEs and link them to performance improvements. - Arrears clearance: - Urgent clearance plan for accumulated arrears of the social security system to CNAM and the PCT, and arrears to SOEs. - Financing: - Seek concessional long-term external financing and roll over maturing market financing. - Avoid monetary financing of the budget; prepare contingency measures (raising additional revenue or cutting spending) if financing falls short. ### B. Restoring Fiscal and External Sustainability and Reorienting the Budget - Medium-term fiscal reorientation goals under reform scenario: - Fiscal deficit (excluding grants) reduced to 1.7 percent of GDP. - Public debt brought below 85 percent of GDP. - Social spending increased to almost 3 percent of GDP. - Public investment exceeding 6 percent of GDP. - Policy instruments and reforms to achieve reorientation: - Wage bill restraint: - Civil service wage bill to grow by less than inflation annually and fall to about 14.5 percent of GDP by 2025 (i.e., the level of 2018–19). - Rationalize allowances, audit to remove ghost workers, implement competitive recruitment, holistic wage bargaining, and civil service reform for staff reallocation. - Phasing out wasteful subsidies: - Phase out energy subsidies over the medium term while preserving social tariffs and embedding reforms in a comprehensive energy sector program (including STEG and STIR) and addressing monopoly issues. - Reforming SOEs: - Adopt a reform program to address fiscal and financial risks (debt of the central government and SOEs combined exceeds 100 percent of GDP). - Strengthening safety nets: - Develop AMEN database and unique identifier; introduce targeted monthly cash transfer once system operational to offset elimination of energy subsidies. - Note: aim to increase coverage of cash transfers from 9 percent to 15 percent of the population over 2019–22; expanded child support to ages 0–5 and to larger households with development partner support. - Increasing public investment: - Prioritize health, education, and critical infrastructure; consider PPPs and improve PPP framework; Fund technical assistance (TA) including PIMA follow-up is available. - Making taxes more equitable and growth friendly: - Widen tax base, increase tax progressivity, improve administration, recover crisis-lost revenue, bring informal sector into tax net (including revisiting the régime forfaitaire), make spot audits operational, improve information sharing, streamline tax expenditures and exemptions, eliminate tax distortions between on-shore and off-shore sectors, consider property taxation and improve progressivity over the medium term. ### C. Reforming SOEs and Reducing Fiscal Risks - Immediate and medium-term SOE actions: - Immediate audit of arrears and urgent clearance strategy for largest firms, starting with STIR, STEG, and the Office des Céréales. - Medium-term reform plan to: - Define role of public enterprises and classify by viability, strategic importance, and activity nature; tackle losses, restructure, strengthen finances, consider divesting non-viable/commercial SOEs. - Centralize monitoring and management in a single structure dedicated to state holdings. - Strengthen corporate governance and improve financial reporting and transparency. - Reassess the role of the state in state-owned banks due to heavy public-sector presence to strengthen banking sector viability and competitiveness. - Social insurance and fiscal risk: - Financial position of social security funds fragile; CNSS and CNSRP face tight liquidity and delayed disbursements to CNAM causing arrears to the Central Pharmacy. - Authorities should enforce payment discipline; assess financial gaps and parametric reform options to ensure long-term viability of social security funds. ### D. Strengthening the Monetary Policy Framework and Financial Stability - Monetary financing and central bank credibility: - Staff urged avoidance of monetary financing of the budget to preserve CBT progress on reducing inflation, maintain independence, and protect exchange rate and reserves. - CBT should monitor inflation developments, money markets, and be ready to sterilize liquidity impacts. - Monetary policy stance: - Continue focus on inflation while preserving exchange rate flexibility. - CBT uses active liquidity management and steers overnight interbank rate toward policy rate; disinflation remains objective. - Staff caution: targeting exchange rate inconsistent with progress to inflation targeting. - Recommendation to repeal limits on lending and deposit rates to strengthen monetary transmission, foster competition for deposits, reduce distortions on risk pricing, and improve SME access to finance. - Exchange and capital account liberalization: - Staff cautioned against liberalizing FX operations and reducing capital account controls before stability is well-anchored. - Suggested conditions-based, gradual plan including: developing deep and liquid FX market; systems to review and manage exchange rate risks; coherent FX intervention strategy; upgrading FX regulations. - Financial sector vulnerabilities and measures: - Enhanced monitoring of banks to detect exposures (e.g., SOB exposure to troubled SOEs, concentration risk). - CBT measures: new January 2021 methodology for collective provisions; stress testing in 2020 and recommended further stress testing; planned asset quality review in 2021. - NPL management: relax tax write-off conditions for fully provisioned NPLs; transparency in NPL recording despite repayment moratoria; resolve structural NPL issues. - CBT should prepare strategy and communication plan to phase out Covid-related measures once recovery is underway. - Safeguards and central bank governance: - Implement safeguards assessment recommendations: transition to IFRS in approved plan; address cybersecurity risks; increase internal audit capacity and establish risk management function; strengthen institutional and personal autonomy provisions in next central bank law revision; CBT received TA on internal controls following safeguard recommendations. ### Authorities’ Views (selected) - Agreed on need for medium-term reform program to restore fiscal and external sustainability; MoF intends to achieve a primary surplus over the medium term and keep expenditure growth below nominal growth to stabilize public debt. - Considered the pace of consolidation in the reform scenario overly ambitious and hard to implement in current socio-political context; believed real GDP growth could exceed 3 percent over the medium term. - Highlighted importance of reducing inflation to allow CBT policy rate cuts to ease debt service burden; favored exchange rate stability to avoid imported inflation, strengthen investor confidence, and contain debt-to-GDP ratio. - Confirmed importance of preserving CBT independence and agreed low and stable inflation should be monetary policy target. - Agreed with immediate priorities of saving lives and livelihoods and starting to restore fiscal and external sustainability; considered 2021 fiscal deficit (excl. grants) target of 6.6 percent of GDP achievable but financing plan ambitious and reliant on development partner support. - Noted that monetary financing at end-2020 was a one-off operation. - Agreed with need to reform SOE sector; exploring ways to settle cross-arrears, consider divesting activities that can be handled by private sector, and resume privatization program; MoF intends to request Fund TA on SOE reform. *IMF staff report — Tunisia: Reform Scenario, immediate priorities, fiscal and structural policy recommendations, and financial sector guidance.* ### 31. The CBT confirmed that its primary focus is to achieve low and stable inflation ### 1tunea2021001 - 31. The CBT confirmed that its primary focus is to achieve low and stable inflation ### Monetary policy and central bank (CBT) - The CBT’s primary focus is to achieve low and stable inflation through the use of its policy rate. - Limited participation in the exchange rate market was for price discovery purposes; the stable exchange rate was attributed to implementation of sound monetary policy. - The CBT confirmed the intention to move to inflation targeting and requested further assistance to properly sequence reforms in the current context. - A stress-testing exercise showed that banks’ capital ratios would decline as a result of the Covid-19 crisis, but remain, on average, above regulatory minimums. - The increase in collective provisions will enhance banks’ resilience when debt repayment moratoria end. - Staff urges the authorities to avoid monetary financing of the budget, noting such financing could: - undermine the CBT’s progress in reducing inflation, - unsettle inflation expectations, - adversely affect the exchange rate and reserves, - ultimately undermine the credibility and independence of the central bank. - Monetary policy recommendations: - Focus on inflation by steering short-term interest rates, while preserving exchange rate flexibility. - Implement the roadmap towards inflation targeting. - Prepare a gradual and conditions-based plan to gradually liberalize FX operations and reduce capital account restrictions, balancing financial stability and business environment objectives. - CBT should closely monitor financial sector soundness and enforce prudential rules, including in banks with large and concentrated exposures to SOEs and affected sectors. ### Promoting private sector activity and competitiveness - Increasing potential growth and making it more inclusive, with more job creation, requires increased private sector participation and competition. - To reverse declining private investment and lagging labor productivity, policy measures include: - Lifting (quasi-)monopolies in sectors dominated by SOEs. - Removing unnecessary regulatory hurdles (including on authorizations for market entry). - Tackling obstacles such as lowering the cost for registering property, easing land dispute resolution, and improving the quality of land administration. - Measures enabling private sector participation and increasing productivity would also contribute to restoring Tunisia’s external position. - Staff urges opening SOE-dominated sectors to competition and removing unnecessary hurdles. ### Renewable energy and climate-related investments - Authorities’ objective: meet 30 percent of Tunisia’s energy needs with renewable energy by 2030, notably wind and solar power. - Investments in renewables would: - help meet climate change commitments, - diversify Tunisia’s energy sources, - be cost effective and improve the financial position of STEG (early indications from a solar tender project). - Staff encourages exploring public-private initiatives to finance climate adaptation and mitigation projects, and revisiting carbon prices and taxation to reduce carbon emissions. - Staff welcomes the authorities’ objective to cover at least 30 percent of Tunisia’s energy needs with renewables by 2030. ### Financial inclusion and digital payments - Policies to advance financial inclusion would support private sector growth and job creation. - Build on Covid-19 experience by broadening de-cashing and connecting bank accounts to bank cards for low-income households. - Provide greater transparency in financial transactions to leverage new technologies (Text Figure 6). - Speed up adoption of legislation on credit bureaus, private equity, and secure transactions (prepared with support from development partners). - Over the medium term: - Operationalize a national collateral registry. - Launch a national credit registry to support financial deepening and inclusion. - Authorities’ ongoing efforts to increase financial inclusion, including leveraging digital technologies, are welcomed. ### Strengthening governance, anti-corruption, and transparency - Good governance, anti-corruption, and transparency should be cross-cutting themes for the reform program. - Recommended measures: - Approve the decree allowing public access to asset declarations for the highest categories of civil servants (including enforcement mechanisms). - Strengthen capacity to investigate by linking government databases. - Implement all regulations passed over the past years and digitize the government sector to minimize opportunities for corruption. - Anchor prevention and detection of corruption on effective implementation of anti-corruption and AML/CFT regimes (e.g., enhanced due diligence for politically exposed persons, suspicious transaction reporting, and entity transparency). - Endow anti-corruption agencies with sufficient resources and properly select members of the Executive Board of the High Anti-Corruption and Good Governance Authority (HACGGA). - Covid-related expenditures and measures: - Cour des Comptes plans to conduct an audit of the public-private Covid-19 fund. - Current regulations require publication of all government procurement contracts, including those for recent Covid-related spending, on a dedicated government website. - Staff advises making the data on this site more accessible, including information on beneficiaries and validation of delivery. - Staff advises conducting a comprehensive ex post audit of crisis-mitigation spending 6–12 months after the end of the fiscal year and publishing results on the government’s website. ### Staff appraisal — macroeconomic outlook, fiscal policy, and reform priorities - Economic impact and near-term outlook: - Real GDP is estimated to have contracted by an unprecedented 8.2 percent in 2020. - Growth may rebound modestly in 2021, as the pandemic is brought under control, but with substantial downside risks. - Immediate policy priorities: - Save lives and livelihoods until the pandemic wanes. - Start putting fiscal and external balances back on a sustainable trajectory, while protecting the poor. - Fiscal framework and spending priorities: - The 2021 budget aims to strike a balance, with the budgeted fiscal deficit projected to narrow amidst high and uncertain financing needs. - In the absence of clear policy measures, staff’s baseline projects a higher deficit. - Staff calls on authorities to strictly prioritize spending for health and social protection, exert strict control over the civil service bill, ill-targeted energy subsidies, and transfers to inefficient SOEs. - Continue strengthening safety nets by reaching targeted groups and enhance public investment. - Medium-term fiscal sustainability: - Public debt would become unsustainable unless a strong and credible reform program with broad support is adopted. - Staff urges consultation and communication with the broader public on a medium-term reform program supported by a social compact. - Expenditure and tax policy guidance: - Put public finances back on a sustainable path, reorient expenditure to increase social protection and job-creating investment, and make taxation more equitable. - Tax policies should be more equitable and growth friendly. - Expenditure rationalization should restrain the civil service wage bill and phase out wasteful subsidies in a socially conscious way. - Caution against creating new public agencies to reduce the wage bill, as this would add contingent liabilities. - Preserve and enhance public investment, including by tapping into digitalization and the green economy, and leveraging public-private partnerships. - State-owned enterprises (SOEs): - SOE sector needs urgent and broad-ranging reforms. - Adopt a medium-term reform plan to improve SOE performance and reduce fiscal risks, including: - ‘Triage’ SOEs based on financial viability, strategic importance, and nature of activities, followed by restructuring or divesting as relevant. - Centralize monitoring and management in a single entity. - Strengthen corporate governance. - Improve financial reporting and transparency. - Improving the financial position of the social insurance system would also reduce fiscal risks. - Exchange rate and external position: - Staff estimates the exchange rate is overvalued relative to fundamentals, suggesting need for exchange rate flexibility together with further reforms to narrow the gap. *International Monetary Fund — Tunisian chapter excerpt* ### 45. The next Article IV consultation with Tunisia is expected to be conducted on the ### The next Article IV consultation with Tunisia is expected to be conducted on the standard 12-month cycle. ### Real sector developments (2010–20; projections to 2025) - GDP growth collapsed in 2020, driven by services (incl. tourism and transport) and manufacturing. - Both private consumption and investment declined significantly in 2020. - Real GDP (constant 2010 prices): - 2017: 1.9 - 2018: 2.7 - 2019: 1.0 - 2020: -8.2 - 2021 (Prel./Est./Proj entries vary across tables): -4.3; 3.8; 4.1; 2.4; 2.0; 1.8; 1.8 (see Tables 1, 2, 10 for scenario-specific projections) - Inflation: - CPI inflation (average): 2019: 6.7; 2020: 5.7; 2021: 6.2; projections vary by scenario (see Tables 1 and 10) - CPI inflation (eop): 2019: 6.1; 2020: 5.5; 2021: 6.0 - Labor market: - Unemployment high and persistent, especially among youth and women. - Unemployment rate indicators shown in figures: Overall, Male, Female, Graduates, Youth (levels displayed in source charts). ### External sector developments (2010–20; projections to 2025) - Current account: - The current account deficit narrowed in 2020 because of collapsing imports and resilient remittances. - Current account balance (percent of GDP, Table 1 / Table 3 memorandum): 2017: -10.3; 2018: -11.1; 2019: -8.4; 2020: -6.8; projections: -9.5; -8.1; -9.4; -9.3; -9.2; -9.0 (varies by table and scenario). - Trade dynamics: - Trade deficit narrowed in 2020 because lower exports were more than offset by the decline in imports. - Exports of goods (U.S. dollars, billions; Table 2/3): 2010–20 series shown in figures; Table 3 exports by year (e.g., 2020: 14,945; 2021: 13,646; 2022: 15,913; 2023: 16,928; 2024: 17,761; 2025: 18,503; 2026: 19,160). - Imports of goods (U.S. dollars, billions; Table 3): 2020: -20,373; 2021: -17,357; 2022: -22,225; 2023: -23,028; 2024: -23,748; 2025: -24,745; 2026: -25,594. - Reserves and exchange rate: - Gross official reserves (eop, billions of US$; Table 1 / Table 3): 2017: 5.6; 2018: 5.2; 2019: 7.4; 2020: 9.0; projections vary (e.g., Table 10 Reform Scenario shows 2021: 8.4; 2022: 9.2; 2023: 6.5; 2024: 9.3; 2025: 9.4; see tables for different sequences). - Reserve coverage (months of next year's imports of GNFS; Table 3 memo): 2017: 2.6; 2018: 2.5; 2019: 4.3; 2020: 4.1; projections: 3.7; 3.2; 2.8; 2.2; 1.8. - The dinar has remained relatively stable recently (figure). ### Fiscal sector developments (2010–20; projections to 2026) - Fiscal outcomes and debt: - Fiscal consolidation over 2017–19 was sharply reversed in 2020 as the pandemic hit hard. - Public debt increased to historically high levels, driven by the high primary deficit and real contraction. - Gross central government debt (percent of GDP; Table 1 / Table 4 memo): 2017: 70.9; 2018: 77.5; 2019: 71.8; 2020: 87.6; projections vary across scenarios and years (e.g., Table 4 shows 2021: 91.2; 2022: 93.9; 2023: 96.5; 2024: 98.5; 2025: 99.7). - Revenues and expenditures (percent of GDP; Table 1 and Table 5): - Total revenue and grants: 2017: 24.6; 2018: 26.0; 2019: 27.7; 2020: 26.9. - Total expenditure and net lending: 2017: 30.6; 2018: 30.5; 2019: 31.6; 2020: 37.5. - Wage bill remains large: wage bill (percent of GDP) 2017: 15.0; 2018: 14.0; 2019: 14.6; 2020: 17.6; projections remain elevated. - Energy subsidies and transfers remain significant components of current outlays. - Balances: - Overall balance (incl. grants; percent of GDP): 2017: -6.0; 2018: -4.5; 2019: -3.9; 2020: -10.6. - Primary balance (incl. grants; percent of GDP): 2017: -3.6; 2018: -1.9; 2019: -1.1; 2020: -7.2. ### Monetary sector developments (2010–20; projections) - Policy and interest rates: - After a tightening in 2018–19 to contain inflation, key policy rates were lowered in response to Covid-19. - Interest rates (money market rate, eop) and policy rates shown in figures and tables (e.g., Table 1 interest rate (money market rate, eop): 2017: 4.9; 2018: 6.7; 2019: 7.7). - Money and credit: - Broad money (M3) and credit to the economy growth slowed in 2020. - Table 6 (monetary survey, millions of dinars): Broad money (M3) end-of-period stocks: 2017: 74,485; 2018: 79,409; 2019: 87,401; 2020: 97,714; projections rising to 156,412 by 2025. - Credit to the private sector (Table 6): 2017: 65,543; 2018: 71,177; 2019: 72,224; 2020: 75,751; projections to 99,364 by 2025. - Central bank operations: - Refinancing operations had started to decline before Covid-19; central bank net credit and reserve money series in Table 7. ### External financing needs and financing sources (2017–25) - Total gross financing requirements (millions of US$; Table 8): - 2017: 6,383; 2018: 6,454; 2019: 5,795; 2020: 5,015; 2021: 7,498; 2022: 7,158; 2023: 7,672; 2024: 8,369; 2025: 7,629. - Composition (Table 8): - Current account deficit component (millions of US$): 2020: 2,697; 2021: 4,210; 2022: 4,396; 2023: 4,493; 2024: 4,608; 2025: 4,717. - Amortizations (millions of US$): 2020: 2,318; 2021: 3,288; 2022: 2,762; 2023: 3,179; 2024: 3,760; 2025: 2,911. - Financing sources (Table 8): - Foreign direct investment and portfolio (net): 2017: 747; 2018: 948; 2019: 823; 2020: 647; 2021: 767; projections rising toward 1,025 by 2026 in some tables. - Disbursements (total): 2017: 4,738; 2018: 3,401; 2019: 3,508; 2020: 2,723; 2021: 5,023; central government disbursements and multilateral/bilateral budget support detailed in tables. - Central Bank access to IMF BOP support loans reflected in 2017–20 (e.g., 2018: 748; 2019: 245; 2020: 746). ### Banking sector soundness (2010–20) - Capital and asset quality (Table 9): - Regulatory capital to risk-weighted assets: 2010: 11.6; 2019: 13.0; 2020 Sept. preliminary: 13.2. - Nonperforming loans (NPLs) to total loans: 2010: 13.0; 2019: 13.4; 2020 Sept. preliminary: 13.1. - Specific provisions to NPLs (percent): rising trends with 2020 Sept. at 58.2. - Profitability and liquidity: - Return on assets (ROA) around 0.9–1.2 in recent years (series in Table 9). - Liquid assets to short-term liabilities showed volatility; deposits to loans around mid-80s percent. ### Reform scenario highlights (selected indicators, 2017–25) - Reform scenario (Tables 10 and 11) projects stronger outcomes relative to baseline: - Real GDP (at 2010 prices, Reform Scenario Table 10): 2021: 3.9; 2022: 4.1; 2023: 2.8; 2024: 2.8; 2025: 2.9–3.0 (scenario variants shown). - Gross national savings and gross investment projected higher under reform scenario (Table 10). - Gross official reserves under reform scenario (Table 10): projected increases (e.g., 2021: 6.5; 2022: 9.3; further increases shown to 2025). - Reform Scenario: total gross financing requirements and sources adjusted (Table 11) with larger disbursements and higher FDI and reserves accumulation. ### Key statistics and memoranda (selected exact figures from tables) - Nominal GDP (millions of TD; Table 1 / Table 4 memo): 2017: 95,865; 2018: 106,242; 2019: 114,939; 2020: 111,251; projections across tables show growth to 189,846 by 2026 (Table 4 memo). - Nominal GDP (billions of US$; Table 1 memo): 2017: 39.6; 2018: 40.1; 2019: 39.2 (additional entries shown as dots in source). - Population (millions; Table 1 memo): 2017: 11.5; 2018: 11.7; 2019: 11.8; 2020: 11.9; projections up to 2025: 12.4. - Oil price (Brent, US$ per barrel; Table 1 memo): 2017: 54.47; 2018: 71.16; 2019: 64.04; 2020: 42.33; 2021: 66.95; subsequent years listed. *Source: Tunisian authorities; and IMF staff estimates and projections.* ### Appendix I. External Sector Assessment ### Appendix I. External Sector Assessment ### Overall assessment - Tunisia’s external position in 2020 is weaker than implied by fundamentals and desirable policies, based on an estimated current account (CA) “gap” of about -3.4 percent of GDP. - This CA gap corresponds to a real effective exchange rate (REER) overvaluation in the order of 5–10 percent. - External sector sustainability remains a source of macroeconomic vulnerability; exchange rate flexibility together with deep structural reforms—fiscal consolidation, reform of state-owned enterprises, and policies to increase private sector participation and competition—would be required to bring the external position back into balance over the medium term. ### A. External balance sheets — key findings - Net International Investment Position (NIIP) deteriorated to 155 percent of GDP in 2019. - Foreign assets declined to 23 percent of GDP by 2019; foreign liabilities rose to 178 percent of GDP. - Government medium and long-term external debt more than doubled over the past ten years to 52 percent of GDP. - Short-term credit quadrupled over the same period to 24 percent of GDP. - External vulnerabilities: - High share of external debt in total central government debt: 71 percent in 2019. - State-owned enterprise (SOE) external debt estimated at 20.5 percent of GDP in September 2020. - Large gross amortization needs: total external debt service in 2019 amounted to 7.6 percent of GDP and 11 percent of exports of goods and services. ### B. Current account balances — key findings and 2020 impact - 2019 developments: - Current account deficit moderated to 8.4 percent of GDP in 2019, down from 11.1 percent of GDP in 2018. - Imports experienced an 8.6 percent drop year-on-year in volume in 2019. - Trade deficit remained nearly 14 percent of GDP in 2019; more than half attributable to the energy deficit. - Tourism: number of tourists peaked at 8 million in 2019; tourism receipts grew by 23 percent in 2019. - Remittances rose steadily. - Pandemic effects (2020): - For the first nine months of 2020, collapse in exports and imports narrowed the trade balance to 10 percent of GDP, with nearly half from the energy deficit. - As of 2020Q3, tourism revenue collapsed to 2.2 percent of GDP (compared with 5.1 percent over the same period in 2019). - As of 2020Q3, remittances were 6.6 percent of GDP (compared with 6.2 percent of GDP over the same period in 2019). - Current account deficit as of 2020Q3 was 7.4 percent of GDP (compared with 9 percent over the same period in 2019). - Staff estimates a current account deficit of 6.8 percent of GDP for the year 2020. - Reserves and foreign exchange: - 2019 saw an accumulation of reserves for the first time in seven years. - Central bank net FX purchases totaled US$462.1 million in 2020. - Reserves are estimated to exceed 100 percent of the ARA metric in 2020. ### C. Saving–investment balance - National savings declined to 8.8 percent of GDP in 2019, reflecting declines in private savings and erosion of government savings. - Private investment trends: moderate drop; constraints include excessive regulations in product markets, complex administrative procedures, and a financial system that does not favor start-ups and growing companies. - Authorities adopted legislation in 2019 to strengthen Tunisia’s attractiveness for investment; the reform process was interrupted in 2020 by Covid-19. ### D. Exchange rate assessment - REER movements: - REER depreciation over 2016–19 totaled 19 percent and helped increase export volumes in sectors such as olive oil, textiles, and manufactured goods. - REER began appreciating as of March 2019, resulting in an 18 percent appreciation by October 2020 (o.w. 5 percent in 2020), mostly from price differentials with trading partners. - External Balance Assessment (EBA) results: - CA model establishes a CA norm of -4.3 percent of GDP in 2020. - Observed 2020 CA balance: -6.8 percent of GDP. - Adjustments for cyclical factors and temporary Covid-19-related factors yield an adjusted CA balance of -7.7 percent of GDP for 2020. - The CA gap (adjusted CA balance minus CA norm) is -3.4 percent of GDP. - Using a current account elasticity to the real exchange rate of -0.37, this CA gap corresponds to an REER overvaluation of 9.1 percent (as one calculation), while the alternative external stability (ES) approach suggests an REER overvaluation of 13.2 percent (based on a sustainable NIIP benchmark of -78 percent of GDP). - Staff gives more weight to the CA model; overall conclusion: REER likely overvalued in the order of 5–10 percent. ### E. Non-price competitiveness and policy implications - A depreciation alone will not durably restore external balance; deep structural reforms are required. - Priority reforms needed: - Fiscal consolidation under a strong and credible medium-term framework. - Reform of SOEs to put them on a sound financial footing and open them to private sector competition. - Policies to increase private sector participation and competition. - Non-price competitiveness constraints: - Sluggish productivity growth relative to peers. - Labor market rigidities, slow innovation, and weaknesses in the business environment. - Reforms to strengthen competitiveness and attractiveness for private-sector-led investment would help reduce the current account gap and REER overvaluation. ### Appendix II excerpts on debt (linked vulnerabilities) - Public debt developments and risks: - Central government debt declined from 77½ to 72 percent of GDP in 2019 (dinars appreciation and low real interest rates). - Covid-19 shock in 2020: - Sharp contraction of real GDP in 2020 estimated at 8.2 percent. - Primary fiscal deficit deteriorated to 8.2 percent of GDP (excl. grants). - Public debt ratio increased to 87.6 percent of GDP. - Once government guarantees and other SOE debt are fully accounted for, public debt would exceed 100 percent of GDP. - Baseline and reform scenarios: - Baseline: absent fiscal discipline and a credible medium-term framework, central government debt would continue to increase and reach nearly 100 percent of GDP over the medium term. - Gross public financing needs under baseline: in the range of 14–18 percent of GDP annually. - Reform scenario: resolute and sustained fiscal reforms starting in 2021 could reduce public debt to below 85 percent of GDP over the medium term; risks would remain elevated. - Sensitivity and stress tests: - Debt is sensitive to exchange rate depreciation, low growth, and fiscal shocks. - Stress tests indicate that failure to implement fiscal adjustment could put debt on an explosive path; several scenarios suggest public debt could exceed 100 percent of GDP before 2025. - Stochastic analysis shows debt could become durably entrenched above 90 percent of GDP, with upside risks. - SOE-related fiscal risks: - Partial data on 30 SOEs show a debt stock of almost 40 percent of GDP (20 percent of GDP due to banks and suppliers; remainder to social security funds, other SOEs, and the government). - Partial data show SOE guarantees estimated at 15 percent of GDP at mid-2020. - A stress test simulating realization of contingent liabilities of 13 percent of GDP (10 percent realization of public guarantees and 3 percent recapitalization needs) would raise gross financing needs to 35 percent in 2021. *Source: Appendix I. External Sector Assessment, 1tunea2021001 - Appendix I. External Sector Assessment* ### 5. On the positive side, there remain a number of factors that could help attenuate ### 5. On the positive side, there remain a number of factors that could help attenuate ### Positive factors moderating debt sustainability risks - Tunisia has maintained access to financing at a low cost, with effective interest rates staying below inflation in recent years. - Almost half of Tunisia’s public debt is owed to bilateral donors and multilateral institutions with low average interest rates and relatively long maturities. - Part of Tunisia’s past Eurobond issuances were covered by third-party sovereign guarantees (US and Japanese governments). - Banks’ exposure to sovereign debt has remained relatively low so far, though it increased in 2020 to an estimated 12.2 percent of GDP. - Large financing needs in the coming years could result in increased reliance on domestic and external market financing unless the donor community steps up concessional financing. ### Debt sustainability outlook and reform scenario - Strong policy implementation and continued access to concessional financing are critical to put public debt back on a sustainable trajectory. - The reform scenario would bring central government public debt back towards a sustainable path (below 85 percent of GDP) by 2025. - Contingency planning recommendations: - Reprioritize spending to reduce discretionary/non-urgent expenditure while safeguarding social programs. - Maintain an active dialogue with donors to mobilize additional budget financing on concessional terms or in the form of grants. ### Key public DSA baseline indicators and dynamics (selected figures from the DSA) - Baseline scenario nominal gross public debt (in percent of GDP): 50.8 (2018), 77.5 (2019), 71.8 (2020), 87.6 (2021), 91.2 (2022), 93.9 (2023), 96.6 (2024), 98.5 (2025). - Public gross financing needs (in percent of GDP): 8.4 (2018), 10.7 (2019), 9.4 (2020), 17.2 (2021), 18.3 (2022), 15.5 (2023), 15.7 (2024), 15.9 (2025), 14.0 (2025 cumulative row label). - Real GDP growth (in percent): 2.1 (2018), 2.7 (2019), 1.0 (2020), -8.2 (2021), 3.8 (2022), 2.4 (2023), 2.0 (2024), 1.8 (2025). - Inflation (GDP deflator, in percent): 4.2 (2018), 7.9 (2019), 7.1 (2020), 5.4 (2021), 5.9 (2022), 6.2 (2023), 6.9 (2024), 7.3 (2025). - Effective interest rate (in percent): 4.4 (2018), 4.1 (2019), 3.9 (2020), 4.5 (2021), 4.3 (2022), 4.5 (2023), 5.2 (2024), 5.6 (2025), 5.9 (2025 last column indicator). - Change in gross public sector debt (cumulative): 3.2 (2018), 6.5 (2019), -5.6 (2020), 15.8 (2021), 3.6 (2022), 2.7 (2023), 2.6 (2024), 2.0 (2025), 1.3 (2025 cumulative). - Primary deficit (in percent of GDP): 2.5 (2018), 1.9 (2019), 1.0 (2020), 7.2 (2021), 5.9 (2022), 3.0 (2023), 2.0 (2024), 1.0 (2025). - Primary (noninterest) revenue and grants (in percent of GDP): 24.5 (2018), 26.0 (2019), 27.7 (2020), 26.9 (2021), 27.0 (2022), 27.2 (2023), 27.2 (2024), 27.4 (2025), cumulative 163.1. - Primary (noninterest) expenditure (in percent of GDP): 26.9 (2018), 27.9 (2019), 28.7 (2020), 34.1 (2021), 32.8 (2022), 30.2 (2023), 29.2 (2024), 28.4 (2025), cumulative 182.5. - Automatic debt dynamics contribution (cumulative): 1.3 (2018), 5.1 (2019), -6.6 (2020), 5.7 (2021), -4.5 (2022), -3.6 (2023), -3.3 (2024), -3.2 (2025), cumulative -12.0. - Interest rate/growth differential (reported as): -0.9 (2018), -4.3 (2019), -3.1 (2020), 5.7 (2021), -4.5 (2022), -3.6 (2023), -3.3 (2024), -3.2 (2025), cumulative -12.0. ### Alternative scenarios and stress tests (summary) - Figure 6 and Figure 7 present alternative scenarios: Baseline, Historical, Constant Primary Balance, and multiple stress tests including Primary Balance Shock, Real GDP Growth Shock, Real Interest Rate Shock, Real Exchange Rate Shock, Combined Shock, and Contingent Liability Shock. - Stress-test outcomes show potential large increases in gross nominal public debt and public gross financing needs under adverse shocks; charts indicate debt could rise significantly (charts show trajectories up to 140 percent of GDP and beyond under severe shocks and contingent liabilities scenarios). ### External debt: levels and medium-term outlook - External debt-to-GDP ratio: 97.4 percent in 2018; 92.8 percent in 2019. - External debt estimated at 94.7 percent of GDP in 2020. - Composition and characteristics: 74 percent of external debt is medium- to long-term; 80 percent is public external debt. The bulk of external debt is held by official creditors or is backed by a third-party guarantee. - Staff’s baseline projects external debt would decline somewhat over the medium term but remain elevated and reach about 96 percent over the medium term. - Factors affecting external debt dynamics include reserves drawdown and increased reliance by the central government on domestic debt. *Source: IMF staff (content unit: 1tunea2021001).* ### 9. External debt is sensitive to exchange rate depreciation. Tunisia’s external debt ### 9. External debt is sensitive to exchange rate depreciation. Tunisia’s external debt ### External debt profile and sensitivity - Tunisia’s external debt profile is characterized by: - a low average interest rate, relatively long maturities, a substantial share of concessional debt, and a large grant element on new external debt. - The profile makes Tunisia’s external debt relatively robust to most shocks, except for a large real exchange rate depreciation. - A simulated one-time 30 percent real depreciation in the second year of projection would increase external debt to about 152 percent of GDP in 2021 and keep it high throughout the projection period. ### Key statistics (selected figures from Table 1) - Total external debt stock: 104,706 TD Mio / 37,724 US$ Mio — 91.5 percent of GDP — 100 percent of total. - Maturity composition: - MLT (medium- and long-term): 77,249 TD Mio / 27,831 US$ Mio — 67.5 percent of total — 73.8 percent of total. - ST (short-term): 27,457 TD Mio / 9,892 US$ Mio — 24.0 percent of total — 26.2 percent of total. - By debtor: - Public: 84,072 TD Mio / 30,290 US$ Mio — 73.5 percent of total. - Administration: 60,608 TD Mio / 21,836 US$ Mio — 53.0 percent of total. - CG (central government): 53,573 TD Mio / 19,301 US$ Mio — 46.8 percent of total. - By currency (US$ value in Table 1): - US$: 19,580 TD Mio / 7,054 US$ Mio — 17.1 percent of total. - EUR: 59,787 TD Mio / 21,540 US$ Mio — 52.2 percent of total. - JPY: 10,052 TD Mio / 3,621 US$ Mio — 8.8 percent of total. - Others: 15,287 TD Mio / 5,508 US$ Mio — 13.4 percent of total. - By creditor: - Official total: 55,830 TD Mio / 20,115 US$ Mio — 48.8 percent of total — 72.3 percent of total (of some subtotal). - Multilateral: 41,768 TD Mio / 15,048 US$ Mio — 36.5 percent of total. - o/w AfDB: 8,592 TD Mio / 3,096 US$ Mio — 7.5 percent of total. - o/w EIB: 6,673 TD Mio / 2,404 US$ Mio — 5.8 percent of total. - o/w IMF: 6,757 TD Mio / 2,434 US$ Mio — 5.9 percent of total. - o/w World Bank: 10,907 TD Mio / 3,930 US$ Mio — 9.5 percent of total. - Bilateral: 14,062 TD Mio / 5,066 US$ Mio — 12.3 percent of total. - o/w France: 3,735 TD Mio / 1,346 US$ Mio — 3.3 percent of total. - o/w Japan: 2,346 TD Mio / 845 US$ Mio — 2.0 percent of total. - Private: 21,419 TD Mio / 7,717 US$ Mio — 18.7 percent of total. - Market: 19,390 TD Mio / 6,986 US$ Mio — 16.9 percent of total. - Memo items (Sept. 2020): - GDP (Mio TD): 114,458 - TD/US$ (eop): 2.78 ### Baseline projections and stress tests (selected figures from Table 2 and Figure 9) - External debt (percent of GDP), actual and projected: - 2015: 65.4 - 2016: 72.9 - 2017: 84.6 - 2018: 97.4 - 2019: 92.8 - 2020: 94.7 - 2021 (baseline projection): 99.2 - 2022: 101.2 - 2023: 99.3 - 2024: 96.7 - 2025: 95.7 - Change in external debt (percent of GDP): - 2015: 4.7 - 2016: 7.5 - 2017: 11.7 - 2018: 12.8 - 2019: -4.6 - 2020: 1.9 - 2021: 4.5 - 2022: 2.0 - 2023: -1.9 - 2024: -2.7 - 2025: -1.0 - Identified external debt-creating flows (4+8+9): - 2015: 8.0 - 2016: 12.5 - 2017: 8.2 - 2018: 19.3 - 2019: -8.5 - 2020: 3.6 - 2021: 1.0 - 2022: 3.9 - 2023: 4.1 - 2024: 3.8 - 2025: 4.3 - Current account deficit, excluding interest payments (percent of GDP): - 2015: 7.3 - 2016: 7.3 - 2017: 8.3 - 2018: 9.4 - 2019: 6.2 - 2020: 4.7 - 2021: 7.5 - 2022: 7.0 - 2023: 6.5 - 2024: 6.3 - 2025: 6.5 - Automatic debt dynamics (percent of GDP contribution): - 2015: 3.6 - 2016: 8.4 - 2017: 1.6 - 2018: 12.2 - 2019: -12.0 - 2020: 1.2 - 2021: -4.0 - 2022: -1.3 - 2023: -0.2 - 2024: -0.3 - 2025: 0.0 - External debt-to-exports ratio (percent): - 2015: 177.5 - 2016: 185.2 - 2017: 200.1 - 2018: 197.8 - 2019: 193.3 - 2020: 238.3 - 2021: 216.0 - 2022: 216.3 - 2023: 209.7 - 2024: 203.9 - 2025: 202.7 - Gross external financing need (in billions of US dollars): - 2015: 12.5 - 2016: 12.2 - 2017: 12.3 - 2018: 13.4 - 2019: 14.4 - 2020: 16.2 - 2021: 17.6 - 2022: 19.3 - 2023: 21.2 - 2024: 21.1 - 2025: 18.8 - Baseline macro assumptions (selected): - Nominal GDP (US dollars) average historical/projection rows show values including 47.6, 43.2, 41.8, 39.6, 40.1, 40.5, 43.2, 44.9, 46.2, 47.9, 49.5 (as presented). - Real GDP growth (in percent), projections: - 2020: -8.2 - 2021: 3.8 - 2022: 2.4 - 2023: 2.0 - 2024: 1.8 - 2025: 1.8 - Exchange rate appreciation (US dollar value of local currency, pct.change) shown with historical and projected values including -8.4, -13.1, -5.8, -17.0, 7.0, -7.1, 6.5, 2.7, -2.6, -4.2, -4.9, -4.9, -5.2, -3.2 (as presented). - GDP deflator in US dollars (change in percent) and growth of exports/imports series are presented in the table for historical and projected years. - Alternative scenarios (selected projected external debt percent of GDP under scenarios, baseline value 88.2 in 2015 reference row): - A1. Key variables at historical averages in 2020-2025: projected series includes 88.2, 99.6, 106.4, 109.1, 111.2, 114.5. - A2. Security shock: 88.2, 114.5, 125.1, 126.7, 123.6, 121.5. - A3. No fiscal reforms: 88.2, 93.0, 92.9, 91.6, 90.1, 89.4. - B5. One time 30 percent real depreciation in 2021: 88.2, 152.2, 150.8, 146.9, 142.7, 140.2. ### Amortization and debt service (selected figures from Table 3) - Total external debt service (US$ mn): - 2020Q4: Total principal 229; Interest 109; Total external debt service 339. - 2021: Principal 2,231; Interest 546; Total external debt service 2,777. - 2022: Principal 1,531; Interest 501; Total external debt service 2,032. - 2023: Principal 2,250; Interest 467; Total external debt service 2,717. - 2024: Principal 3,189; Interest 390; Total external debt service 3,578. - 2025: Principal 2,370; Interest 260; Total external debt service 2,630. - 2026: Principal 1,905; Interest 209; Total external debt service 2,115. - 2027: Principal 1,458; Interest 138; Total external debt service 1,596. - 2028: Principal 936; Interest 100; Total external debt service 1,036. - 2029: Principal 702; Interest 86; Total external debt service 788. - 2030: Principal 679; Interest 77; Total external debt service 756. - 2031: Principal 889; Interest 58; Total external debt service 947. - 2032: Principal 587; Interest 46; Total external debt service 633. - 2033: Principal 669; Interest 33; Total external debt service 702. - 2034: Principal 479; Interest 24; Total external debt service 503. - 2035: Principal 490; Interest 20; Total external debt service 510. - 2036: Principal 297; Interest 16; Total external debt service 313. - Multilateral principal and interest schedules (selected): - Multilateral principal (2021–2026): 149, 599, 663, 1,027, 1,245, 1,000. - Multilateral interest (2021–2026): 42, 185, 172, 155, 128, 101. - Bilateral principal and interest schedules (selected): - Bilateral principal (2021–2026): 80, 382, 374, 391, 395, 370. - Bilateral interest (2021–2026): 13, 58, 52, 42, 34, 27. - Private principal and interest schedules (selected): - Private principal (2021–2026): 0, 1,250, 494, 832, 1,548, 1,000. - Private interest (2021–2026): 54, 303, 278, 270, 227, 132. - Domestic debt in FX total (selected): - 2020Q4 total domestic FX debt service: 158 (Principal 154; Interest 3). - 2021 total domestic FX debt service: 323 (Principal 295; Interest 28). - 2022 total domestic FX debt service: 680 (Principal 658; Interest 21). - Domestic debt in TD (mn) (selected totals): - 2020Q4: Principal 986; Interest 412; Total domestic TD debt service 1,398. - 2021: Principal 2,077; Interest 1,474; Total domestic TD debt service 3,550. - 2022: Principal 2,579; Interest 1,368; Total domestic TD debt service 3,947. - Note: "*Amortization schedule uses IMF exchange rate forecasts" (as presented). ### Risk assessment and policy responses (selected from RAM and annexes) - Key risks that could materially alter the baseline include: - Unexpected shift in the Covid-19 pandemic (Medium, ST/MT). - Intensified geopolitical tensions and security risks (High, MT). - Rising temperatures, varied precipitation, droughts and floods, and sea level rise risking agriculture, tourism, and water security (High, MT). - Slow reform implementation due to political uncertainty and social tensions (High). - Widespread social discontent and political instability (High, ST and MT). - Recommended policy responses and capacity-building priorities include: - Strong support from official creditors to reduce debt sustainability risks. - Strict prioritization of spending on health and protecting the vulnerable. - Implement difficult and long-overdue policy reforms on the civil service wage bill, energy subsidies, and SOE management, accompanied by effective communication and a 'national debate' to secure buy-in. - Exchange rate flexibility to foster adjustment in the face of external shocks. - Structural reforms to improve competitiveness and private-sector led investment and growth. - Improve infrastructure to collect climate and weather data; allow private participation in renewable energy generation; better coordination between ministries and agencies; broad inclusion of society in climate strategies. - Rapid and forceful implementation of economic and social reforms to rebuild fiscal and external buffers, including growth-friendly fiscal consolidation, sustained exchange rate flexibility, reorientation of spending to protect social safety nets and public investment, containment of the wage bill and ill-targeted subsidies, and acceleration of structural reforms to increase productivity and improve governance. - Integrated capacity building priorities, 2021–23 (selected technical assistance areas): - Tax administration: Revitalize tax collection for the Covid-related response (FAD). - Financial sector risks: Asset quality review and stress tests of the banking system (MCM). - Revenue administration, expenditure rationalization, tax policy and equity, public financial management (FAD; METAC). - SOE consolidation, arrears clearance strategy, SOE governance (STA; METAC; LEG). - Monetary policy framework and operations, liquidity forecasting, collateral and emergency liquidity assistance frameworks, and transition to inflation targeting (MCM). - Strengthen stress testing, crisis management, banking supervision (MCM; METAC). - Data improvements: SDDS, real sector statistics, external sector statistics migration to BPM6, monetary and financial statistics, FSIs (STA; METAC). *Source: Tunisian authorities and IMF staff calculations; IMF Country desk data and staff estimates (as presented in the source content).* ### Annex III. Trends in the Civil Service Wage Bill ### Annex III. Trends in the Civil Service Wage Bill ### Overview: scale and international comparison - The civil service wage bill grew from 10.7 percent of GDP in 2010 to 14.6 percent of GDP in 2019 (including wage components paid out as tax credits to public sector workers) and is estimated to have reached 17.6 percent of GDP in 2020. - This level is well above the median of 8.7 percent of GDP in non-oil producing emerging markets for 2020 and ranks Tunisia as the highest among non-oil producing emerging markets. ### Fiscal impact and composition of public spending - The wage bill consumed about 75 percent of tax revenues in 2020, up from 53 percent in 2010. - Composition of government spending, 2020 (in percent of total): - Wages and salaries: 49% - Goods and Services: 5% - Interest payments: 11% - Transfers and subsidies: 18% - Capital spending: 17% - The wage bill is almost three times the size of public investment and almost six times spending on social programs. - Note: Spending does not include the one-off repayment of government arrears to SOEs in 2020. ### Drivers of the increase - Headcount additions: - Total number of staff increased by 5½ percent per year on average during 2011–15. - Further hiring push for security personnel after 2015. - Significant new hiring in 2020: total civil service increased by about 4 percent (about 40 percent of that increase was due to the health sector). - 2021 budget envisages hiring of additional 16,500 civil servants: - Ministry of Education accounts for 53 percent of the increase in total headcount. - Interior Ministry accounts for 38 percent. - Other potential 2021 increases not included in the 2021 budget: - Agreed hiring of about 10,000 long-term unemployed. - Regularization of about 6,000 road construction workers (part of regularization of about 31,000 ouvriers de chantiers that could take place over several years). - Estimated 100,000 people employed by SOEs are not included in the central government headcount; SOEs have at times been used to create jobs for social purposes, especially in disadvantaged regions. - Salary increases: - The bulk of the increase in the civil service wage bill over time has been due to salary increases. - Public sector salaries are on average about twice as high as those in the private sector (may mask heterogeneity across worker categories). - Legacy wage hikes absorbed by the budget: - 2016–18 legacy wage hikes totaling 1.2 percent of GDP legally agreed by a previous government. - February 2019 wage increase totaling about 1.5 percent of GDP delivered in three tranches (first in 2019, second and third in 2020). - In 2020, another 0.3 percent of GDP increase in salary was decided following an agreement between the UGTT labor union and the ministry in charge of civil servants. ### IMF staff advice, outcomes, and constraints - IMF staff consistently advised the authorities to contain the civil service wage bill, stressing that regular increases were unfair, unaffordable, and detrimental to macroeconomic stability. - Average civil service salary doubled between 2011–20, outpacing other sectors. - Authorities’ measures: - Hiring limits set: limited new recruitments to 3,000 in 2018 and to slightly over 4,000 in 2019. - Voluntary departure and early retirement schemes generated less interest than expected: about 6,600 civil servants left compared with an expected 20,000–25,000, reflecting the poor state of the private sector job market. - Given the civil service structure, potential gains in headcount from natural attrition are relatively limited. ### Key statistics and indicators (preserved exactly) - 10.7 percent of GDP in 2010 (wage bill) - 14.6 percent of GDP in 2019 (wage bill) - 17.6 percent of GDP in 2020 (est.; wage bill) - Median = 8.7 percent (non-oil producing emerging markets, 2020) - Wage bill consumed about 75 percent of tax revenues in 2020; 53 percent in 2010 - Wage bill share of total government spending: Wages and salaries 49%; Goods and Services 5%; Interest payments 11%; Transfers and subsidies 18%; Capital spending 17% - Headcount growth 2011–15: 5½ percent per year on average - 2020 headcount increase: about 4 percent (about 40 percent due to health sector) - 2021 envisaged hiring: 16,500 civil servants (Ministry of Education 53%; Interior Ministry 38%) - Potential additional hires not in 2021 budget: about 10,000 long-term unemployed; about 6,000 road construction workers (part of about 31,000 ouvriers de chantiers) - Legacy wage hikes 2016–18: 1.2 percent of GDP - February 2019 wage increase: about 1.5 percent of GDP - 2020 additional salary decision: 0.3 percent of GDP - Voluntary departures: about 6,600 left versus expected 20,000–25,000 *Source: Annex III. Trends in the Civil Service Wage Bill (Tunisia), IMF staff calculations and Tunisian authorities data as presented in the source content.* ### 12. Clearing (cross-)arrears is a prerequisite to sanitize the financial situation of SOEs ### 12. Clearing (cross-)arrears is a prerequisite to sanitize the financial situation of SOEs ### Clearing and auditing arrears - Review and analyze arrears due, including accounting for cross-arrears and cascading arrears with analysis of their nature: age, source, and the settlements involved. - Audit approach: - Conduct within a short time span and base on a risk assessment (focusing control on arrears with high risk and/or large financial stakes). - Perform by one of the internal audit institutions. - External audit can be involved as an independent third party to review results and provide credibility to the exercise. - After audit, sign and implement clearing agreements between the different parties involved. - Calculate exact amount of compensations and include them in the respective budget of the state and the SOEs. - Agreements should include provisions for concrete actions to prevent future arrears. - Once compensations are implemented, give strong priority to clear arrears with suppliers and the private sector. *Designing and implementing a strategic plan to perform a triage of SOEs* ### Triage strategy and criteria - Objective: rationalize the portfolio of SOEs and differentiate between strategic and non-strategic entities, including those competing unnecessarily with the private sector without a clear social rationale. - Aim: bring in private-sector competition and improve efficiency and service delivery. - Predefined criteria for triage: - Viability and profitability of the business model: - Assessment based on key inputs including main financial ratios (such as profitability, solvability and liquidity), the medium-term business plan, and the overall financial performance of the company over the last years. - Strategic importance for the government: - Assess whether the company delivers key public services or builds/maintains infrastructures deemed important for economic growth. - Nature: - Consider initial business purpose and whether State intervention caused drift (for example, hiring employees for social purposes); assess whether the company operates in a private sector that allows open competition. - Overall future role in the economy: - Long-term analysis of contribution to the economy (for example by aligning to long-term development plans such as the National Development Plan), impact on the banking sector, and an overall risk assessment to the medium and long-term. ### Restructuring and exit options - Possible approaches by SOE category: - One-off recapitalization and restructuration, or ongoing transfers from the government combined with clear reform plans (financial performance and governance) and close monitoring. - If not profitable but strategic, consider shifting status from SOE to public entity (less financial independence and closer scrutiny). - Stronger private-sector participation (through PPPs and concessions), privatization, and ‘run-off management procedures’ potentially leading to closure if profitability cannot be restored. - Note on run-off management procedure: the company continues to honor current contracts but does not accept new business, which eventually leads to its closure. ### Pricing, subsidies, and fiscal space - Implement realistic pricing policy for services and goods provided by SOEs as part of restructuring: - Major SOEs suffer structural losses because regulated pricing policies do not align with incurred charges. - For companies remaining in the public domain, reform subsidized tariffs to progressively allow cost-recovery levels—this would create fiscal space to implement inclusive social policies and foster private sector participation. - Priority sectors for tariff reform: energy and agriculture (largest in terms of subsidies). - Improve the situation of the three social security funds through reforms to reach fiscal sustainability to reduce fiscal risks. ### Centralizing monitoring and regulatory framework - Current surveillance is scattered across line ministries and other government entities; the MoF―through the Direction Générale des Participations (DGP)―does not currently have a global view of the SOE portfolio. - Recommend centralizing oversight within an autonomous agency, possibly under the oversight of the MoF, starting with the largest SOEs and with a timeline for completion for all SOEs. - Centralized model can ensure consistency between ownership and financial oversight functions (Baum and others 2020). - The revised law and regulatory framework should: - Specify the role, mandate, and organization of the future autonomous agency. - Consider placing the autonomous agency under a single entity (the Ministry of Finance in the Tunisian context) to avoid conflicts and simplify oversight. - Clarify interaction between the agency and SOEs for surveillance and monitoring. - Provide clear delineation between (i) public entities classified as government units that provide non–market services or goods and (ii) SOEs that operate in the private sector, with a differentiated approach for surveillance. ### Strengthening governance - Focus governance provisions on the board’s decision-making role: - Strengthen independence, responsibility, and accountability of boards. - Reduce direct control of line ministries in management and decision-making. - Two key objectives: - Professionalization of the board member function: - Examples where law requires a certain proportion of independent board members with sector-related skills (China, Poland, India). - Improve information available for strategic and operational decision-making: - Strengthen audit committees, internal control, and risk management. ### Financial analysis, transparency, and monitoring - Consolidation of fiscal statistics to include the SOE sector can take place in the short term: - First step: properly account for the existence of government guarantees in public debt data. - Subsequently consider covering SOEs in fiscal targets (e.g., overall deficit or debt limits), including consolidation into general government data. - Start by including in fiscal targets those SOEs that pose significant fiscal risks and prioritize the social security funds. - DGP role in financial analysis: - Collect regular, reliable, and timely data from SOEs. - Perform analysis of key financial ratios (such as profitability, solvency, and liquidity) to better analyze and monitor fiscal risks from SOEs. - Use analysis results for regular reporting to inform government decisions (e.g., when granting guarantees or drafting a “contrat de programme”). - Medium-term IT system: - Implement an IT system to gather financial data from SOEs (initial budget, financial statements, main economic and financial indicators) in a unified and automated manner. - Example: Morocco has implemented such a system allowing budget execution monitoring, a repository of key documentation, and synthetic dashboards with financial performance. - Improvements to budget annex and fiscal risk statement: - The budget annex on SOEs should progressively include: - (i) key financial information required for all the largest SOEs; - (ii) a consolidated net position for the SOE sector; - (iii) insights on government strategy per sector, starting with energy and agriculture. - The Fiscal Risk Statement (or discussion annexed to the Budget Law) could contain a SOE section discussing major fiscal risks (spillover to the financial sector, arrears) and government mitigation plans. *Source: 1tunea2021001 — Tunisia staff report informational annex (February 2, 2021).* ### 2017. The authorities worked to implement its action plan and successfully exited the FATF list in ### 1tunea2021001 - 2017. The authorities worked to implement its action plan and successfully exited the FATF list in ### Capacity Development - IMF capacity development activities have continued to grow since 2011, both from the IMF and the Middle East Regional Technical Assistance Center (METAC). - Tunisia has been receiving IMF technical assistance (TA) and sent officials to participate in courses (at the IMF Headquarters in Washington, D.C., USA, and METAC in Beirut, Lebanon) in several areas of macroeconomic analysis and management. - LEG is supporting the Tunisian authorities in strengthening their CFT regime, as part of a regional capacity development project. - Tunisia joined METAC in May 2016. ### Resident Representative - The representative office was opened in Tunis in January 2014. - Mr. Jérôme Vacher was appointed the IMF Resident Representative in Tunisia in January 2019. ### Technical Assistance (January 1996–December 2020) — Key TA topics and dates - Fiscal and tax administration: - Assessment of the revenue impact of the Association Agreement with the European Union: Jan. 1996 - Reform of the tax system: Jan. 2005 - Modernization of the tax administration: Sep. 2005; Jan. 2013; Follow-up Mar. 2014; Development of a reform plan Jun. 2014 - Tax policy diagnosis, including of the oil regime: Dec. 2012 - Refinement of the tax reform strategy, especially indirect taxation: Jun. 2014 - Accounting and fiscal reporting: Jul. 2014 - Engagement with new authorities and support for the tax administration reform agenda: Mar. 2015 - Personal income taxation, esp. proposals for the 2016 budget: May 2015 - Review of proposed revenue measures for the 2018 budget and tax reform: Mar. 2017 - Support for the Tunisian authorities' tax administration reform program: Mar. 2017 - Strengthening of the Large Taxpayers Office (LTO): Nov. 2017 - Review of the medium-term tax policy reform: Dec. 2017 - TSA and cash management (jointly with METAC/FAD): Sep. 2017; Jan. 2019; FY2020 - TSA and cash management (METAC): FY2020 - TSA and cash management (jointly with FAD): Sep. 2017; Jan. 2019; FY 2020 - Treasury Single Account (TSA) and cash management (jointly with METAC): Sep. 2017; Jan. 2019 - Cash management, SOE oversight, and fiscal risks management (jointly with METAC/FAD): Oct. 2016; Oct. 2016 - Managing the fiscal risk from state-owned enterprises: Sep. 2017 - Public Investment Management Assessment (PIMA): Jan. 2018 - Identification of training needs of the Central Bank of Tunisia (CBT): Nov. 2011 - Financial sector, banking supervision, AML/CFT: - Anti-Money Laundering/Combating the Financing of Terrorism (AML/CFT): Dec. 2003 - AML/CFT supervisory training of the financial market supervision authority and the stock exchange: Feb. 2008 - Banking law and banking resolution framework: Mar. 2014 - Central banking law and banking law: May 2014 - Strengthening the framework for combating the financing of terrorism (CFT): Jan. 2018 - Review of the banking regulatory and supervisory framework (jointly with MCM/METAC): Jan. 2017; Jan. 2018; Jan. 2018 - Establishing an internal rating tool for the assessment of bank loans (jointly with MCM): Mar. 2017 - Consolidated banking supervision (jointly with MCM): Nov. 2017 - Consolidated supervision: FY 2020 - ICAAP: FY 2020 - Implementation of Basel IIIFY 2020 - Implementation of Basel II and III standards: FY 2021 - Developing/strengthening banking regulations and prudential norms: FY 2021 - Establishing an emergency liquidity framework: Mar. 2014 - Emergency liquidity assistance (ELA) agreement and monetary policy operational manual: Apr. 2016 - Emergency liquidity assistance: Nov. 2015 - Bank restructuring: Dec. 2015; Feb. 2016 - Bank supervision and regulations (long-term expert): Nov. 2016 - Bank Supervision (long-term expert/assignments): Feb. 2013; Apr. 2013; Mar. 2014; Sep. 2014; Apr. 2013; Apr. 2013; Mar. 2014; Sep. 2014; Nov. 2016 - Supervision of money laundering risks: May 2016 - Establishing an internal rating tool (jointly with MCM): Mar. 2017 - Central bank internal controls: FY 2021 - Monetary policy framework and operations: FY 2021 - Monetary operations, FX, and markets: - Monetary operations (non-resident acquisitions of treasury bills): Oct. 2003 - Monetary operations: Feb. 2007 - Foreign exchange (FX) market operations: Nov. 2011 - Introducing a FX auction: Nov. 2014 - Monetary policy: Apr. 2012 - Collateral framework: Apr. 2013 - Monetary policy framework and operations: FY 2021 - Statistics and data: - Balance of Payments methodological guidelines according to BMP5: Mar. 1997 - Quarterly National Accounts Statistics: May 1999; Oct. 2000 - Special Data Dissemination Standard (SDDS) assessment: May 1999; Jul. 2000 - Government Finance Statistics: Jul. 2004; Nov. 2015 (jointly with FAD) - Report on Observance of Standards and Codes (ROSC): Apr. 2005 - Standardized Report Forms (SRFs) data development: Feb. 2013 - Monetary data reported in SRFs and Financial Soundness Indicators (FSI): Feb. 2014; Jan. 2018 - Balance of Payments Statistics: Dec. 2014; FY 2020 - National Accounts Statistics: Jun. 2015; Jan. 2017; Jan. 2018; FY 2020 - Prices and index numbers: Oct. 2016 - Residential property price index: May 2017 - Data dissemination management: FY 2020; FY 2021 - Financial soundness indicators: FY 2020 - Other capacity activities: - Accounting and auditing: Oct. 2003 - TA needs assessments: May 2004; Feb. 2006 - Project assessment and management: Oct. 2016 - Risk-based supervisory framework: Apr. 2015 - Project assessment and management: Oct. 2016 - Sectoral financial account: FY 2021 - Departments involved: - Fiscal Affairs Department (FAD) - Institute for Capacity Development (ICD) - Legal Department (LEG) - Middle East Regional Technical Assistance Center (METAC) - Monetary and Capital Markets Department (MCM) - Statistics Department (STA) ### Relations with the World Bank Group (As of January 2021) - Country Strategy: - The current World Bank Group’s (WBG) Country Partnership Framework (CPF) for Tunisia covers FY16 through FY20; a new CPF will be adopted in FY22. - The CPF anchors on the Tunisian government’s “Note d’Orientation Stratégique” from September 2015 and the WBG’s Strategy for the Middle East and North Africa Region from October 2015. - WBG analytics underpin the CPF, including the Systematic Country Diagnostic (SCD) from June 2015. - CPF focuses on three areas: (i) jobs; (ii) lagging regions; and (iii) vulnerability. Governance and gender equity will be integral parts of all WBG initiatives under the CPF. - A mid-term review completed in June 2018 led to an extension of the CPF for an additional year. - A Risk and Resilience Assessment (RRA) identified constraints including: (i) a fundamental lack of trust in public institutions and toward the state; (ii) weak performance of the state and overall weak reform implementation; (iii) serious level of political exclusion; (iv) problems related to access to economic activity/employment and constraints of the private sector; (v) continuous significant regional disparities; and (vi) persistence of regional security threats. - A new SCD is currently being prepared and will be completed in FY21, prior to the new CPF for FY22–FY26. - Recent Lending Activity: - WBG lending committed: - US$930 million in FY18 (rapid increase) - US$325 million in FY19 - US$195 million in FY20 - Current portfolio commitments: - US$1,609 million for 15 active IBRD projects - US$649 million remains undisbursed - Portfolio composition: 13 IPFs (US$1.03b), 1 PforR (US$430m), 1 DPF (US$175m) and 3 Grants (US$15.6m) - Pipeline: - The lending volume for FY21 will potentially cover 4 investment lending projects with commitments of up to US$400 million, including financing for the COVID-19 vaccine purchase and roll out. - No budget support operation is programmed for the WBG FY 21. - Programming for FY22 and beyond will be defined by the new CPF expected to be finalized in early FY22. ### Relations with the African Development Bank - (Content begins) The African Development Bank (AfDB) approved a new Country Strategy Paper (CSP) in June *Italic: Content compiled from the provided IMF PDF chapter/section.* ### 2017. Covering 2017–21, it builds on lessons learned from interim CSPs since 2011 and aligns with ### 1tunea2021001 - 2017. Covering 2017–21, it builds on lessons learned from interim CSPs since 2011 and aligns with ### AfDB — Country Strategy and Planned Financing - CSP covers 2017–21 and builds on lessons from interim CSPs since 2011 and aligns with the Tunisian government’s Five-Year Development Plan 2016–20. - CSP goal: support Tunisia in implementing its Sustainability Development Plan 2016–20 through two pillars: - (i) industrialization and value chains development; and - (ii) improvement of the quality of life for people in lagging regions. - A CSP mid-term review was conducted in 2020 confirming the maintaining of the two pillars. - Pending the sustainability of the macroeconomic environment, the AfDB plans to invest between US$700 million and US$1.5 billion in support of this strategy. ### AfDB — Recent Lending Activity and Portfolio Performance - Net loan commitments currently reach UAC 1,702 million. - Since 2017, the AfDB approved new 16 operations worth UAC 909 million. All these operations are merely loans with a maturity period of five years. - The performance of Tunisia’s global portfolio is overall satisfactory. It totals UAC 1.71 billion, mainly in loans (99.5 percent) and an average age of 4.5 years. - Operations mainly focus on the public sector (97 percent) and by sector share: - Transport: 44.2 percent - Water and sanitation: 13.7 percent - Energy: 11 percent - Finance: 9.9 percent - Multisectoral operations: 7.1 percent - Agriculture: 6.3 percent - Industrial and digital: 4.3 percent - Social issues: 3.5 percent - The global disbursement rate is 58.4 percent. - Technical assistance grants represent 0.5 percent of grants and 99.5 percent of loans in the global portfolio. - Mainly financed out of the Trust Fund for Countries in Transition (TFCT) and Trust Fund for Countries in Transition (TFT), and middle-income countries fund, their disbursement rate stands at 34.4 percent. - Note: The AfDB’s Unit of Account (UAC) is equivalent to one IMF Special Drawing Right (SDR). ### AfDB — Selected Active Projects (UAC, disbursement details preserved) - Etude Gestion des risques et mis en place Assurance agricole — Agriculture — Approval date 8/2/2016 — Net Loan UAC 325,000 — Disb. 193,050 — Disbursement rate 59.4% — Project Completion date 6/30/2022 - Préparation du PDAI de Zaghouan — Agriculture — 10/24/2014 — UAC 240,000 — Disb. 191,040 — 79.6% — 3/31/2021 - Modernisation des infrastructures routières — Transport — 10/28/2015 — UAC 1,200,000 — Disb. 201,600 — 16.8% — 10/31/2022 - Transformation structurelle et appui aux créneaux porteurs — Economie — 8/14/2015 — UAC 798,310 — Disb. 56,680 — 7.1% — 12/31/2022 - Projet d'Appui à la mise en place d'une politique industrielle — Economie — 8/14/2015 — UAC 791,380 — Disb. 222,377 — 28.1% — 12/31/2022 - Approvisionnement en eau potable en milieu rural — Eau et assainissement — 6/20/2016 — UAC 840,000 — Disb. 131,880 — 15.7% — 12/31/2021 - PROGRAMME D’ASSAINISSEMENT DES PETITES COMMUNES DE MOINS DE 10 000 HABITANTS – PHASE I (PAPC-I) — Eau et assainissement — 10/10/2018 — UAC 800,000 — Disb. 92,800 — 11.6% — 12/31/2023 - Elaboration de la vision et de la Stratégie eu 2050 — Eau et assainissement — 6/20/2016 — UAC 1,129,800 — Disb. 499,371 — 44.2% — 6/30/2021 - Appui à la Promotion des investissements dans le domaine de la santé — Social — 6/3/2015 — UAC 296,373 — Disb. 211,314 — 71.3% — 6/30/2021 - Appui à l'opérationnalisation du Plan d'Action de la réforme des marchés publiques — Multisecteur — 12/27/2013 — UAC 530,100 — Disb. 311,169 — 58.7% — 12/31/2020 - Operationalizing PPPs in Tunisia (PPP advisory) — Multisecteur — 6/14/2013 — UAC 789,000 — Disb. 578,337 — 73.3% — 12/31/2020 - Delivery Unit MEFAI — Multisecteur — 4/30/2019 — UAC 398,700 — Disb. 27,909 — 0.7% — 12/21/2022 - Aide d'Urgence Nabeul — Multisecteur — 11/13/2018 — UAC 589,000 — Disb. 0 — 0% — 6/30/2021 - BFPME: Boosting private sector development — Secteur Privé — 8/5/2013 — UAC 674,500 — Disb. 520,039 — 77.1% — 12/31/2020 - (Additional larger projects listed with amounts and disbursement ratios preserved, including Projet de Développement agricole intégré (PDAI) du Nord de Gafsa UAC 18,576,600 — Disb. 11,294,572 — 60.8% — 7/2/2022; Projet de Développement agricole intégré (PDAI) du Nord de Gabès II UAC 17,347,680 — Disb. 9,697,353 — 55.9% — 6/30/2022; Enfidha Airport UAC 57,064,744 — Disb. 57,064,744 — 100%; Projet Routier IV UAC 198,240,000 — Disb. 196,059,360 — 98.9% — 3/3/2021; and others through South Tunisian Gaz Pipeline - Tunisia UAC 52,663,723 — Disb. 52,663,723 — 100% — 8/19/2027.) ### EBRD — Country Strategy and Recent Activity (As of December 2020) - EBRD country strategy for Tunisia (2019–24) priorities: - Support Tunisia’s Competitiveness by Opening Markets, Strengthening Governance, and Levelling the Playing Field; - Promote Economic Inclusion for Women, Young People and Populations Living in Remote Areas Through Private Sector Engagement; - Strengthen Resilience of the Financial Sector and Broaden Access to Finance; and - Supporting Tunisia’s Green Economy Transition. - Recent lending activity: In 2020, the EBRD approved Euro 225 million—second highest yearly investment since the beginning of its operations—across eight projects (seven private, one public). - EBRD operations support three key areas: - Restructuring and strengthening of the financial sector: - In 2020, EBRD provided three MSME credit lines and trade finance facilities for a total of Euro 15 million. - Supporting Central Bank of Tunisia in implementation of IFRS by banks and leasing companies. - Engaged in dialogue with the Central Bank of Tunisia (with IMF coordination) to explore modernization of monetary policy framework and easing of foreign exchange controls. - Technical cooperation to modernize domestic capital market infrastructures and improve clearing and settlement systems operated by Tunisia Clearing. - Development of the corporate and SME sector: - Euro 11 million senior loan to an agribusiness company for expansion and new plant in Morocco. - Support to the Tunisian Automotive Association (TAA) on value chain strengthening. - Assistance with UNWTO to support tourism sector recovery post Covid. - Supported over 190 SMEs through business advisory and trained 104 women entrepreneurs. - EBRD’s Advice for Small Business (ASB) package as Covid response; more than 67 percent of technical assistance projects carried out outside Tunis. - Infrastructure and energy: - Advisory on legal framework for small- and large-scale renewable energy programs. - In 2020, EBRD provided a EUR 300m stabilization and restructuring facility to power utility STEG for liquidity support and debt refinancing; objectives include reform and restructuring of STEG and Tunisian energy sector, corporate reform roadmap, and inclusion of women and youth into the energy sector job market. - Continued investment projects in water sanitation, railway and urban transport sectors. ### EBRD — Active Portfolio Indicators - Portfolio: Eur 666 million - Number of active portfolio projects: 41 - Private sector (share of portfolio, 5-year rolling average): 48 percent - Debt share of portfolio: 91 percent - Equity share of portfolio: 9 percent - Financial institutions (share of portfolio): Eur 193 million (29 percent) - Industry, commerce, agribusiness (share of portfolio): Eur 120 million (18 percent) - Energy (share of portfolio): Eur 53 million (8 percent) - Infrastructure (share of portfolio): Eur 300 million (45 percent) ### Statistical Issues — Assessment (As of January 2021) - General: Data provision is broadly adequate for surveillance and should be further strengthened. - National Accounts: - NSI publishes annual and quarterly GDP by production in current and constant (2010) prices according to SNA 1993. - METAC provided TA to develop financial accounts and balance sheet statistics by institutional sector. - Quarterly employment and unemployment data are disseminated with a lag of three months. - Tunisia utilizes a periodicity and timeliness flexibility option for the labor market data category under the SDDS. - Price Statistics: - NSI compiles monthly CPI (2015 = 100) based on the household budget and consumption survey for 2015/2016 covering urban areas of 24 governorates and 22 rural areas. - Monthly PPI (2010=100) compiled for Mining, Manufacturing, and Electricity industries. - Government Finance Statistics: - Tunisia produces annual and quarterly central government data applying GFSM1986. - Data coverage should be improved by moving gradually to a general government concept, notably through inclusion of social security. - Timeliness and update to GFSM2014 remain priorities. Financial statements of SOEs should be consolidated. - Monetary Statistics: - CBT migrated to SRFs for MFS in 2018. Monthly MFS covering central bank and other depository corporations have been reported to IMF STA for publication in IFS since then. - Tunisia reports several FAS indicators including commercial bank branches per 100,000 adults and ATMs per 100,000 adults adopted by the UN to monitor Target 8.10 of the SDGs. - Balance of Payments: - ESS compiled under BPM5. CBT working on transition to BPM6; 2020 IMF/STA ESS TA mission reviewed strategic plan as adequate except for direct investment recording requiring recalibration. - Quarterly BOP statistics published by CBT are not detailed enough regarding the financial account and are not reported to the IMF for publication. - Financial Indicators: - With TA from STA, CBT is developing FSIs for deposit-takers. Regular reporting of FSIs to STA for publication is expected to begin in 2022. - Tunisia is a subscriber to the Special Data Dissemination Standard (SDDS) since June 20, 2001. ### Statement by Executive Director’s Delegation (February 17, 2021) - Key political and social context: - Ten years after the Tunisian revolution: progress in democratic transition, constitution, institutions, and multiple peaceful elections despite political polarization and terrorism. - Achievements fell short of social justice and prosperity for all; 2015 terrorist attacks impacted tourism; political fragmentation and fragile social conditions complicated reform implementation; regional geopolitical turmoil reduced jobs and export revenues. - COVID-19 impact and developments since RFI disbursement in April 2021: - Government formed five months after October 2019 elections faced Covid-19; initial lockdown and border closure between March 22 and May 3, 2020 helped contain spread. - 20 percent contraction in GDP in the second quarter of 2020. - Emergency assistance from the Fund in April 2020 and support from partners acknowledged. - Borders gradually reopened in late June 2020; virus spread again through summer. - Government resigned in July 2020; new government formed in September 2020. - Priority: make vaccine available and vaccinate 60 percent of the population at no cost. - Tunisia signed agreements under COVAX, African Union, and with a private laboratory for a total of 8.4 million doses while continuing negotiations for 1 million additional vaccines from Russia. - Expected to receive two first batches totaling 600,000 vaccines by the end of February. - Agreement in principle with the United Kingdom to manufacture the UK vaccine in Tunisian laboratories for export to African countries. - Fiscal policy: - Emergency measures amounted to nearly 4.3 percent of GDP. - 2020 fiscal deficit stood at 10.4 percent of GDP, compared to initial estimate of 11.7 percent. - Wage bill in 2020: 17.3 percent of GDP compared to 17.6 percent initially projected. - The wage increase granted in August represents only 0.3 percent of GDP. - Authorities estimate potential recruitments’ impact on wage bill in 2021 would be 0.2 percent of GDP, bringing wage bill to 16.8 percent compared with 17.5 percent in the baseline scenario. - Authorities share urgency of achieving fiscal sustainability and aim for primary surpluses to stabilize public debt; measures and pace need agreement with political and economic partners and careful implementation given fragile socio-political environment. - Monetary policy, exchange rate, and banking supervision: - Monetary policy since 2018 helped curb inflation. CBT cut policy rate twice by 100 and 50 bps in March and October 2020, respectively. - CBT appreciated Fund TA on inflation targeting and is working toward a transition to an inflation targeting framework over the medium term. - CBT limited interventions in exchange market for price discovery; proactive policy contributed to end sharp depreciation of the dinar. - Official reserves are at a very comfortable level, strengthened by strong remittances and significant reduction of the current account deficit. - CBT monitoring effects of crisis and debt moratoria on banks; reforms over last decade strengthened resilience. - CBT measures: suspended dividend payments by banks (March 2020), asked banks to strengthen collective provisioning, conducted stress test in second half of 2020 which revealed no systemic vulnerability under extreme scenario provided adequate risk coverage and prudent dividend policy. Stress test approach will be part of annual monitoring. - Structural reform agenda: - Authorities committed to controlling subsidies and a new approach to the public service and the wage bill. - Supported by EU, Tunisia intends to launch a national consultation to reform civil service law and submit a draft law to Parliament before the end of 2021. - Move to targeted transfers: plan to complete setting up a national digital registry of needy families to enable a well-targeted cash transfer system and reform subsidies. - SOEs: authorities intend to place all SOEs under a state agency to allow greater oversight and accountability; seek to professionalize SOE Executive Boards; plan to resolve cross-arrears and consider all options for restructuring SOEs and restoring profitability. - Competition and anti-corruption: - Authorities plan to review competitive legislative and regulatory framework and remove obstacles to entrepreneurship; project to identify pro-competitive reforms with EU and OECD support. - Fight against corruption is a priority; measures include greater digitization, reducing administrative intervention, and adopting good governance in public entities. - On Covid-19 expenditure: a governance commission for the Covid-19 fund created within the Ministry of Health; commission chaired by the Minister of Health; a detailed report will be published at the end of the program. Cour des Comptes plans to audit the Covid-19 fund. *Source: 1tunea2021001 - 2017. Covering 2017–21, it builds on lessons learned from interim CSPs since 2011 and aligns with (IMF PDF content provided).* ### Conclusion ### Conclusion ### Economic and social context - Tunisia’s political and social transition is being carried out under difficult economic and financial conditions. - The Corona virus has compounded the already fragile economic situation, with serious human and social consequences. - The government is implementing wide-ranging measures to alleviate economic pressures and to protect lives and livelihood. ### Policy priorities - Reforms to restore fiscal and debt sustainability are important and high on the government's agenda; but the authorities are keen that the reforms are realistic and carried out without causing additional social disruption. - Implementing well calibrated policies while ensuring the political acceptance and appropriate prioritization are essential. - Equally essential are policies aimed at enhancing growth, unleashing the country's potential, and giving the Tunisian people hope for a better future. ### Implementation considerations - The authorities are keen that the reforms are realistic and carried out without causing additional social disruption. - Implementing well calibrated policies while ensuring the political acceptance and appropriate prioritization are essential. ### International engagement - Our authorities will warmly welcome all constructive exchanges with their partners on these challenging issues. *Source: Conclusion (1tunea2021001 - Conclusion)* --- _Source: https://www.imf.org/-/media/files/publications/cr/2021/english/1tunea2021001.pdf_