## _cr06207

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### Executive summary: macro outlook and policy priorities
- Real GDP growth averaged 5 percent over the past decade; Real GDP growth in 2005 was 4¼ percent.
- Growth is expected to accelerate to about 5¾ percent in 2006 (return to normal agricultural production; continued strength in services and industrial production).
- External current account deficit narrowed to about 1.3 percent of GDP in 2005 (from 2 percent in 2004); projected to remain broadly unchanged in 2006.
- International reserves cover more than 3¾ months of imports of goods and services in 2005.
- Central government deficit widened in 2005 (impact of high oil prices on subsidies) but expected to return to 3 percent of GDP in 2006.
- Authorities’ medium-term objective: bring public debt below 50 percent of GDP from 60 percent currently.
- Priority reforms: banking sector cleanup (address long-standing NPLs), strengthen credit policies, implement broad money targeting framework, deepen money and exchange markets, advance capital account liberalization and move toward a floating exchange rate.

### Key vulnerabilities and structural challenges
- External debt about 68 percent of GDP in 2005; government accounted for two-thirds of total public debt.
- Banking sector weaknesses:
  - Nonperforming loans (NPLs) about 21 percent of total loans.
  - Provisioning about 47 percent of NPLs (46½–47 percent reported in 2005).
  - Public banks show higher NPLs and lower provisioning relative to private banks.
- Unemployment remains high at 14 percent; university graduates increasingly affected.
- To bridge per-capita income gap with emerging market OECD countries would require a growth differential of 2–4 percentage points in favor of Tunisia; at least 1–1½ percentage points higher than recent past growth.

### Short-term macroeconomic policy stance and risks
- Current macroeconomic stance remains appropriate; inflation subdued.
- Broad money grew 10¾ percent in 2005; BCT sterilized part of excess liquidity and withdrew about 1 percent of broad money through open market operations in H2 2005.
- REER depreciated by 4½ percent on average in 2005; no obvious exchange rate misalignment found.
- If external inflows persist, policy package should include:
  - a more ambitious fiscal consolidation plan,
  - additional external debt repayments,
  - accelerated trade liberalization,
  - increased exchange rate flexibility.
- Partial privatization of Tunisie Télécom in 2006 valued at $2.3 billion (7½ percent of GDP); provides opportunity to reduce external debt.
- International reserves expected to increase, particularly if privatization proceeds and private inflows materialize.

### Banking sector stability, FSAP findings, and reform priorities
- 2005 developments:
  - NPL share declined by 2¾ percentage points to about 21 percent.
  - Provisioning increased by ¾ percentage points to 46½ percent (stricter BCT implementation).
- 2006 FSAP update stress tests:
  - Cost of ensuring sufficient capitalization in public banks estimated at around 2 percent of GDP under the most severe scenario.
- FSAP NPL-related recommendations:
  - Require 70 percent provisioning for all NPLs, regardless of collateral.
  - Reduce NPL ratio to 10 percent by 2009 via proactive restructuring and partial write-offs, with anti–moral hazard safeguards.
  - Develop sector-specific NPL restructuring strategy for tourism.
  - Reduce judicial delays and expand out-of-court settlements.
  - Allow full tax deductibility for partial write-offs.
  - Strengthen public commercial bank management; consider privatization and mergers of former development banks.
  - Promote private credit bureaus.
- Authorities’ targets and stance:
  - Plan to bring provisioning ratio up to 70 percent.
  - Target NPL ratio of 15 percent in 2009 and 12 percent in 2011.
  - Reluctant to recapitalize public banks; favor stronger collection and restructuring measures.

### External capital account liberalization and monetary framework
- 2005 liberalization steps:
  - Greater nonresident participation in local T-bill market.
  - Full liberalization of borrowing abroad for rated financial institutions; eased restrictions for rated nonfinancial institutions.
  - Abolished authorizations on most foreign acquisitions of securities carrying voting rights.
- Preconditions for further liberalization: modernized/strengthened financial sector, adoption of a floating exchange rate, and a new monetary policy framework firmly in place.
- Monetary policy developments:
  - BCT progressing toward broad money targeting with base money as operating target (intermediate step toward inflation targeting).
  - New draft Central Bank law defines price stability as BCT’s key objective.
  - Surrender requirements on foreign exchange receipts eliminated in 2005.
  - Main obstacles to FX market development: nivellement (requirement that banks transfer end-of-day FX balances to BCT) and BCT quoting daily exchange rates; authorities preparing to eliminate the nivellement and consider ex post quoting.

### Fiscal policy, expenditure reforms, and privatization
- 2005 fiscal developments:
  - Retail petroleum prices raised cumulatively by 15 percent.
  - Tax revenue collection rose by ½ percentage point of GDP despite decline in trade taxes.
  - Central government deficit (excluding grants and privatization) widened to 3.2 percent of GDP.
  - Public debt-to-GDP ratio declined by about ¾ percentage points to 59 percent.
- 2006 budget law:
  - Assumes oil price of $60 per barrel.
  - Implies a ½ percentage point of GDP increase in the deficit; authorities considered a deficit below 3 percent of GDP feasible.
  - Financing intention: keep domestic bonds as principal source despite substantial privatization revenues to avoid complicating monetary management.
- Expenditure-side reforms:
  - Phase out petroleum consumption subsidies and fully liberalize retail prices over coming years.
  - Comprehensive energy strategy and mandatory energy audit in industry to mitigate impact on households and firms.
  - Wage bill equals 12 percent of GDP; scope for medium-term reduction limited given large share for health and education and need to hire more qualified personnel.
- Recommendation: devote a substantial part of privatization proceeds to repay external debt to facilitate monetary management and reduce vulnerabilities.

### Medium-term macro framework and projections (2006–11)
- Projected averages and targets (2006–11):
  - Average annual real GDP growth: 6 ¼ percent.
  - Private investment: increase of about 1 percentage points of GDP over the medium term.
  - Total factor productivity: ½ percentage point increase in average annual growth compared to past five years.
  - External current account deficit: projected to narrow slightly from 1.3 percent of GDP.
  - Real non-oil export growth: about 4½ percent annually.
  - Net external borrowing: assumed to decline sharply in 2006 and resume previous trend thereafter.
  - External debt and reserves:
    - Total external debt-to-GDP: decline from 68 percent in 2005 to 50 percent in 2011 (assuming some privatization receipts used to reduce external debt).
    - Official reserves: increase from 3¾ months of imports in 2005 to over 5½ months in 2011.
  - Fiscal trajectory:
    - Central government deficit: fall from 3.2 percent of GDP in 2005 to 1.8 percent in 2011 (excluding grants and privatization receipts).
    - Consolidated government debt: fall from 59 percent of GDP at end-2005 to 45 percent at end-2011.
- Main risks: expiration of the ATC, absence of recovery in Europe, sustained high oil prices, shocks to tourism; success depends critically on accelerated structural reforms and strengthened macroeconomic policies.

### Selected quantitative projections and indicators (selected entries from Tables)
- Real GDP (percent change): 2005: 4.2; 2006: 5.8; 2007: 6.0; 2008: 5.2; 2009: 6.4; 2010: 6.5; 2011: 6.5.
- CPI, average: 2005: 2.0; 2006: 3.0; 2007–2011: 2.0 (annually).
- Current account, excl. grants (percent of GDP): 2005: -1.3; 2006: -1.4; 2007: -1.2; 2011: -1.3.
- Total government debt (percent of GDP): 2005: 59.0; 2006: 56.1; 2007: 53.9; 2011: 44.9.
- External debt (percent of GDP): 2005: 67.9; 2006: 64.3; 2007: 61.0; 2011: 49.5.
- Gross official reserves (US$ billions, e.o.p): 2005: 4.4; 2006: 6.5; 2007: 6.9; 2011: 9.2.
- Reserves, months of imports of goods & services: 2005: 3.7; 2006: 5.1; 2011: 5.6.
- Unemployment rate (percent): 2005: 14.3; 2006: 13.9; 2011: 10.8.
- Banking sector: NPLs ≈ 21 percent of gross loans; provisioning ≈ 46½–47 percent.

### Impact of privatization proceeds (staff representative statement)
- Authorities intended to use two-thirds of Tunisie Télécom proceeds ($2.3 billion) to retire external debt.
- Revised projections (proceeds used to reduce external debt):
  - Total external debt (percent of GDP): 2005: 67.9; 2006: 64.1; 2007: 58.4; 2011: 47.5.
  - Total public debt (percent of GDP): 2005: 59.0; 2006: 55.8; 2007: 51.3; 2011: 42.9.
  - Gross official reserves (US$ billions, e.o.p): 2005: 4.4; 2006: 6.4; 2007: 6.1; 2011: 8.4.
  - Reserves in months of imports of GNFS: 2005: 3.7; 2006: 5.0; 2007: 4.6; 2011: 5.1.
- Staff noted no appreciable effect on central government deficit or external current account; lower interest payments on public external debt broadly offset by lower earnings on reserves.

### Structural reform priorities and policy recommendations
- Financial sector: clean up existing NPLs, strengthen provisioning and credit culture, enforce provisioning rules and sanctions, strengthen supervision, improve governance in public banks, consider privatization/mergers, promote private credit bureaus.
- Fiscal policy: continue fiscal consolidation; reduce the weight of the wage bill over the medium term; implement tax policy and administration reforms (simplify tax legislation, limit exemptions, modernize administration, expand CIT base while lowering rate, simplify VAT, eliminate limits on VAT reimbursements).
- Trade and business climate: accelerate multilateral tariff reduction, streamline customs procedures (computerization, selectivity, administrative simplification), deepen regional integration.
- Labor market: increase labor market flexibility (hiring and firing rules) to raise employment content of growth and absorb skilled labor supply.
- Monetary and exchange rate policy: implement broad money targeting, deepen money and FX markets, eliminate nivellement, allow greater two-way exchange rate flexibility, remove restrictions on forward operations and FX options to develop hedging instruments.
- Data and transparency: continue improving data dissemination and adopt statistical best practices (ROSC follow-up; SDDS compliance).

### Staff appraisal and Executive Board views
- IMF staff and Executive Directors commended Tunisia’s strong performance (robust growth, subdued inflation, rising reserves) and stressed the need to:
  - Accelerate macroeconomic and structural reforms to achieve lower-tier OECD income levels and reduced unemployment.
  - Strengthen the financial sector and deal decisively with the stock of NPLs.
  - Complement sterilization with fiscal tightening, trade liberalization, and increased exchange rate flexibility if inflows persist.
  - Support phased capital account liberalization conditional on financial sector strengthening and market deepening.
  - Use most proceeds from Tunisie Télécom privatization to retire external debt.
  - Improve labor market flexibility and the business climate.

*Source: IMF staff report excerpts from _cr06207 (Executive Summary; Sections 7, 21, 39; Appendices I–III).*

### Executive Summary ......................................................................................................

### _cr06207 - Executive Summary

### Executive summary: macro outlook and policy priorities
- Real GDP growth remained relatively strong in 2005; growth averaged 5 percent over the past decade.
- Real GDP growth in 2005 was 4¼ percent.
- Growth is expected to accelerate to about 5¾ percent in 2006, with the return to normal agricultural production levels and continued strength in services and industrial production.
- The external current account deficit narrowed to about 1.3 percent of GDP in 2005 (from 2 percent the year before).
- The external current account balance is projected to remain broadly unchanged in 2006.
- International reserves continued to increase and cover more than 3¾ months of imports of goods and services.
- The fiscal deficit widened somewhat in 2005 (impact of high oil prices on subsidies) but is expected to return to 3 percent of GDP in 2006.
- The authorities’ medium-term objective is to bring public debt below 50 percent of GDP, from 60 percent currently.
- Tunisia is gradually opening up the external capital account and moving to a floating exchange rate; further progress requires banking sector reform, debt reduction, full implementation of the new broad money targeting framework, and deeper money and exchange markets.
- Tackling financial sector weaknesses is the most pressing reform priority; policy focus is to clean up the existing stock of long-standing NPLs and promote sound credit policies going forward.

### Key vulnerabilities and structural challenges
- External debt was about 68 percent of GDP in 2005; significant foreign borrowing by the government (two-thirds of total public debt) contributed to this ratio.
- Banking sector weaknesses:
  - Nonperforming loans (NPLs) remain high (about 21 percent of total loans).
  - Provisioning is low (47 percent of NPLs).
  - Public banks display higher NPLs and lower provisioning relative to private banks (text provides detailed bank-level indicators).
- The combination of high external debt and banking vulnerabilities constrains capital account liberalization and exchange rate flexibility.
- Unemployment remains high at 14 percent and increasingly affects university graduates.
- Bridging the per-capita income gap with emerging market OECD countries would require a growth differential of 2-4 percentage points in favor of Tunisia; at least 1-1½ percentage points higher than recent past growth.

### Short-term macroeconomic policy discussion and projections
- The current macroeconomic stance remains appropriate and inflation subdued.
- Increased financial inflows present a challenge for monetary policy; if inflows persist, essential accompanying measures include:
  - a more ambitious fiscal consolidation plan,
  - additional external debt repayments,
  - accelerated trade liberalization,
  - increased exchange rate flexibility.
- The external debt-to-GDP ratio should decline considerably in 2006, given projected strong growth and assuming part of expected privatization receipts are used to reduce external debt.
- The partial privatization of Tunisie Télécom in 2006 is valued at $2.3 billion, or 7½ percent of GDP, and provides a unique opportunity to reduce external debt.
- International reserves accumulation will likely accelerate due to privatization proceeds and continued strong private inflows.

### Bank sector stability and reform priorities
- Banking sector indicators improved significantly in 2005, but vulnerabilities remain:
  - Gross nonperforming loans were around 21 percent of gross loans in the period summarized.
  - Provisions averaged about 47 percent of nonperforming loans.
  - Capital adequacy ratios and profitability measures show divergence between public and private banks (detailed figures in the text).
- The 2006 FSAP update and prior FSAP work identify main NPL-related recommendations and estimate recapitalization costs under severe scenarios:
  - Stress tests from the 2006 FSAP update estimate the cost of ensuring sufficient capitalization in public banks at around 2 percent of GDP under the most severe scenario described.
- Reform steps identified include cleaning up existing NPLs, strengthening provisioning and credit culture, and implementing banking sector reform measures set out in the FSAP update.

### Medium-term strategy to accelerate growth and reduce vulnerabilities (overview)
- The authorities’ medium-term reform strategy focuses on:
  - Gradual move toward a floating exchange rate regime.
  - Establishing a new framework for macroeconomic policies (including broad money targeting).
  - Banking sector reform (FSAP update).
  - Fiscal consolidation through tax policy and administration reform (following FAD technical assistance in 2005).
  - Money and exchange market development.
  - Trade liberalization and promotion of regional integration (multilateral tariff reduction; streamlining customs procedures).
  - Improving the business climate and labor market flexibility (e.g., relaxing firing restrictions).
- Continued fiscal consolidation over the medium term is crucial to strengthen Tunisia’s external position and reduce public and external debt ratios.

### Selected social and distributional indicators referenced
- Poverty indicators (World Bank, latest available at time of report): incidence of extreme poverty fell to 4 percent of the population between 1995 and 2000; share of economically vulnerable fell from 9 to 6 percent over same period (noting these are likely to have improved further more recently).
- Real GDP per capita (PPP) remains below peers such as Mexico and Poland (figure referenced in text).

* _cr06207 - Executive Summary_

### 7.      Increased external inflows present a challenge to monetary and exchange rate

### _cr06207 - 7.      Increased external inflows present a challenge to monetary and exchange rate

### External inflows, liquidity management, and exchange rate
- The BCT has sterilized part of excess liquidity generated by external inflows; broad money grew 10¾ percent in 2005.  
- The BCT withdrew the equivalent of about 1 percent of broad money through open market operations in the second half of 2005.  
- Real effective exchange rate (REER) continued to depreciate in 2005, by 4½ percent on average.  
- No obvious signs of exchange rate misalignment were found (see Box 3); econometric analysis suggesting undervaluation is not statistically significant.  
- Policy implications if inflows persist:
  - Continue and possibly step up sterilization efforts.
  - Accompany monetary policy with a more ambitious fiscal consolidation plan.
  - Undertake additional external debt repayments.
  - Accelerate trade liberalization.
  - Provide more scope for market forces to determine the exchange rate and allow increased flexibility in both directions.
- The BCT will closely monitor developments in the exchange rate area.

### Fiscal position and privatization proceeds
- In 2005:
  - Authorities raised retail petroleum prices by a cumulative 15 percent to limit subsidy impact.
  - Tax revenue collection increased by ½ percentage point of GDP, despite a secular decline in trade taxes.
  - Wage increases and net new hiring produced a slight increase in the wage bill relative to GDP.
  - Central government deficit widened to 3.2 percent of GDP (excluding grants and privatization receipts).
  - Public debt-to-GDP ratio declined by about ¾ percentage points to 59 percent.
- 2006 budget law:
  - Assumes oil price of $60 per barrel.
  - Implies a ½ percentage point of GDP increase in the deficit.
  - Authorities considered a deficit below 3 percent of GDP feasible given conservative revenue projections in the 2006 budget law.
  - Financing intention: keep domestic bonds as the principal source despite substantial privatization revenues, to avoid complicating monetary management.
- Partial privatization of Tunisie Télécom in 2006:
  - Operation valued at $2.3 billion (7½ percent of GDP).
  - Winning bid was 3.05 billion dinars (presented in March 2006); macro framework assumes full payment in 2006, with all funds raised abroad.
  - Authorities discussed using proceeds to reduce external debt but noted limited scope for pre-payment without penalties or high refinancing costs.
  - Trade-off highlighted between reducing external debt and increasing reserves.

### Banking sector performance and NPLs
- Banking sector indicators improved in 2005:
  - NPL share in total loans declined by 2¾ percentage points, to about 21 percent.
  - Provisioning increased by ¾ percentage points, to 46½ percent, partly due to stricter implementation of provisioning rules by the BCT.
- Authorities expect ongoing efforts on collection and provisioning to yield significant results in 2006 given the favorable outlook.

### Medium-term macroeconomic framework and projections (Box 4)
- Projected averages and targets for 2006–11:
  - Average annual real GDP growth: 6 ¼ percent.
  - Private investment: increase of about 1 percentage points of GDP over the medium term.
  - Total factor productivity: ½ percentage point increase in average annual growth compared to the past five years.
  - External current account deficit: projected to narrow slightly from the current 1.3 percent of GDP.
  - Real non-oil export growth: about 4½ percent annually; imports somewhat outpace exports as domestic demand picks up.
  - Net external borrowing: assumed to decline sharply in 2006 and resume previous trend thereafter.
  - External debt and reserves:
    - Total external debt-to-GDP ratio: decline from 68 percent in 2005 to 50 percent in 2011 (assuming some privatization receipts used to reduce external debt).
    - Official reserves: increase from 3¾ months of imports of goods and non-factor services in 2005 to over 5½ months in 2011.
  - Fiscal trajectory:
    - Central government deficit: fall from 3.2 percent of GDP in 2005 to 1.8 percent in 2011 (excluding grants and privatization receipts).
    - Consolidated government debt: fall from 59 percent of GDP at end-2005 to 45 percent at end-2011.
- Main risks to the scenario:
  - Delayed impact of expiration of the ATC as temporary countervailing measures disappear.
  - Absence of a recovery in Europe.
  - Negative effects of sustained high oil prices on domestic demand.
  - New shocks to the tourism sector.
  - Success hinges critically on accelerated structural reforms and strengthened macroeconomic policies.

### Financial sector reform priorities and FSAP recommendations
- Authorities’ reform priorities: (a) financial sector reform; (b) strengthening macroeconomic policies; (c) improving business climate and labor market flexibility.
- Recent measures adopted:
  - Ban on dividend distributions for banks with insufficient provisioning.
  - Provisioning made fully tax deductible in 2005.
  - Streamlining of legal procedures to realize collateral through court-ordered sales.
  - New law on financial security (2005) to improve transparency, audit requirements, and reporting.
  - Draft banking law amendments to expand Board authority and require executive credit committees.
  - Sale of government’s remaining shares in Banque du Sud finalized.
  - FSAP update Basle Core Principle assessment noted significant improvements since 2002, but customer due diligence, supervision, and suspicious transaction reporting require strengthening.
- Main NPL-related recommendations of the 2006 FSAP Update (Box 5):
  - Require 70 percent provisioning for all NPLs, regardless of existing collateral.
  - Reduce by 2009 the NPL ratio to 10 percent through proactive loan restructuring, including partial write-offs, accompanied by measures to avoid moral hazard.
  - Develop a strategy for restructuring NPLs to the tourism sector based on realistic assessment of borrowers’ repayment capacity.
  - Reduce delays in judicial proceedings and increase reliance on out-of-court settlements.
  - Allow full tax deductibility for partial write-offs.
  - Strengthen management of public commercial banks and consider privatization and mergers of former development banks.
  - Promote establishment of private credit bureaus.
- Staff suggestions to accelerate NPL resolution:
  - Strengthen public bank management for better governance and commercial operation.
  - Ensure strict application of provisioning rules and sanctions.
  - Take stronger measures on existing stock of NPLs through write-offs and credit restructuring; adopt explicit NPL targets.
  - Encourage out-of-court settlements to limit judicial delays.
- Authorities’ stance:
  - Note key recommendations from 2002 FSAP have been implemented and seek time to assess impact.
  - Plan to bring provisioning ratio up to 70 percent.
  - Target NPL ratio of 15 percent in 2009 and 12 percent in 2011.
  - Reluctant to recapitalize public banks due to moral hazard concerns; emphasize enforcing collection of NPLs.

### External capital account liberalization and monetary framework
- Capital account liberalization steps in 2005:
  - Greater nonresident participation in local Treasury bill market.
  - Full liberalization of borrowing abroad for rated financial institutions; eased restrictions for rated nonfinancial institutions.
  - Abolished authorizations on most foreign acquisitions of securities carrying voting rights in Tunisian companies.
  - First of three phases in capital liberalization strategy close to completion, except for some remaining inward FDI restrictions.
- Preconditions for further liberalization (next phase):
  - Modernized and strengthened financial sector.
  - Adoption of a floating exchange rate regime.
  - New monetary policy framework firmly in place.
- Monetary and exchange rate policy developments:
  - BCT progressed toward broad money targeting with base money as the operating target (intermediate step toward inflation targeting); run in parallel with framework focused on private credit growth in line with nominal GDP growth.
  - New draft Central Bank law defines price stability as BCT’s key objective; inflation targeting objective gains significance.
  - Deeper money and exchange markets are required for a floating exchange rate supported by inflation targeting.
  - Treasury issuance:
    - Issuance of short-term Treasury bills resumed in March 2005 but was discontinued in October 2005.
    - Elimination of ceiling for BCT purchases of Treasury bills in new central bank law will facilitate monetary policy operations and secondary market development.
  - BCT reduced role as provider of liquidity; interbank market transaction volumes have increased significantly.
  - Surrender requirements on foreign exchange receipts were eliminated in 2005, aiding FX market deepening.
  - Main obstacles to FX market development identified:
    - Requirement that banks transfer end-of-day foreign exchange balances to the BCT (nivellement).
    - BCT’s practice of quoting daily exchange rates.
  - Authorities preparing to eliminate the nivellement and considering quoting exchange rates only ex post.
  - Staff emphasized allowing greater exchange and interest rate flexibility, and eliminating restrictions on forward operations and foreign exchange options to encourage hedging instrument development and transition to a floating exchange rate.

### Fiscal reform and tax administration
- Fiscal objectives:
  - Bring public debt below 50 percent of GDP in the medium term from 59 percent.
  - Fiscal consolidation aims to reduce external debt and enhance fiscal flexibility; assist monetary and exchange rate reform by cementing low inflation expectations.
- Tax reform plans and TA from FAD (2005):
  - Simplify tax legislation and limit tax exemptions.
  - Modernize tax administration (reorganization and increased computerization).
  - Expand corporate income tax base while reducing its rate.
  - Simplify VAT by reducing the number of rates.
  - Revise tax incentives, especially for off-shore activities.
  - Eliminate limits on reimbursements of VAT credits to reduce distortions and improve tax authority–private sector relations.
- Remaining issues:
  - VAT withholdings at source break the VAT chain and weaken self-assessment; authorities see some value in such measures to limit delinquencies and fraud despite efficiency costs.

*IMF staff report content unit: _cr06207 - 7. Increased external inflows present a challenge to monetary and exchange rate (excerpts).*

### 21.      On the expenditure side, key reforms are under way to limit the fiscal costs of

### _cr06207 - 21.      On the expenditure side, key reforms are under way to limit the fiscal costs of

### Expenditure reforms and fiscal outlook
- Authorities plan to phase out petroleum consumption subsidies and fully liberalize retail prices in the coming years.
- A comprehensive strategy for more efficient use of energy is being implemented to alleviate the impact of potentially higher retail prices on households and firms.
- Wage bill:
  - Wage bill is 12 percent of GDP.
  - Scope for reduction is limited over the medium term because:
    - (a) health and education personnel account for a large share of outlays and investment in human capital has been crucial for Tunisia’s economic performance; and
    - (b) efforts to upgrade the quality of the civil service necessitate hiring more qualified, higher paid, personnel.
- Fiscal consolidation:
  - Bringing the fiscal deficit below 3 percent of GDP appears within reach in 2006, particularly if the authorities continue gradually reducing subsidies on petroleum products.
  - Were fiscal pressures from high oil prices to ease, the authorities should seize the opportunity to further reduce the deficit.
- Recommendation:
  - Devote a substantial part of coming privatization proceeds to repay external debt to facilitate monetary management, reduce external-debt vulnerabilities, and strengthen the fiscal position.

### Business climate and labor market flexibility
- Business climate reforms to boost private investment and FDI:
  - Accelerate multilateral trade liberalization and continue customs reform to reduce firms’ cost of production.
  - Ongoing streamlining of customs procedures through computerization, selectivity in customs inspections, and simplification of administrative procedures are positive developments.
  - Plans to modernize the customs code and intensify simplification of administrative procedures for businesses are encouraged.
- Labor market flexibility:
  - Need to further enhance labor market flexibility to facilitate labor reallocation in response to structural changes.
  - Increased flexibility would encourage creation of skilled jobs, improve productivity, and reduce the impact of the expiration of the ATC on employment in the medium term.
  - Authorities have taken measures to enhance hiring flexibility (temporary jobs), but increasing hiring flexibility without relaxing complex dismissal rules could hamper creation of permanent jobs.
  - Recent staff analysis indicates the decline in unemployment over past years has coincided with less frictions in the labor market, although some of this gain has been offset by a decline in private investment relative to GDP.

### Regional cooperation, data, and standards
- Tunisia cooperates with neighboring countries to enhance economic integration in the Maghreb region; initiative began with a 2005 conference on trade facilitation among Algeria, Morocco and Tunisia.
- Data and statistical standards:
  - A mission for a new Report on the Observance of Standards and Codes (ROSC)—Data Module was conducted in 2005.
  - Tunisia has subscribed to the Special Data Dissemination Standard (SDDS) since 2001.
  - Tunisia is part of a pilot project on the transition to the Government Financial Statistics Manual 2001.

### Staff appraisal — macroeconomic performance and vulnerabilities
- Overall assessment:
  - Tunisia’s strong economic performance and resilience to adverse shocks reflect benefits of sustained sound macroeconomic policies and market-oriented reforms.
  - Tunisia has made strides toward approaching lower OECD per-capita income levels, but the gap remains substantial.
  - Two remaining vulnerabilities: a high level of external debt and banking sector weaknesses.
  - Strong macroeconomic conditions and a favorable outlook present a window of opportunity to advance the reform agenda and address vulnerabilities.
- Monetary and exchange rate policy:
  - Monetary and exchange rate policies have dealt effectively with increased external inflows; inflation has remained subdued and the dinar appears appropriately valued.
  - Potential intensification of inflows (privatization proceeds and increased market confidence) may require complementing sterilization by the BCT with fiscal tightening, accelerated trade liberalization, and increased exchange rate flexibility.
  - First phase of external capital account liberalization almost completed; further progress should await improved banking sector conditions and enhanced supervision.
- Banking sector:
  - Banking sector vulnerabilities drag on growth and hinder macroeconomic reform.
  - Authorities have implemented most key recommendations of the 2002 FSAP and sharpened strategy to reduce NPL burden in the context of the 2006 FSAP update.
  - Measures have yielded results: decline in the NPL ratio and increased provisioning in 2005.
  - Favorable economic outlook augurs well for further reduction in 2006, but efforts need to be stepped up to ensure substantial improvement in banks’ portfolios over the next three-year horizon.
- Monetary framework and central bank reform:
  - New broad-money targeting framework should deepen the money market by allowing more interest rate flexibility and improve monetary policy transmission, prerequisites for eventual inflation targeting.
  - The new central bank law will clarify monetary policy objective, strengthen central bank independence, and provide instruments for conducting monetary policy.
- Foreign exchange market development:
  - Progress in capital account liberalization and elimination of surrender requirements should deepen the foreign exchange market, needed to eventually float the dinar.
  - The nivellement constitutes a significant obstacle to market development and should be removed as soon as possible.
  - Greater two-way exchange rate flexibility would favor market deepening.
- Fiscal reform and taxation:
  - Determined implementation of tax reform plans is essential to improve tax buoyancy and the business climate by simplifying regulations and limiting discretion in relations with taxpayers.
  - Fiscal consolidation will also require curbing expenditure growth; the intention to phase out petroleum subsidies and fully liberalize their price is welcome.
  - Over the medium term, action will be needed to reduce the weight of the wage bill, a significant fiscal rigidity.
- Structural reforms and priorities:
  - Increased momentum in structural reforms is essential to create a business-friendly environment, raise productivity and private investment, and achieve a higher-growth path.
  - Priority areas: trade and labor market liberalization.
  - Tunisia has substantially opened up to foreign trade via the association agreement with the EU; multilateral and regional trade liberalization should complement bilateral efforts.
  - Authorities plan to streamline customs procedures; mission welcomes interest in Fund technical assistance.
- Labor market and unemployment:
  - Although declining, Tunisia’s unemployment rate remains unacceptably high, particularly among skilled segments of the labor force.
  - Need to increase the employment content of growth by continuing to liberalize the labor market; authorities should consider easing both hiring and firing restrictions.
- Transparency:
  - Staff commends authorities for continued commitment to transparency of economic policies.
  - Tunisia publishes concluding statements of Fund missions and routinely publishes staff reports of Article IV consultations and FSAPs.

*Source: IMF staff report content provided in the supplied PDF excerpt.*

### 39.      It is proposed that the next Article IV consultation take place on the standard

### _cr06207 - 39.      It is proposed that the next Article IV consultation take place on the standard

### Article IV consultation timing
- It is proposed that the next Article IV consultation take place on the standard 12 month cycle.

### Macroeconomic outlook and key projections (Table 1: Selected Economic and Financial Indicators, 2004–11)
- Nominal GDP: 2004: 8.8; 2005: 6.2; 2006: 8.4; 2007: 8.5; 2008: 8.5; 2009: 8.5; 2010: 8.7; 2011: 8.5
- Real GDP (percent change): 2004: 6.0; 2005: 4.2; 2006: 5.8; 2007: 6.0; 2008: 5.2; 2009: 6.4; 2010: 6.5; 2011: 6.5
- GDP deflator (percent change): 2004: 2.6; 2005: 1.9; 2006: 2.4; 2007: 2.4; 2008: 2.2; 2009: 2.0; 2010: 2.0; 2011: 1.9
- CPI, average: 2004: 3.6; 2005: 2.0; 2006: 3.0; 2007: 2.0; 2008: 2.0; 2009: 2.0; 2010: 2.0; 2011: 2.0
- Gross national savings (percent of GDP): 2004: 22.2; 2005: 22.7; 2006: 22.7; 2007: 23.0; 2008: 23.0; 2009: 23.4; 2010: 23.7; 2011: 23.7
- Gross investment (percent of GDP): 2004: 24.2; 2005: 23.9; 2006: 24.1; 2007: 24.2; 2008: 24.4; 2009: 24.5; 2010: 24.7; 2011: 25.1
- Trade balance (percent of GDP): 2004: -8.7; 2005: -6.8; 2006: -7.6; 2007: -7.1; 2008: -6.6; 2009: -6.4; 2010: -6.2; 2011: -6.2
- Current account, excl. grants (percent of GDP): 2004: -2.0; 2005: -1.3; 2006: -1.4; 2007: -1.2; 2008: -1.1; 2009: -1.1; 2010: -1.1; 2011: -1.3
- Total government debt (foreign and domestic, percent of GDP): 2004: 59.7; 2005: 59.0; 2006: 56.1; 2007: 53.9; 2008: 51.8; 2009: 49.4; 2010: 47.1; 2011: 44.9
- Foreign currency public debt (percent of total debt): 2004: 63.2; 2005: 63.9; 2006: 60.5; 2007: 58.4; 2008: 57.9; 2009: 56.7; 2010: 55.1; 2011: 53.6
- Gross official reserves (US$ billions, e.o.p): 2004: 4.0; 2005: 4.4; 2006: 6.5; 2007: 6.9; 2008: 7.7; 2009: 8.3; 2010: 8.8; 2011: 9.2
- Reserves in months of imports of goods & services, c.i.f.: 2004: 3.5; 2005: 3.7; 2006: 5.1; 2007: 5.2; 2008: 5.6; 2009: 5.7; 2010: 5.7; 2011: 5.6
- External debt (US$ billions): 2004: 19.8; 2005: 18.5; 2006: 18.7; 2007: 19.3; 2008: 20.2; 2009: 20.8; 2010: 21.2; 2011: 21.8
- External debt (percent of GDP): 2004: 67.8; 2005: 67.9; 2006: 64.3; 2007: 61.0; 2008: 58.6; 2009: 55.6; 2010: 52.4; 2011: 49.5
- Debt service ratio (percent of exports of GNFS): 2004: 16.2; 2005: 14.5; 2006: 17.9; 2007: 16.4; 2008: 14.5; 2009: 15.7; 2010: 15.9; 2011: 15.0
- GDP at current prices (TD millions): 2004: 35,035; 2005: 37,202; 2006: 40,322; 2007: 43,761; 2008: 47,495; 2009: 51,539; 2010: 56,007; 2011: 60,754
- GDP at current prices (US$ billions): 2004: 2.9; 2005: 2.7; 2006: 2.9; 2007: 3.1; 2008: 3.4; 2009: 3.4; 2010: 4.0; 2011: 4.4
- Unemployment rate (percent): 2004: 14.2; 2005: 14.3; 2006: 13.9; 2007: 13.4; 2008: 12.7; 2009: 12.1; 2010: 11.4; 2011: 10.8

### External sector specifics (Table 2: Balance of Payments, 2003–11)
- Current account (US$ millions): 2003: -730; 2004: -555; 2005: -360; 2006: -403; 2007: -375; 2008: -363; 2009: -411; 2010: -427; 2011: -593
- Trade balance (US$ millions): 2003: -2,270; 2004: -2,435; 2005: -1,963; 2006: -2,234; 2007: -2,254; 2008: -2,270; 2009: -2,398; 2010: -2,497; 2011: -2,751
- Exports (US$ millions): 2003: 8,027; 2004: 9,679; 2005: 10,489; 2006: 10,966; 2007: 11,508; 2008: 12,053; 2009: 12,672; 2010: 13,406; 2011: 14,195
  - Energy exports: 2003: 801; 2004: 924; 2005: 1,354; 2006: 1,602; 2007: 1,697; 2008: 1,741; 2009: 1,772; 2010: 1,803; 2011: 1,826
  - Non-energy exports: 2003: 7,226; 2004: 8,755; 2005: 9,135; 2006: 9,364; 2007: 9,811; 2008: 10,312; 2009: 10,900; 2010: 11,603; 2011: 12,369
- Imports (US$ millions): 2003: -10,297; 2004: -12,113; 2005: -12,452; 2006: -13,200; 2007: -13,762; 2008: -14,323; 2009: -15,069; 2010: -15,902; 2011: -16,946
  - Energy imports: 2003: -1,130; 2004: -1,331; 2005: -1,748; 2006: -2,027; 2007: -2,126; 2008: -2,160; 2009: -2,177; 2010: -2,194; 2011: -2,201
  - Non-energy imports: 2003: -9,166; 2004: -10,782; 2005: -10,704; 2006: -11,173; 2007: -11,636; 2008: -12,163; 2009: -12,892; 2010: -13,709; 2011: -14,745
- Services and transfers (net, US$ millions): 2003: 1,539; 2004: 1,880; 2005: 1,603; 2006: 1,831; 2007: 1,879; 2008: 1,907; 2009: 1,987; 2010: 2,070; 2011: 2,158
  - Tourism (US$ millions): 2003: 1,477; 2004: 1,839; 2005: 1,976; 2006: 2,048; 2007: 2,115; 2008: 2,206; 2009: 2,296; 2010: 2,395; 2011: 2,499
  - Workers' remittances (US$ millions): 2003: 1,250; 2004: 1,431; 2005: 1,404; 2006: 1,404; 2007: 1,459; 2008: 1,523; 2009: 1,588; 2010: 1,654; 2011: 1,721
- Capital and financial account (US$ millions): 2003: 1,115; 2004: 1,528; 2005: 1,305; 2006: 2,427; 2007: 774; 2008: 1,187; 2009: 1,003; 2010: 902; 2011: 1,005
  - Direct foreign investment (net, US$ millions): 2003: 553; 2004: 616; 2005: 679; 2006: 2,780; 2007: 597; 2008: 649; 2009: 705; 2010: 766; 2011: 831
- Overall balance (US$ millions): 2003: 385; 2004: 974; 2005: 945; 2006: 2,024; 2007: 399; 2008: 824; 2009: 592; 2010: 475; 2011: 412

### Fiscal outcomes and projections (Table 3: Central Government Financial Operations, 2004–11)
- Total revenue (dinars, millions): 2004: 8,379; 2005: 8,929; 2006: 9,396; 2007: 9,526; 2008: 10,225; 2009: 11,009; 2010: 11,905; 2011: 12,928
  - Tax revenue (dinars, millions): 2004: 7,253; 2005: 7,926; 2006: 8,282; 2007: 8,438; 2008: 9,119; 2009: 9,856; 2010: 10,705; 2011: 11,679
    - Direct taxes: 2004: 2,385; 2005: 2,886; 2006: 3,022; 2007: 3,023; 2008: 3,292; 2009: 3,585; 2010: 3,942; 2011: 4,311
    - VAT (total): 2004: 2,257; 2005: 2,301; 2006: 2,488; 2007: 2,534; 2008: 2,794; 2009: 3,062; 2010: 3,374; 2011: 3,753
- Total expenditure (dinars, millions): 2004: 9,411; 2005: 10,083; 2006: 10,783; 2007: 10,705; 2008: 11,397; 2009: 12,101; 2010: 12,893; 2011: 13,956
  - Current expenditure: 2004: 6,983; 2005: 7,688; 2006: 8,302; 2007: 8,277; 2008: 8,740; 2009: 9,194; 2010: 9,700; 2011: 10,471
    - Wages and salaries: 2004: 4,222; 2005: 4,559; 2006: 4,898; 2007: 4,898; 2008: 5,316; 2009: 5,770; 2010: 6,261; 2011: 6,804
    - Interest payments: 2004: 989; 2005: 1,062; 2006: 1,150; 2007: 1,150; 2008: 1,211; 2009: 1,285; 2010: 1,349; 2011: 1,411
  - Capital expenditure: 2004: 2,428; 2005: 2,395; 2006: 2,481; 2007: 2,428; 2008: 2,657; 2009: 2,908; 2010: 3,194; 2011: 3,485
- Central government balance, excl. grants and privatization (dinars, millions): 2004: -999; 2005: -1,180; 2006: -1,435; 2007: -1,226; 2008: -1,220; 2009: -1,140; 2010: -1,036; 2011: -1,076
- Central government deficit, incl. grants and privatization (dinars, millions): 2004: -801; 2005: -957; 2006: -1,191; 2007: 1,868; 2008: -991; 2009: -911; 2010: -807; 2011: -847
- General government debt (dinars, millions): 2004: 20,916; 2005: 21,949; 2006: 24,357; 2007: 22,605; 2008: 23,566; 2009: 24,579; 2010: 25,463; 2011: 26,380
- Nominal GDP (dinars, millions): 2004: 35,035; 2005: 37,202; 2006: 40,305; 2007: 40,322; 2008: 43,761; 2009: 47,495; 2010: 51,539; 2011: 56,007

### Monetary and financial developments (Table 4: Monetary Survey, 2001–06)
- Broad Money (M3, millions of dinars): 2001: 17,402; 2002: 18,301; 2003: 19,457; 2004: 21,467; 2005: 23,788; 2006: 26,268
- Money plus quasi-money (M2, millions of dinars): 2001: 16,052; 2002: 16,681; 2003: 17,859; 2004: 19,846; 2005: 22,085; 2006: 24,388
- Credit to the economy (millions of dinars): 2001: 19,637; 2002: 20,954; 2003: 21,911; 2004: 23,084; 2005: 24,805; 2006: 26,506
- Foreign assets (net, millions of dinars): 2001: 1,597; 2002: 1,909; 2003: 2,279; 2004: 3,126; 2005: 4,146; 2006: 7,010
- Velocity (GDP/M3): 2001: 1.65; 2002: 1.64; 2003: 1.66; 2004: 1.63; 2005: 1.56; 2006: 1.54

### Medium-term growth scenario (Table 5, 2003–11)
- Real GDP growth (percent): 2003: 5.6; 2004: 6.0; 2005: 4.2; 2006: 5.8; 2007: 6.0; 2008: 6.2; 2009: 6.4; 2010: 6.5; 2011: 6.5
- Unemployment rate (percent): 2003: 14.5; 2004: 14.2; 2005: 14.3; 2006: 13.9; 2007: 13.4; 2008: 12.7; 2009: 12.1; 2010: 11.4; 2011: 10.8
- Inflation (percent, GDP deflator): 2003: 2.8; 2004: 3.6; 2005: 2.0; 2006: 3.0; 2007: 2.0; 2008: 2.0; 2009: 2.0; 2010: 2.0; 2011: 2.0
- Gross national savings (percent of GDP): 2003: 22.2; 2004: 22.2; 2005: 22.7; 2006: 22.7; 2007: 23.0; 2008: 23.0; 2009: 23.4; 2010: 23.7; 2011: 23.7
- Gross investment (percent of GDP): 2003: 25.1; 2004: 24.2; 2005: 23.9; 2006: 24.1; 2007: 24.2; 2008: 24.4; 2009: 24.5; 2010: 24.7; 2011: 25.1
- Savings-investment gap (percent of GDP): 2003: -2.9; 2004: -2.0; 2005: -1.3; 2006: -1.4; 2007: -1.2; 2008: -1.1; 2009: -1.1; 2010: -1.1; 2011: -1.3

### External debt sustainability (Table 6 and Figure 7 highlights, 2001–11)
- Baseline external debt (percent of GDP): 2001: 65.8; 2002: 67.6; 2003: 67.2; 2004: 67.8; 2005: 67.9; 2006: 64.3; 2007: 61.0; 2008: 58.6; 2009: 55.6; 2010: 52.4; 2011: 49.5
- Change in external debt (percentage points): 2001: 6.7; 2002: 1.8; 2003: -0.4; 2004: 0.6; 2005: 0.1; 2006: -3.6; 2007: -3.3; 2008: -2.4; 2009: -3.0; 2010: -3.2; 2011: -2.9
- Gross external financing need (US$ billions): 2001: 3.3; 2002: 4.5; 2003: 4.9; 2004: 5.6; 2005: 5.5; 2006: 5.8; 2007: 5.9; 2008: 5.8; 2009: 6.3; 2010: 6.6; 2011: 7.0
- Gross external financing need (percent of GDP): 2001: 16.6; 2002: 20.0; 2003: 18.3; 2004: 19.2; 2005: 20.0; 2006: 19.8; 2007: 18.6; 2008: 16.9; 2009: 16.8; 2010: 16.4; 2011: 15.8
- External debt-to-exports ratio (percent): 2001: 136.0; 2002: 160.4; 2003: 165.2; 2004: 150.5; 2005: 131.5; 2006: 127.4; 2007: 125.3; 2008: 124.9; 2009: 122.5; 2010: 118.6; 2011: 115.0
- Key baseline assumptions underlying projections:
  - Real GDP growth (percent): 2001: 4.9; 2002: 1.7; 2003: 5.6; 2004: 6.0; 2005: 4.2; 2006: 5.8; 2007: 6.0; 2008: 6.2; 2009: 6.4; 2010: 6.5; 2011: 6.5
  - Nominal external interest rate (percent): 2001: 4.0; 2002: 3.8; 2003: 3.6; 2004: 3.5; 2005: 3.1; 2006: 3.6; 2007: 3.5; 2008: 3.5; 2009: 3.5; 2010: 3.5; 2011: 3.5
  - Growth of exports (US$ terms, percent): 2001: 10.7; 2002: -0.2; 2003: 14.7; 2004: 21.4; 2005: 7.0; 2006: 4.4; 2007: 4.8; 2008: 4.7; 2009: 5.1; 2010: 5.6; 2011: 5.8
  - Growth of imports (US$ terms, percent): 2001: 12.0; 2002: -0.2; 2003: 14.4; 2004: 18.4; 2005: 3.4; 2006: 5.9; 2007: 4.6; 2008: 4.5; 2009: 5.5; 2010: 5.8; 2011: 6.7
- Figure 7 bound tests: include interest rate shock, current account shock, combined shock, real depreciation shock; baseline and scenario averages shown in boxes.

### Public sector debt sustainability (Table 7 and Figure 8 highlights, 2001–11)
- Baseline public sector debt (percent of GDP): 2001: 62.7; 2002: 61.5; 2003: 60.4; 2004: 59.7; 2005: 59.0; 2006: 56.1; 2007: 53.9; 2008: 51.8; 2009: 49.4; 2010: 47.1; 2011: 44.9
  - Foreign-currency denominated share (percent of GDP): 2001: 39.2; 2002: 39.0; 2003: 38.9; 2004: 37.7; 2005: 37.7; 2006: 33.9; 2007: 31.4; 2008: 30.0; 2009: 28.0; 2010: 26.0; 2011: 24.1
- Change in public sector debt (percent of GDP): 2001: 1.9; 2002: -1.2; 2003: -1.1; 2004: -0.7; 2005: -0.7; 2006: -2.9; 2007: -2.2; 2008: -2.1; 2009: -2.3; 2010: -2.3; 2011: -2.2
- Gross financing need (percent of GDP): 2001: 5.8; 2002: 6.3; 2003: 5.8; 2004: 6.0; 2005: 5.7; 2006: 6.7; 2007: 5.6; 2008: 4.2; 2009: 4.3; 2010: 4.2; 2011: 3.9
- Public sector debt-to-revenue ratio (percent): 2001: 210.6; 2002: 202.7; 2003: 203.4; 2004: 199.2; 2005: 197.0; 2006: 188.6; 2007: 183.0; 2008: 177.1; 2009: 169.6; 2010: 161.9; 2011: 154.3
- Key fiscal assumptions underlying baseline:
  - Revenue and grants (percent of GDP): 2001: 29.8; 2002: 30.3; 2003: 29.7; 2004: 30.0; 2005: 29.9; 2006: 29.7; 2007: 29.4; 2008: 29.2; 2009: 29.1; 2010: 29.1; 2011: 29.1
  - Primary (noninterest) expenditure (percent of GDP): 2001: 29.4; 2002: 30.1; 2003: 30.0; 2004: 29.6; 2005: 30.1; 2006: 29.6; 2007: 29.2; 2008: 28.7; 2009: 28.3; 2010: 28.3; 2011: 28.3
  - Primary deficit (percent of GDP): 2001: -0.4; 2002: -0.3; 2003: 0.3; 2004: -0.3; 2005: 0.1; 2006: -0.1; 2007: -0.2; 2008: -0.5; 2009: -0.8; 2010: -0.8; 2011: -0.8
- Figure 8 bound tests: include growth shock, primary balance shock, interest rate shock, combined shock, real depreciation and contingent liabilities shocks; baseline and scenario averages shown in boxes.

### IMF relations and financial position (Appendix I)
- Membership: Joined: 04/14/1958; Article VIII
- Quota: 286.50 (SDR Million) = 100.0 percent
  - Fund Holdings of Currency: 266.28 (SDR Million) = 92.94 percent
  - Reserve position in Fund: 20.25 (SDR Million) = 7.07 percent
- SDR Department: Net cumulative allocation: 34.24 (SDR Million) = 100.0 percent; Holdings: 1.35 (SDR Million) = 3.93 percent
- Outstanding Purchases and Loans: None
- Financial Arrangements (historical):
  - EFF approved 07/25/1988 – expiration 07/24/1992: Amount Approved 207.30 (SDR Million); Amount Drawn 207.30 (SDR Million)
  - Stand-by approved 11/04/1986 – expiration 05/31/1988: Amount Approved 103.65 (SDR Million); Amount Drawn 91.00 (SDR Million)
- Projected obligations to Fund (SDR Million; based on existing use of resources and present holdings of SDRs):
  - Charges/Interest forthcoming: 2006: 0.85; 2007: 1.14; 2008: 1.14; 2009: 1.14; 2010: 1.14
  - Total forthcoming: 0.85; 1.14; 1.14; 1.14; 1.14

*Sources: Tunisian authorities and staff estimates and projections; IMF staff tables and Appendix I as presented in the source document.*

### APPENDIX I

### APPENDIX I

### Exchange Rate Arrangement and Exchange System
- Tunisia accepted the obligations of Article VIII Sections 2(a),3, and 4 effective January 6, 1993.
- Maintains an exchange system free of restrictions on the making of payments and transfers on current international transactions, except:
  - a multiple currency practice resulting from honoring exchange rate guarantees extended prior to August 1988 to development banks, which will automatically expire after the existing commitments have matured; and
  - certain restrictions relating to Iraq and the Federal Republic of Yugoslavia (Serbia and Montenegro), pursuant to UN Security Council Resolutions.
- These exceptions are subject to notification to the Fund in accordance with Decision 144 (52/51).
- Since March 1, 1994, market rates are determined in an interbank foreign exchange market.
- On April 20, 2006, the interbank rate of the dinar vis-à-vis the U.S. dollar was US$1=TD 1.3360, equivalent to SDR 1=TD 1.943.

### Article IV Consultation
- Tunisia is on the 12-month cycle.
- Last discussions of the Article IV consultation were held in Tunis from June 16 to July 1, 2004.
- The consultation was concluded by the Executive Board on October 27, 2004.

### Technical Assistance and Resident Representation
- Technical assistance missions (selected):
  - January 31–February 14, 1996: FAD—assessment of revenue impact of Association Agreement with EU.
  - March 31–April 4, 1997: STA—introduction of new methodological guidelines according to fifth edition of Balance of Payments Manual.
  - September 9–12, 1998: MAE—monetary management and development of the money market.
  - May 11–21, 1999: STA—quarterly national accounts.
  - May 13–18, 1999: STA—SDDS.
  - October 12–15, 1999: MAE—debt management practices.
  - October 17–27, 2000: STA—quarterly national accounts.
  - October 25–31, 2000: STA—SDDS meta data finalization.
  - December 17–21, 2001: MAE—management of central bank liquidity.
  - December 12–19, 2003: LEG—AML/CFT.
  - May 18–19, 2004: MFD—technical assistance needs assessment.
  - July 1-15, 2004: STA—Government Finance Statistics.
  - January 24-February 5, 2005: FAD—Tax Policy.
  - April 7-22, 2005: STA—ROSC, Data Module.
  - September 8-21, 2005: FAD—Tax Administration.
  - January 16-31, 2006: MFD—FSAP update (mission 1).
  - March 27-31, 2006: MFD—FSAP update (mission 2).
- Resident Representative: None

### APPENDIX II — TUNISIA: FINANCIAL RELATIONS WITH THE WORLD BANK (As of March 31, 2006)

### Portfolio Overview and Commitments
- The World Bank’s portfolio in Tunisia: 16 active operations and 117 closed loans.
- 10 International Development Agency (IDA) credits amounting to US$75.2 million net of cancellations.
- Cumulative net commitments represent US$5.1 billion.
- Of this total, US$3.4 billion has been repaid.
- Net commitments for the 16 current investment operations amount to about US$0.8 billion.

### Country Assistance Strategy (CAS) and Lending Focus
- New CAS approved by the Board on June 3, 2004; proposes assistance on three challenges:
  - (a) strengthen the business environment to support development of a more competitive, internationally integrated private sector and improve competitiveness of the Tunisian economy;
  - (b) enhance skills and employability of graduates and labor force in a knowledge economy;
  - (c) improve the quality of social services through enhanced efficiency of public expenditures.
- Bank lending mix: long-term investments in infrastructure and social sector financing, and development policy lending.

### Recent and Pipeline Operations
- Recent approvals:
  - Urban Water Supply project: $38.0 million, Board approved November 17, 2005.
  - Development policy loan – ECAL IV: $150.0 million, Board approved June 9, 2005.
  - GEF, Tunisia Africa Stockpile Programme: $4.0 million, approved September 8, 2005.
- Projects in preparation:
  - Second Higher Education Reform Support: $140.0 million, scheduled for Board consideration in June 2006.
  - Tunis West Sewerage: $60.0 million, scheduled for FY07 Board approval.
  - Sustainable Management of Municipal Waste: $20.0 million, scheduled for FY07 Board approval; includes a component on carbon emission reduction and assistance in accessing carbon finance under the Clean Development Mechanism of the Kyoto Protocol.

### Portfolio Performance and Analytical Work
- Portfolio quality is satisfactory but hampered by cumbersome procurement procedures and slow implementation pace, especially in the rural development portfolio.
- A Country Portfolio Performance Review (CPPR) was carried out in May 2005 focusing on procurement issues; an action plan is being implemented jointly by the Bank and counterpart teams.
- Recent analytical work includes studies on employment challenges, poverty trends, private participation in infrastructure, public debt management, and tourism.
- A Development Policy Review prepared in 2003 informed the new CAS and the Government’s next five-year plan (2007–2011).
- Other analytical work: Country Financial Accountability and Procurement Assessments; ROSC (audit and accounting module); sector work in education, health and agriculture; FSAP update completed jointly with the IMF; strategy on education and training and an investment climate assessment (ICA) ongoing; three sub-regional Maghreb studies ongoing.
- Regular technical assistance provided on public debt management, performance-based budgeting, promotion of the knowledge-based economy, productivity analysis, and employment and labor market issues as part of a Programmatic Economic and Sector Work.

### Key Financial Figures (as presented)
- IBRD lending operations:
  - 117 loans closed: 4,250.9 (In million of US dollars)
  - 16 active loans (detailed):
    - MP Ozone Depleting  Subs.: 3.8      0.26
    - Agric. Support Services: 18.1      14.66
    - Water Sector Invt. Project: 103      28.83
    - GEF Protected Areas Mgmt.: 5.1      4.13
    - Cultural Heritage: 17      18.87
    - Education PAQSET I: 99      11.98
    - Transport Sector Invt. II: 37.6      29.79
    - NW Mountainous & Forestry Areas Devt.: 34      35.16
    - Municipal Devt. III: 78.4      42.63
    - Export Development II: 35.8      30.67
    - Education PAQSET II: 130.3      94.87
    - ICT Sector Development: 13.1      10.99
    - ECAL IV: 150      70.41
    - GEF Energy Efficiency Program/Indust.: 8.5      7.27
    - GEF Gulf of Gabes: 6.3      5.67
    - Urban Water Supply: 38.0      37.6
  - Total active loans: 778.1      443.8
- Repayments 2/: 3449.08
- Debt outstanding 2/: 1595.0

- Net lending by the World Bank (by fiscal year) 3/ (2000 2001 2002 2003 2004 2005 2006):
  - Commitments: 20275.9252.5112.4166.3      163.1      38.0
  - Disbursements: 147.1174.6226.7142.5238.6      119.4       163.3
  - Debt service: 246.5223.1229.8258.0305.1      303.1      208.4
    - Principal: 163.1146.3149.6175.9224.8      230.5      165.9
    - Interest 5/: 83.476.880.282.180.3        72.6        42.5
  - Net transfer 6/: -99.4           -48.5            -3.1          -115.5          -66.5          -183.7          -45.1

- Notes from table:
  - 1/ Less cancellations, includes adjustment lending, does not include guarantees.
  - 2/ As of March 31, 2006.
  - 3/ Fiscal years start July 1 and end June 30.
  - 4/ Does not include US$184 million for guarantee on Jorf Lasfar electricity project.
  - 5/ Includes charges.
  - 6/ Equal to disbursement minus debt service.

### APPENDIX III — TUNISIA: STATISTICAL ISSUES

### Overview
- Overall, available economic and financial data are adequate for surveillance and have generally been provided to the Fund on a regular and timely basis.
- Most of those data are also made available to the wider public.
- Tunisia subscribed to the SDDS in June 2001 and its metadata are posted on the Dissemination Standards Bulletin Board (DSBB).
- A data ROSC is under preparation, following a mission that took place in April 2005.

### Real Sector
- IFS coverage of data on real sector developments is satisfactory and most data are reported in a timely manner, although export and import price and volume indices are reported with a long lag.
- Data on employment, unemployment, and wages should be collected and reported on a more frequent basis.
- Data on GDP by economic sector are disseminated at current and constant prices.
- Although the System of National Accounts 1968 (1968 SNA) is broadly followed, significant conceptual elements of the System of National Accounts 1993 (1993 SNA) have been implemented (including institutional sector accounts and estimates of the unrecorded economy).
- Work is underway toward full adoption of the 1993 SNA.
- Statistical techniques are adequate for the annual accounts but need some refinement for the quarterly estimates.
- Source data for the quarterly national accounts could be further diversified to improve coverage.
- Currently, an outdated base year (1990) is used for the constant price series.
- A new series using 2000 as base year is expected to be released in the near future.

### Government Finance
- In addition to the information reported in the SDDS, government finance data are collected by the staff at the time of the Article IV consultation mission.
- For publication, GFS cash data up to 2005 have been published in the Government Finance Statistics Yearbook 2005.
- Data cover budgetary central government and consolidated central government.
- Tunisia does not report monthly or quarterly data for publication in IFS.

### Balance of Payments (BOP) and International Investment Position (IIP)
- BOP and IIP statistics are compiled by the Central Bank of Tunisia (CBT), following the methodology of the fifth edition of the Balance of Payments Manual (BPM5).
- BOP statistics are prepared on a quarterly basis and the IIP on an annual basis, complying with SDDS requirements.
- Tunisia does not report quarterly data for redissemination in IMF publications.
- The CBT issues preliminary monthly statistics, mostly prepared on the basis of banks’ settlements with nonresidents.
- BOP statistics are generally adequate for annual surveillance, although greater detail on the financial account would be desirable.
- Recent ROSC mission noted:
  - remittances of Tunisian workers abroad are classified as income instead of current transfers; and
  - reinvested earnings of foreign direct investments are not recorded in the balance of payments.
- As an SDDS subscriber, Tunisia reports reserves data following the International Reserves and Foreign Currency Liquidity—Operational Guidelines (Reserves Template) since June 2001.

### Monetary and Financial Statistics
- Monetary statistics compiled by the CBT are broadly based on the 1984 Guide to Money and Banking Statistics in International Financial Statistics.
- Tunisia’s monetary statistics meet SDDS requirements.
- Areas for improvement include:
  - banks’ claims on the rest of domestic sector (other than central government and financial corporations) are not fully sectorized;
  - monetary gold is valued at a fixed price; and
  - accrued interest on deposits is not included in the outstanding value of these deposits.
- The CBT has initiated a plan to migrate to the methodology recommended in the Monetary and Financial Statistics Manual (2000).

*Source: APPENDIX I, APPENDIX II, and APPENDIX III of the provided IMF document (_cr06207 - APPENDIX I).*

### APPENDIX III

### APPENDIX III

### Table of Common Indicators Required for Surveillance (as of April 27, 2006)
- Exchange Rates
  - Date of latest observation: Mar. 2006
  - Date received: 4/6/06
  - Frequency of Data/Reporting/Publication: D / D / D
- International Reserve Assets and Reserve Liabilities of the Monetary Authorities
  - Date of latest observation: Mar. 2006
  - Date received: Apr. 2006
  - Frequency of Data/Reporting/Publication: M / M / M
- Reserve/Base Money
  - Date of latest observation: Mar. 2006
  - Date received: 4/14/06
  - Frequency of Data/Reporting/Publication: M / M/V / M
- Broad Money
  - Date of latest observation: Feb. 2006
  - Date received: 4/14/06
  - Frequency of Data/Reporting/Publication: M / M/V / M
- Central Bank Balance Sheet
  - Date of latest observation: Mar. 2006
  - Date received: 4/14/06
  - Frequency of Data/Reporting/Publication: M / M/V / M
- Consolidated Balance Sheet of the Banking System
  - Date of latest observation: Feb. 2006
  - Date received: 4/14/06
  - Frequency of Data/Reporting/Publication: M / Q / Q
- Interest Rates
  - Date of latest observation: Mar. 2006
  - Date received: 4/14/06
  - Frequency of Data/Reporting/Publication: D / D / D
  - Note: Includes both market-based and officially-determined rates, including discount rates, money market rates, rates on treasury bills, notes and bonds.
- Consumer Price Index
  - Date of latest observation: July 2004–Sept 2005
  - Date received: Aug 2004–Oct 2005
  - Frequency of Data/Reporting/Publication: M / M/V / M
- Revenue, Expenditure, Balance and Composition of Financing – General Government / Central Government
  - Central Government latest observation: Sept 2005
  - Frequency: M / M / M
  - Note: Financing includes foreign, domestic bank, and domestic nonbank financing. General government consists of central government (budgetary funds, extra budgetary funds, and social security funds) and state and local governments.
- Stocks of Central Government and Central Government‑Guaranteed Debt
  - Includes currency and maturity composition.
- External Current Account Balance
  - Date of latest observation: Q1 2004
  - Date received: Apr 2004
  - Frequency of Data/Reporting/Publication: Q / Q/V / Q
- Exports and Imports of Goods and Services
  - (Frequencies provided in table)
- GDP/GNP
  - Date range indicated: Q4 2003–2005
  - Date received: Apr 2004–Aug 2005
  - Frequency: Q / Q/V / Q
- Gross External Debt
  - Date of latest observation: Q4 2003
  - Date received: Apr 2004
  - Frequency: Q / V / Q

Notes:
- 1 Includes reserve assets pledged or otherwise encumbered as well as net derivative positions.
- 6 Frequency codes: Daily (D), weekly (W), monthly (M), quarterly (Q), annually (A), irregular (I); and not available (NA).

### Statement by the IMF Staff Representative on Tunisia (May 24, 2006) — Key Implications of Privatization Proceeds
- Authorities announced:
  - The banking law amendment has been promulgated and the new central bank law has been passed by parliament.
  - They intend to use two-thirds of the proceeds from the partial privatization of Tunisie Télécom ($2.3 billion) to retire external debt.
- Impact on macroeconomic projections due to higher external debt repayment:
  - Total external debt projections shift downward by about 2–2½ percentage points of GDP from 2007 onward (the bulk of the additional external debt repayment is assumed to occur in 2007).
  - The external debt-to-GDP ratio is projected to decline from 68 percent in 2005 to 47½ percent in 2011.
  - Public debt projections shift downward by the same amount; the public debt ratio falls from 59 percent of GDP in 2005 to 43 percent in 2011.
  - Projected international reserves are lower by an equivalent amount. The import coverage (goods and non-factor services) stabilizes slightly above 5 months in the medium term.
  - No appreciable effect on the central government’s deficit, nor on the external current account. Lower interest payments on public external debt are broadly offset by lower earnings on international reserves.
  - No impact on key monetary aggregates, since the proceeds were anyway assumed to be sterilized.

Revised projections (Table 1: Tunisia: Revised Projections, 2005–11)
- New projections (Percent of GDP, unless otherwise indicated)
  - Total external debt: 67.9 (2005), 64.1 (2006), 58.4 (2007), 56.2 (2008), 53.3 (2009), 50.3 (2010), 47.5 (2011)
  - Total public debt: 59.0 (2005), 55.8 (2006), 51.3 (2007), 49.3 (2008), 47.1 (2009), 45.0 (2010), 42.9 (2011)
  - Gross official reserves (US$ billions, e.o.p): 4.4 (2005), 6.4 (2006), 6.1 (2007), 6.9 (2008), 7.5 (2009), 8.0 (2010), 8.4 (2011)
    - In months of imports of GNFS: 3.7 (2005), 5.0 (2006), 4.6 (2007), 5.0 (2008), 5.1 (2009), 5.2 (2010), 5.1 (2011)
- Staff report projections (for comparison)
  - Total external debt: 67.9 (2005), 64.3 (2006), 61.0 (2007), 58.6 (2008), 55.6 (2009), 52.4 (2010), 49.5 (2011)
  - Total public debt: 59.0 (2005), 56.1 (2006), 53.9 (2007), 51.8 (2008), 49.4 (2009), 47.1 (2010), 44.9 (2011)
  - Gross official reserves (US$ billions, e.o.p): 4.4 (2005), 6.5 (2006), 6.9 (2007), 7.7 (2008), 8.3 (2009), 8.8 (2010), 9.2 (2011)
    - In months of imports of GNFS: 3.7 (2005), 5.1 (2006), 5.2 (2007), 5.6 (2008), 5.7 (2009), 5.7 (2010), 5.6 (2011)
- Sources: Tunisian authorities; and Fund staff estimates and projections.

### Public Information Notice (PIN) No. 06/62 — IMF Executive Board Concludes 2006 Article IV Consultation with Tunisia (June 8, 2006)
- Background and recent performance
  - Real GDP growth remained relatively strong in 2005; the external current account deficit narrowed significantly.
  - Growth is expected to accelerate in 2006 as agricultural production recovers and the service and industry sectors remain strong.
  - Inflation subdued; current macroeconomic stance remains appropriate despite increased financial inflows posing a challenge for monetary policy.
  - External debt-to-GDP ratio remained broadly unchanged in 2005, at 68 percent, but is expected to decline substantially in 2006 owing to high growth and large privatization proceeds.
- Fiscal and public debt
  - The central government deficit widened to 3.2 percent of GDP in 2005 (excluding privatization receipts and grants) due to high oil prices’ impact on subsidies, but is expected to return to about 3 percent in 2006.
  - Authorities continue to raise retail petroleum prices and are undertaking tax policy and administration reforms.
  - Medium-term objective: bring public debt from 59 percent GDP to below 50 percent.
- Banking sector and financial stability
  - Banking sector indicators improved in 2005: share of non-performing loans (NPLs) in total loans declined significantly (to about 21 percent) and provisioning increased somewhat.
  - Remaining banking sector vulnerabilities increase the cost of capital and hinder macroeconomic reform.
  - The 2006 FSAP update is expected to help sharpen reform strategy and address remaining weaknesses.
- Medium-term structural priorities identified by staff and Executive Directors
  - Strengthen the financial sector by accelerating resolution of high NPLs.
  - Advance macroeconomic policy reforms.
  - Improve the investment climate.
  - Increase labor market flexibility to absorb rapidly increasing supply of skilled labor.
- Executive Board assessment and recommendations
  - Commended Tunisia’s strong economic performance: robust growth, subdued inflation, strengthened reserves, and increasing capital inflows.
  - Urged acceleration of macroeconomic and structural reforms to reach lower-tier OECD income levels and reduce unemployment.
  - Welcomed fiscal measures to contain impact of high oil prices and ongoing tax reforms; emphasized need to reduce the weight of the wage bill over the medium term to enhance fiscal policy flexibility.
  - Encouraged vigilance against price pressures; recommended complementing monetary policy with fiscal tightening, accelerated trade liberalization, and increased exchange rate flexibility if capital inflows persist.
  - Supported phased liberalization of the external capital account and transition to a floating exchange rate, conditional on deepening money and exchange markets.
  - Welcomed new central bank law focusing on price stability and the intention to eliminate the requirement that banks transfer end-of-day foreign exchange balances to the Central Bank of Tunisia.
  - Urged continued progress on banking sector reform: increase provisioning, improve quality of new credit, deal decisively with the stock of NPLs, operate public banks on a strictly commercial basis, and enforce provisioning rules and sanctions.
  - Supported use of most proceeds from partial privatization of Tunisie Télécom to retire external debt.
  - Emphasized accelerating structural reforms to improve the business climate and labor market flexibility, and to intensify multilateral and regional integration efforts.
  - Noted completion of the AML/CFT Report on the Observance of Standards and Codes; key challenge is implementation, enforcement, and supervision to meet AML/CFT requirements.
  - Commended authorities’ commitment to transparency and efforts to improve data quality; Tunisia has published all Executive Board documents and staff mission statements in recent years and intends to publish the 2006 Article IV Staff Report and Selected Issues papers.

*Source: APPENDIX III, Tunisia (as of April 27, 2006).*

### conclusion of the Article IV consultation for countries seeking to make known the views of the IMF to the

### Conclusion of the Article IV consultation for countries seeking to make known the views of the IMF to the public

### Macroeconomic performance and stability
- Tunisia has achieved and maintained macroeconomic stability and built resilience to external shocks.
- 2005 outcomes highlighted:
  - Current account deficit narrowed to 1.3 percent of GDP.
  - Budget deficit minor increase to 3.2 percent of GDP despite high international oil prices.
- Authorities implementing a comprehensive energy strategy including:
  - Increases in domestic petroleum retail prices—already increased five times since 2005.
  - Proactive substitution policy to encourage alternative and renewable energy.
  - Mandatory energy audit in the industrial sector to promote efficiency.
  - Public awareness campaign on energy conservation and the burden of energy subsidies on the budget.

### Growth challenges and medium-term strategy
- Staff suggests need for accelerated reforms to place the economy on a higher growth trajectory to:
  - Reduce unemployment.
  - Raise per capita income to bridge the gap with lower-tier OECD countries within a decade.
- Required higher growth: at least 1–1.5 percentage points above recent years’ growth rates.
- Authorities’ medium-term growth strategy (summarized in Box 2 of the staff report) focuses on:
  - Gradual liberalization of the capital account, in consultation with the Fund (detailed in Selected Issues paper).
  - Private sector–oriented reform program supported by the World Bank.
- Immediate implementation challenges: further banking sector reforms and improving debt indicators.
- Authorities’ medium-term objectives for 2007–2016:
  - Reduce unemployment to 10 percent.
  - Double per capita income by 2016.

### Financial sector reforms and stability
- Financial system considered critical for higher growth and global integration.
- 2002 FSAP recommendations framed prior reform efforts; FSSA Table 1 details progress.
- Legal and regulatory changes:
  - 2006 amendments of the Banking and the Central Bank Laws.
  - 2005 law on financial security.
  - Measures to strengthen credit culture, enhance transparency and governance, improve creditor rights, and strengthen bank regulation and supervision.
- Corrective measures to address adverse impacts from 2001–02 terrorism events and four consecutive years of droughts:
  - Effective ban by the central bank on dividend distribution in 2005 and 2006 for banks with provisioning shortfalls.
  - Requirement that by 2009 banks achieve a provisioning ratio of NPLs of 70 percent, regardless of existing collateral.
  - Provisioning made fully tax-deductible.
  - Streamlined legal procedures for realization of collateral.
- Result: financial soundness indicators of commercial banks improved markedly.
- Authorities requested an update to the 2002 FSAP to better identify vulnerabilities and accelerate reforms.
- Staff recommendations broadly agreed, including objectives to:
  - Reduce NPLs ratio to total loans.
  - Strengthen management and governance of remaining public banks.
  - Accelerate restructuring of bank loans to the tourism sector.

### External debt, privatization proceeds, and external position
- Authorities recognize external debt level is relatively high compared with similar emerging market economies.
- Decision to allocate US$1.6 billion (two-third of proceeds from partial privatization of Tunisie Telecom) to debt reduction operations.
  - Expected impact: significant improvement in debt indicators and the external position when completed.
- Continued fiscal consolidation and ongoing tax reform expected to contribute to improving debt indicators.

### Fiscal policy and tax reform
- Recent policy announcements:
  - Reduction in the corporate income tax rate from 35 percent to 30 percent.
  - Cut in the number of VAT rates from 4 to 3.
  - Measures to modernize tax administration.
- Authorities view continued fiscal consolidation as supportive of debt indicator improvement.

### Labor market, investment climate, and Selected Issues insights
- Policy priorities discussed include measures to:
  - Enhance labor market flexibility.
  - Improve the business and investment climate.
- Selected Issues paper provides insights and conclusions on these matters.

### Key statistics (Table 1: Tunisia — Selected Economic Indicators, 2001–06)
- Quota: SDR 286.5 million
- Population: 9.9 million; 2004
- Per capita GDP: US$2,838; 2004
- Poverty rate: 4.1 percent; 2000
- Main export: textiles, electronic and mechanical goods, tourism; 2004

Output and prices (Annual percentage change)
- Real GDP (market price): 2001: 4.9; 2002: 1.7; 2003: 5.6; 2004: 6.0; 2005 Est.: 4.2; 2006 Proj.: 5.8
- Consumer prices (end of period): 2001: 3.0; 2002: 1.8; 2003: 4.4; 2004: 1.2; 2005 Est.: 3.9; 2006 Proj.: 3.0
- Consumer prices (period average): 2001: 1.9; 2002: 2.8; 2003: 2.8; 2004: 3.6; 2005 Est.: 2.0; 2006 Proj.: 3.0

Investment and saving (In percent of GDP)
- Gross capital formation: 2001: 27.9; 2002: 25.7; 2003: 25.1; 2004: 24.2; 2005 Est.: 23.9; 2006 Proj.: 24.1
- Gross capital formation — Non-government: 2001: 20.1; 2002: 18.2; 2003: 17.9; 2004: 17.2; 2005 Est.: 17.4; 2006 Proj.: 18.0
- Gross national savings: 2001: 23.7; 2002: 22.2; 2003: 22.2; 2004: 22.2; 2005 Est.: 22.7; 2006 Proj.: 22.7
- Gross national savings — Non-government: 2001: 18.7; 2002: 17.4; 2003: 18.2; 2004: 17.7; 2005 Est.: 19.1; 2006 Proj.: 19.4

Public finances (In percent of GDP)
- Revenue (including grants): 2001: 24.3; 2002: 24.8; 2003: 23.9; 2004: 24.1; 2005 Est.: 24.2; 2006 Proj.: 23.9
- Expenditure: 2001: 27.8; 2002: 27.8; 2003: 27.0; 2004: 26.8; 2005 Est.: 27.2; 2006 Proj.: 26.7
- Budget balance (including grants): 2001: -3.5; 2002: -3.1; 2003: -3.2; 2004: -2.6; 2005 Est.: -3.0; 2006 Proj.: -2.8
- Primary balance (including grants): 2001: -0.4; 2002: 0.0; 2003: -0.4; 2004: 0.2; 2005 Est.: -0.1; 2006 Proj.: 0.0
- Total government debt: 2001: 62.7; 2002: 61.5; 2003: 60.4; 2004: 59.7; 2005 Est.: 59.0; 2006 Proj.: 56.1

Monetary sector (Annual percentage change, unless otherwise indicated)
- Credit to the private sector: 2001: 10.3; 2002: 6.7; 2003: 4.6; 2004: 5.3; 2005 Est.: 7.5; 2006 Proj.: 6.9
- Base money: 2001: 18.3; 2002: 1.8; 2003: 5.5; 2004: 12.2; 2005 Est.: 21.9; 2006 Proj.: 10.4
- Broad money: 2001: 11.3; 2002: 5.2; 2003: 6.3; 2004: 10.3; 2005 Est.: 10.8; 2006 Proj.: 10.4
- Velocity of broad money: 2001: 1.7; 2002: 1.6; 2003: 1.7; 2004: 1.6; 2005 Est.: 1.6; 2006 Proj.: 1.5
- Three-month treasury bill rate (period average, in percent) 1/: 2001: 6.3; 2002: 6.2; 2003: N/A; 2004: N/A; 2005 Est.: 5.1; 2006 Proj.: ...

External sector (In percent of GDP, unless otherwise indicated)
- Exports of goods (in US$, percentage change): 2001: 13.6; 2002: 3.4; 2003: 17.1; 2004: 20.6; 2005 Est.: 8.4; 2006 Proj.: 4.5
- Imports of goods (in US$, percentage change): 2001: 11.2; 2002: -0.2; 2003: 14.7; 2004: 17.6; 2005 Est.: 2.8; 2006 Proj.: 6.0
- Merchandise trade balance: 2001: -11.8; 2002: -10.1; 2003: -9.1; 2004: -8.7; 2005 Est.: -6.8; 2006 Proj.: -7.6
- Current account excluding official transfers: 2001: -4.2; 2002: -3.5; 2003: -2.9; 2004: -2.0; 2005 Est.: -1.3; 2006 Proj.: -1.4
- Current account including official transfers: 2001: -3.9; 2002: -3.2; 2003: -2.7; 2004: -1.6; 2005 Est.: -0.9; 2006 Proj.: -1.0
- Foreign direct investment: 2001: 2.2; 2002: 3.6; 2003: 2.1; 2004: 2.1; 2005 Est.: 2.5; 2006 Proj.: 9.5
- Total external debt: 2001: 65.8; 2002: 67.6; 2003: 67.2; 2004: 67.8; 2005 Est.: 67.9; 2006 Proj.: 64.3
- Gross reserves (in millions of U.S. dollars): 2001: 2.0; 2002: 2.3; 2003: 3.0; 2004: 4.0; 2005 Est.: 4.4; 2006 Proj.: 6.5
- Reserves in months of next year imports of goods and services: 2001: 2.3; 2002: 2.7; 2003: 3.0; 2004: 3.5; 2005 Est.: 3.7; 2006 Proj.: 5.1
- Reserves as percent of short-term external debt (on remaining maturity basis): 2001: 55.3; 2002: 54.7; 2003: 63.6; 2004: 75.6; 2005 Est.: 91.8; 2006 Proj.: 115.5

Memorandum items
- Nominal GDP (in US$ billions): 2001: 20.0; 2002: 22.4; 2003: 26.7; 2004: 29.2; 2005 Est.: 27.3; 2006 Proj.: 29.1
- Unemployment rate (in percent): 2001: 15.1; 2002: 15.3; 2003: 14.5; 2004: 14.2; 2005 Est.: 14.3; 2006 Proj.: 13.9
- Net imports of petroleum products (in millions of US dollars): 2001: 275.0; 2002: 221.7; 2003: 328.8; 2004: 407.1; 2005 Est.: 393.4; 2006 Proj.: 425.0
- Local currency per U.S. dollar (period average): 2001: 1.4; 2002: 1.4; 2003: 1.3; 2004: 1.2; 2005 Est.: 1.3; 2006 Proj.: ...
- Real effective exchange rate (annual average, percentage change): 2001: -2.4; 2002: -0.2; 2003: -5.0; 2004: -3.4; 2005 Est.: -4.5; 2006 Proj.: ...
- Stock market index 2/ (TUNINDEX, 1000 = 4/1/1998): 2001: 1267.0; 2002: 1119.2; 2003: 1250.2; 2004: 1331.8; 2005 Est.: 1615.1; 2006 Proj.: 1866.9
- Note: Three-month treasury bill rate: 1/ There was no outstanding short-term government debt in 2003, 2004, or end-2005. 2005 refers to October. 2/ 2006 data from April 7, 2006.

*Statement by Abbas Mirakhor, Executive Director for Tunisia, May 24, 2006. Sources: Tunisian authorities and IMF staff estimates.*

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