IMF Survey : Tunisia Gets $2.9 billion IMF Loan to Strengthen Job Creation and Economic Growth

IMF News, June 2, 2016

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IMF approved a four-year, $2.9 billion loan for Tunisia to support the authorities’ economic agenda aimed at promoting more inclusive growth and job creation, while protecting the most vulnerable households.
The Extended Fund Facility follows a prior Stand-By Arrangement that helped preserve macroeconomic stability during political transition, social tensions, and security shocks that hit tourism.
Main program focus:
- Consolidate progress on macroeconomic stability.
- Address long-standing structural weaknesses that resulted in slow growth and high external balances.
- Support the authorities’ five-year economic vision centered on private sector development.

Key policy priorities under the IMF program:
- A gradual reduction of the overall fiscal deficit to stabilize public debt at about 50 percent of GDP.
- Better composition of public spending; wage containment would allow for a doubling of priority public investment that supports growth and poverty reduction.
- Greater exchange rate flexibility to improve Tunisia’s external competitiveness and rebuild foreign reserves.
- Improving financial sector intermediation, including through continued restructuring of public banks.
- Structural reforms: reforms to public institutions and state-owned companies, reducing energy subsidies, a more progressive and equity-friendly tax system, strengthening governance, and improving the business climate.
IMF projection: All these reforms will take time to bear fruit, but over time they will help increase growth to 5 percent.

Tunisia’s labor market metrics highlighted by the program:
- Overall unemployment rate: 15 percent.
- Youth unemployment rate: 35 percent.
IMF recommendations to create more jobs:
- Pursue macroeconomic policies and structural reforms to restore investor confidence weakened by political uncertainties and security challenges.
- Move quickly with the new investment code and implement the new competition law to reduce pervasive state intervention, excessive regulation, and limited competition.
- Use private-public partnerships to attract private capital for infrastructure projects.
- Streamline existing regulations to signal openness to local and global investors.
- Reform the labor market over time while deploying active labor market programs (e.g., public works, microfinance) and vocational training programs to lessen unemployment among college graduates.

Civil service reform is the top stakeholder priority and central to the authorities’ economic vision.
Current wage bill and fiscal footprint:
- Wage bill represents 65 percent of tax revenue, 14 percent of GDP, and 45 percent of total spending.
Reform goals and measures:
- Increase public sector efficiencies and quality of services by revising status for high-level civil servants, revising the pay structure, better linking pay with performance, and redeployments to underserved interior regions.
- Contain the wage bill by reducing it to 12 percent of GDP by 2020, thereby creating fiscal space to double public investment.
- Civil service reform should be coordinated with tax reform (widening the base and increasing purchasing power for the lowest income taxpayer, e.g., by raising the income tax threshold).
Emphasis: Private sector—not the public sector—can create sustainable jobs; broad-based consensus is required for successful civil service reform.

Strengthening governance is a government priority and is enshrined in the Tunisian constitution.
Planned and ongoing measures:
- Drafting a law to set an independent high-level constitutional body to fight corruption.
- New legislation by the end of the year to protect whistleblowers, address conflicts of interest in the public sector, and require financial disclosure of net worth by senior government officials.
- Improvements in public financial management and increased publication of government documents to promote transparency.
- A new ministry of civil service affairs and good governance established three months ago to help implement reforms.
- IMF program support to strengthen anti-money laundering and combating the financing of terrorism framework.

IMF engagement strategy:
- Regular consultations with non-governmental organizations focused on social issues, think tanks, trade and business unions.
- Periodic in-country visits and regular dialogue via the IMF resident representative in Tunis.
- These discussions aim to listen to stakeholders, improve understanding of country issues, and enhance policy discussions with the authorities.

IMF Survey — Tunisia Gets $2.9 billion IMF Loan to Strengthen Job Creation and Economic Growth (June 2, 2016).