IMF Statement on Tunisia
IMF News, August 3, 2017
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- Published: August 3, 2017
Overview and mission
- Press Release No. 17/319
- Date: August 3, 2017
- IMF Communications Department, MEDIA RELATIONS
- An International Monetary Fund team led by Mr. Björn Rother visited Tunis from July 26 to August 3 to discuss the economic outlook and the authorities’ policy intentions under Tunisia’s economic reform program supported by a four-year IMF Extended Fund Facility (EFF) arrangement approved in May 2016 (See Press Release 16/238).
- End-of-Mission press releases convey preliminary findings after a visit; the views are those of IMF staff and do not necessarily represent the views of the IMF’s Executive Board.
Economic outlook and key indicators
- Growth:
- Growth is on track to reach 2.3 percent in 2017.
- Growth is supported by a pick-up in phosphates, agriculture, and tourism.
- Inflation and consumption:
- Strong consumption, fueled by wage increases, is leading to inflation.
- Core inflation moved up to 5.5 percent in June.
- Fiscal and external imbalances:
- Strong consumption is pushing already elevated fiscal and external deficits higher.
- Public debt increased to 65 percent of GDP in June.
- External debt increased to 73 percent of GDP in June.
- Labor and social outcomes:
- Slow job creation and limited economic opportunity continue to affect the Tunisian people.
- Exchange rate and reserves:
- The dinar is under downward pressure.
- The Central Bank of Tunisia has moved to greater exchange rate flexibility to help bring the dinar in line with its fundamentals and keep reserves at an adequate level.
Policy actions already taken
- Fiscal/energy:
- The government increased administered fuel prices in July to reduce inefficient energy subsidies.
- Anti-corruption and investment initiatives:
- The recent escalation in the government’s fight against corruption met wide public support.
- Tunisia’s participation in the G20 Compact with Africa initiative has helped demonstrate investment potential.
- Monetary and macroprudential measures:
- The Central Bank of Tunisia implemented a tighter monetary policy, with two increases in the policy rate to 5 percent.
- New macroprudential limits have been introduced to help ease inflationary pressures and support the dinar.
Analysis of key challenges
- Structural constraints:
- Structural obstacles continue to weigh on exports.
- The civil service and pension system require modernization and sustainability reforms.
- Wage bill and fiscal trajectory:
- The wage bill was 14.1 percent of GDP last year and is “among the highest in the world.”
- Major adjustments this year and next are necessary to compensate slippages and bring the wage bill back on track to reach the target of 12 percent of GDP in 2020.
- Avoiding any further deterioration in the fiscal deficit this year and preparing a fair and sustainable budget for 2018 are critical.
- Macroeconomic policy mix:
- Continued monetary tightening and exchange rate flexibility are essential to reduce persistent macroeconomic imbalances.
- Access to finance and investment:
- Enhancing access to credit will boost growth, reduce imbalances, and free up space for priority investments in infrastructure, education, and health.
Policy recommendations and priorities
- Fiscal policy:
- Put the fiscal deficit on a downward path through additional adjustment, including containing the public wage bill.
- Prepare a fair and sustainable budget for 2018.
- Structural reforms:
- Modernize the civil service.
- Put the pension system on a sustainable footing.
- Enhance access to credit.
- Governance and anti-corruption:
- Establish an effective high anti-corruption authority to strengthen efforts against corruption and illicit business practices.
- Monetary and exchange-rate policy:
- Maintain exchange rate flexibility.
- Continue monetary tightening where appropriate.
- Implementation timeline and targets:
- Aim to reduce the wage bill to 12 percent of GDP by 2020.
Stakeholder engagement and next steps
- The team held constructive discussions with Interim Minister of Finance and Minister of Development Abdelkefi, the Head of Government’s Chief of Staff Chalghoum, Minister Counselor Rajhi, Central Bank Governor Ayari, and their staff.
- The team also met with the Union Générale Tunisienne du Travail (UGTT), academia, and civil society.
- The IMF team will continue working closely with the Tunisian authorities on the reform program under the EFF in the coming months.
International Monetary Fund — IMF Statement on Tunisia (Press Release No. 17/319), August 3, 2017.