IMF Executive Board Completes Fourth Review Under Extended Fund Facility Arrangement (EFF) for Tunisia
IMF News, October 1, 2018
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- Published: October 1, 2018
Review outcome and financing
- On September 28, 2018, the Executive Board of the International Monetary Fund completed the Fourth Review of Tunisia’s economic program supported by an arrangement under the Extended Fund Facility (EFF).
- The Board’s decision makes available to Tunisia SDR 176.7824 million (about US$247 million).
- Total disbursements under the arrangement now amount to SDR 984.9309 million (about US$1.4 billion).
- The four-year EFF arrangement is in the amount of SDR 2.045625 billion (about US$2.9 billion, or 375 percent of Tunisia’s quota at the time of approval of the arrangement) and was approved by the Executive Board on May 20, 2016.
Macroeconomic assessment and outlook
- The recovery is strengthening, but risks continue to weigh on the outlook.
- Growth accelerated in the first half of 2018, but unemployment and inflation remain high.
- High oil prices continue to weigh on the external and fiscal balances.
- Investment is weak.
- International reserves cover less than three months of imports.
Program priorities and policy stance
- The government’s program aims at reducing macroeconomic imbalances, while providing social protection, and encouraging private sector-led job creation.
- Fiscal policies aim at:
- mobilizing revenue;
- containing current expenditure to reduce Tunisia’s debt burden;
- increasing public investment and social spending to support sustainable and inclusive growth.
- Monetary policy focuses on curbing inflation, with continued exchange rate flexibility to help strengthen international reserves.
Structural and social measures
- To maintain adequate social protection, the authorities have:
- increased social transfers to vulnerable households;
- are working on better targeting of social expenditure;
- submitted a pension law proposal to Parliament.
- Structural reforms supported under the arrangement include strengthening governance, the business climate, fiscal institutions, and the financial sector.
Key recommendations and priorities from Mr. Mitsuhiro Furusawa (Deputy Managing Director and Acting Chair)
- “Strong efforts are required to achieve the agreed fiscal targets.” Policy priorities include:
- stronger revenue collection;
- regular energy price adjustments;
- strict wage bill management;
- reforms to ensure the financial viability of pensions.
- “Further monetary tightening is warranted to reduce inflation.” Rationale and guidance:
- The CBT demonstrated its commitment to price stability by policy rate hikes, but key interest rates remain negative in real terms.
- Thus, policy rate should increase further to avoid further erosion of the purchasing power of the local currency and anchor inflationary expectations.
- “Reducing external imbalances hinges on a market-determined exchange rate.” Recommended actions:
- Competitive foreign exchange auctions, backed by effective communication.
- Sustained tightening of macroeconomic policies to help mitigate the impact of exchange rate depreciation on debt.
- Social protection and subsidies:
- The recent decision to broaden coverage of vulnerable families benefiting from social transfers, also captured in the new QPC on social spending, should be implemented quickly.
- Completing the database of vulnerable households will be critical for better social targeting.
- Any changes in subsidies for food staples should only be considered once adequate safety nets are in place.
- Business climate, governance, and financial sector reforms:
- Maximize the impact on growth of the new one-stop shop for investors, the negative list of investment authorizations, and the Start-up Act.
- The appointment of the members of the High Anti-Corruption Authority would be an important step to strengthen enforcement of existing laws and regulations.
- In the financial sector, priority actions include the resolution of the BFT, further strengthening of the supervisory framework, and progress on the AML/CFT regime.
- “Strong program implementation is necessary to reduce macroeconomic imbalance and foster inclusive growth in the difficult political and security environment. Continued support of the donor community is critical for Tunisia’s successful transition.”
Press Release No. 18/367 — IMF Executive Board Completes Fourth Review Under Extended Fund Facility Arrangement (EFF) for Tunisia, October 1, 2018