IMF Executive Board Completes Fifth Review Under the Extended Fund Facility (EFF) Arrangement for Tunisia
IMF News, June 13, 2019
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- Published: June 13, 2019
Review outcome and financing
- On June 12, 2019, the Executive Board completed the Fifth Review of Tunisia’s economic program supported by an arrangement under the Extended Fund Facility (EFF).
- The Board’s decision makes available to Tunisia an amount equivalent to SDR 176.7824 million (about US$245 million).
- Total disbursements to date under the arrangement amount to SDR 1,161.7133 million (about US$1.6 billion).
- The Board approved the authorities’ request for waivers of non-observance of end of March 2019 performance criteria on net international reserves and net domestic assets, granted on the ground of the corrective measures undertaken by the authorities.
- The Board approved the authorities’ request for rephasing of purchases under the arrangement, including the requested reduction of the total access under the arrangement to an amount equivalent to SDR 1.9522533 billion (about 358.1 percent of Tunisia’s quota).
- The four-year EFF arrangement was approved by the Executive Board in May 2016 for an original amount equivalent to SDR 2.045625 billion (about US$2.9 billion or 375 percent of Tunisia’s quota at the time of approval of the arrangement).
Macroeconomic assessment
- “Growth remains subdued and elevated macroeconomic vulnerabilities persist, but policy efforts are starting to show results.”
- A strong revenue effort and energy subsidy reform have supported significant fiscal deficit reduction.
- Monetary tightening has started to reduce inflation.
- Lower foreign exchange (FX) interventions have allowed the exchange rate to better reflect fundamentals.
- Program performance since the Fourth Review has been mixed against a backdrop of a challenging domestic socio-political environment and external pressures.
Policy recommendations and near-term priorities
- Near-term policies should continue to focus on:
- Improving fiscal and external deficits to overcome the otherwise unsustainable debt dynamics.
- Reducing inflation.
- Strengthening the social safety net for low-income households.
- Fiscal policy guidance:
- “Reducing the fiscal deficit to 3.9 percent of GDP in 2019 will require unwavering discipline.”
- Strategy relies on strong revenue collection, targeted energy subsidy reforms with improved communication, and tight wage bill management.
- “The budget allows for maintaining growth-enhancing investment and increasing social spending, but there is no room for relaxing the effort on taxes or current expenditure after the recent increase in civil service wages.”
- Monetary policy guidance:
- “Monetary policy needs to focus on maintaining price stability.”
- “Additional policy rate hikes would be warranted if inflation projections for December 2019 exceed the target.”
- Success with disinflation depends on reducing central bank refinancing and on reforming the collateral framework, while preserving financial stability.
- External sector guidance:
- “Reducing external imbalances hinges on a market-determined exchange rate.”
- Competitive FX auctions together with reduced Central Bank interventions and effective communication to the market remain critical to improve the current account and reserves cover.
- Social protection guidance:
- Efforts to strengthen social protection should continue.
- “In particular, increased transfers to low-income households should quickly follow the recent measures to improve access to public health care.”
- Communication:
- Improved communication of policy and reform objectives and their rationale will facilitate implementation.
Structural reforms and institutional priorities
- Structural reforms supported under the arrangement include measures to:
- Improve the business climate.
- Broaden access to finance.
- Reduce corruption.
- “Structural reforms should focus on enhancing the business climate and improving access to finance to boost private-sector led growth.”
- “The appointment of the members of the High Anti-Corruption Authority would help address corruption concerns.”
Program risks and conditionalities
- “Program risks remain very high.”
- The authorities’ steadfast commitment to the policy and reform agenda, quarterly monitoring, and strong financial and capacity building support by Tunisia’s external partners will remain essential for their mitigation.
Key statistics and figures
- SDR 176.7824 million (about US$245 million) — amount made available under the Fifth Review.
- SDR 1,161.7133 million (about US$1.6 billion) — total disbursements to date.
- SDR 1.9522533 billion (about 358.1 percent of Tunisia’s quota) — reduced total access under the rephased arrangement.
- SDR 2.045625 billion (about US$2.9 billion or 375 percent of Tunisia’s quota) — original amount of the EFF arrangement approved in May 2016.
- 3.9 percent of GDP — target fiscal deficit for 2019.
IMF Executive Board Completes Fifth Review Under the Extended Fund Facility (EFF) Arrangement for Tunisia — Press Release No. 19/211 (June 12, 2019).