Frequently Asked Questions on Tunisia

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Tunisia’s economy: growth in 2020 is expected to drop to -4.3 percent, the lowest level since Tunisia’s independence in 1956.
The IMF Executive Board approved emergency financing of US$745 million or two percent of Tunisia’s GDP under the Rapid Financing Instrument (RFI) on April 10, 2020.
Objectives of IMF financing:
- Increase health spending.
- Strengthen social safety nets for low-income families and the unemployed.
- Support small- and medium-sized firms hit by the crisis.
- Catalyze additional donor financing.
- Prevent reserves from falling to the critical threshold of 3 months of imports and shore up confidence.

Sectoral and macro impacts:
- The large tourism sector represents 7 percent of GDP and is strongly affected.
- Exporters to the European automotive and textile industries have been hit.
- Households will draw down savings and cut consumption.
- Unemployment, already at 15 percent, will rise further.
- Incomes will fall and import prices will increase.
- Many businesses face cash flow shortages from temporary closures and lower revenues.
Reserve and buffer concerns:
- RFI support aims to maintain adequate reserve cover and offer protection against further shocks or a protracted recovery.

Automatic price adjustment for three main fuels applied on April 7, resulting in a 1.5 percent decline in pump prices across all covered fuel categories; aligns domestic prices with international fuel prices.
Emergency measures on the civil service wage bill: reduced by about TD 150 million (or 0.1 percent of GDP) for 2020 by limiting hiring, promotions, and overtime in areas not involved in the crisis response.
Increase in tobacco prices resumed in March; may generate additional revenue of at least TD 200 million (or 0.2 percent of GDP).
Temporary and targeted rescheduling of lower-priority public investment to limit fiscal pressures while avoiding undermining the health sector.

Tunisia’s debt levels in 2020 are projected to rise to:
- Public debt: 89 percent of GDP.
- External debt: 110 percent of GDP.
Factors mitigating sustainability risks:
- Most external and public debt is owed to official creditors with relatively low average interest rates and long maturities.
- Low risk of large exchange rate swings due to restrictions on international investments in short-term instruments.
- Banks have only limited exposure to sovereign debt and FX-denominated liabilities.
External partners’ role: financial support on concessional terms and grants can help ensure debt sustainability.
Medium-term requirement: continued and strong fiscal adjustment once the virus crisis abates.

Immediate priority: protect lives and livelihoods amid COVID-19; the IMF will support Tunisia as needed.
Post-crisis priorities (authorities’ commitments):
- Ensure macroeconomic stability and prevent further rises in debt.
- Support private sector-led growth that benefits all Tunisians.
- Improve fiscal accounts, including further reduction of energy subsidies in a socially conscious way.
- Contain the civil service wage bill, which remains among the highest in the world.
- Improve tax fairness and reinforce efforts to prevent tax evasion.
- Strengthen the social safety net, building on increased social protection outlays during the 2016-20 EFF arrangement.
- Reform the large state-owned enterprise sector and improve the overall business environment to facilitate job creation.

Fiscal and social outcomes:
- Fiscal deficit reduced from about 6 percent of GDP in 2016-17 to 3.9 percent of GDP in 2019, largely via tax policy and administration measures.
- Spending on social programs doubled to an expected 3.2 percent of GDP in 2020 from 1.6 percent of GDP in 2016.
- Higher public investment on critical infrastructure was enabled by fiscal improvements.
Monetary and external outcomes:
- Inflation fell from a peak of 7.7 percent in June 2018 to 5.8 percent in February 2020.
- Increased exchange rate flexibility and lower FX interventions helped rebuild international reserves to 5.2 months of next year’s imports of goods and nonfactor services in December 2019.
Structural reform gap:
- Progress on structural reforms to reduce high unemployment and poverty has remained elusive.
IMF program status:
- The authorities cancelled the EFF arrangement in March 2020 in light of the COVID-19 outbreak; they remain committed to a successor arrangement once the crisis abates.