IMF Executive Board Completes Second Review under the Extended Fund Facility (EFF) Arrangement for Tunisia
IMF News, March 26, 2018
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Bibliographic details
- Published: March 26, 2018
Review outcome and disbursements
- On March 23, 2018, the Executive Board completed the second review of Tunisia’s economic reform program under the Extended Fund Facility (EFF).
- Completion of the review allows the authorities to draw an amount equivalent to SDR 176.7824 million (about US$257.3 million).
- Total disbursements under the arrangement after this review amount to the equivalent of SDR 631.3661 million (about US$919 million).
- The Board approved the authorities’ request to move from semi-annual to quarterly reviews; overall disbursements available throughout the program remain unchanged.
Board approvals, waivers, and exchange restrictions
- The Board approved waivers of non-observance of end of December performance criteria on:
- net international reserves,
- net domestic assets,
- the primary fiscal deficit,
- current primary spending.
- The Board approved waiver of non-observance of the continuous performance criterion on imposing or intensifying restrictions on the making of payments and transfers for current international transactions.
- The Board granted approval for retention of an exchange restriction barring trade credit for certain non-essential imports until December 31, 2018.
Program framework and objectives
- The four-year EFF arrangement amount: SDR 2.045625 billion (about US$2.98 billion, 375 percent of Tunisia’s quota); approved May 20, 2016.
- The program aims at:
- reducing macroeconomic vulnerabilities,
- ensuring adequate social protection,
- fostering private sector-led, job-creating growth.
- Priorities include:
- growth-friendly and socially-conscious fiscal consolidation to stabilize public debt below 73 percent of GDP by 2020 while raising investment and social spending,
- reversing the recent trend of accelerating inflation,
- continued exchange rate flexibility to support exports and strengthen international reserve coverage.
- Structural reform focus areas: improving governance, the business climate, fiscal institutions, and the financial sector.
IMF assessment of Tunisia’s macroeconomic situation
- Tunisia experienced a modest recovery in 2017 but continues to face:
- elevated macroeconomic vulnerabilities,
- high unemployment.
- Specific challenges noted:
- Debt has continued to increase.
- Inflation has accelerated.
- International reserve cover is now less than three months of imports.
- The IMF stated that decisive implementation of the Fund-supported program is necessary to sustain macroeconomic stability.
Policy recommendations and near-term priorities
- Fiscal policy:
- Implement a deficit-reducing budget for 2018.
- Increase tax revenue in an equitable manner.
- Reign in current spending to reduce debt and increase investment and social expenditure.
- Strengthen tax collection.
- Implement voluntary separations for civil servants.
- Do not grant new wage increases unless growth surprises on the upside.
- Enact quarterly fuel price hikes.
- Distribute the adjustment burden equitably across society and protect the vulnerable.
- Public-private partnerships should only proceed with adequate legal and regulatory frameworks.
- Monetary and exchange rate policy:
- Continue monetary tightening; the Central Bank has widened the interest corridor and enacted a strong policy rate increase.
- Further policy rate hikes will be needed to move real interest rates into positive territory unless inflation quickly subsides.
- Maintain exchange rate flexibility to correct remaining overvaluation of the real exchange rate, improve the current account deficit, and rebuild reserves.
- Adhere to the FX intervention budget and conduct more competitive FX auctions.
- Social and structural policies:
- Increase near-term financing for social security and follow with equitable and sustainable pension reforms.
- Finalize the database of vulnerable households for targeted social assistance to help preserve the social contract.
- Ensure public bank restructuring is facilitated by legislation to reduce NPL portfolios.
- Continue enhancements to the AML/CFT regime to address deficiencies.
Structural reforms progress
- Achievements cited:
- Establishment of the High Anti-Corruption Authority.
- Building institutions in support of the investment code, including the one-stop shop.
- Legislation to facilitate reduction of NPL portfolios to aid public bank restructuring.
- Ongoing enhancements to the AML/CFT regime.
Key statistics and dates
- SDR 176.7824 million (about US$257.3 million) — amount available to draw after second review.
- Total disbursements: SDR 631.3661 million (about US$919 million).
- EFF arrangement total: SDR 2.045625 billion (about US$2.98 billion, 375 percent of Tunisia’s quota).
- Review completion date: March 23, 2018.
- EFF approval date: May 20, 2016.
- Exchange restriction barring trade credit for certain non-essential imports approved until December 31, 2018.
- Public debt stabilization target: below 73 percent of GDP by 2020.
- International reserve cover: now less than three months of imports.
Source: IMF Executive Board Completes Second Review under the Extended Fund Facility (EFF) Arrangement for Tunisia, Press Release No. 18/104.