An International Monetary Fund (IMF) staff team, led by Björn Rother,
visited Tunisia from August 15–31 to discuss the authorities’ policy plans
under the Fourth Review of Tunisia’s economic reform program supported by a
four-year IMF Extended Fund Facility (EFF) arrangement
(see Press Release 16/238)
. At the end of the visit, Mr. Rother issued the following statement:
"The Tunisian authorities and the IMF team reached a staff-level agreement
on the policies needed to complete the fourth review of Tunisia’s EFF. The
Tunisian authorities emphasized their intention to continue to act
decisively to contain the budget deficit, which would allow the IMF’s
Executive Board to consider the Fourth Review at the end of September.
Completion of the review would make available SDR 177 million (about US$257
million), bringing total disbursements under the EFF to about US$1.5
billion.
"There are some encouraging signs that economic activity is picking up. The
Tunisian economy grew 2.6 percent (year-on-year) in the first half of this
year, with robust performance in agriculture, tourism, and services. The
number of tourists visiting Tunisia since the start of the year is the
highest since 2010. The authorities’ commitment to reducing fiscal
imbalances is also bearing fruit. The execution of the budget in the first
six months of 2018 is consistent with achieving a significant deficit
reduction this year. Containing deficits will help reduce Tunisia’s high
public debt that burdens the economy and future generations.
"Although growing, the economy remains too dependent on consumption and
imports. Investment has again been weak this year. Unemployment among the
young and women, especially those who are well-educated, remains very high.
Additional economic reforms, which include strengthening governance and
enforcement in the government’s anti-corruption fight, are necessary to
overcome investor reluctance and build confidence. These efforts will help
unleash the potential of private sector and generate more opportunity and
jobs for all Tunisians.
"Long-standing economic imbalances continue to pose significant risks to
the Tunisian economy. Inflation declined marginally in July, but at 7.5
percent, it remains considerably higher than in previous years. Money and
credit have continued to increase rapidly and the dinar has depreciated
further, which will likely create new inflationary pressures in the months
ahead. Moreover, the expected improvement in the current account deficit
has been delayed: imports are still too high relative to exports and other
inflows of foreign currency. Foreign exchange reserves are therefore still
below levels commonly seen in other emerging-market economies.
"In addition, Tunisia’s external environment is witnessing new challenges.
Oil prices are significantly higher than projected at the beginning of the
year and international financial markets have become more volatile. Risk
premia for a broad range of emerging markets have increased.
"Staying the course on reducing the fiscal deficit this year and next is
critical to stabilize debt and reduce excessive demand for imports given
the recent increase in global oil prices. It will remain particularly
important to pursue reforms of untargeted energy subsidies, manage
carefully the public wage bill, and put the public and private pension
funds on a sustainable basis. These steps will help to contain expenditure
that disproportionately benefits the better-off. They will also make more
resources available for public investment, which will boost growth and
jobs, to the benefit of the young and the unemployed. The IMF team welcomes
the government’s intention to further increase social spending, which it
views as critical to protect the poor and vulnerable in the period ahead.
"The Central Bank of Tunisia is right to remain vigilant, as the recent
decline in inflation could be temporary. If inflation were to pick up again
in the months ahead, additional increases in interest rates would be
necessary to anchor inflation expectations and maintain economic stability.
"The IMF team met with the Minister of Finance Chalghoum, Minister of
Investment Laâdhari, Minister of Major Reforms Rajhi, and Central Bank
Governor El Abassi as well as their staff. It also had discussions with
representatives of the private sector, civil society, and the diplomatic
community. The mission would like to thank the authorities and all those
with whom it met for their warm welcome and constructive discussions."
