IMF Staff Completes Article IV Consultation Mission with Tunisia

IMF News, January 23, 2021

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IMF staff team led by Chris Geiregat conducted a remote mission from December 9 to 18, 2020 and January 4 to 13, 2021 in the context of the 2020 Article IV consultation with Tunisia.
End-of-mission press release conveys preliminary findings of IMF staff and does not necessarily represent the views of the IMF’s Executive Board.
Since 2013, Tunisia benefited from two arrangements (a Stand-By Arrangement and Extended Fund Facility) with the IMF. On April 10, 2020, the IMF Executive Board approved a Rapid Financing Instrument disbursement to support Tunisian authorities’ response to the pandemic.

Real GDP contracted by an unprecedented 8.2 percent in 2020.
Fiscal deficit is estimated to have widened to 11.5 percent of GDP in 2020, including because of lower revenue, a higher wage bill, and additional transfers to state-owned enterprises.
Current account deficit is expected to have narrowed in response to a sharp drop in import demand and resilient remittances, despite a strong hit on exports and collapsing tourism receipts.
Resulting social outcomes include higher poverty and unemployment.

IMF staff expects GDP growth to rebound to 3.8 percent in 2021 as the effects of the pandemic start to wane.
Considerable downside risks surround the baseline projection, especially given uncertainty from the duration and intensity of the pandemic and the timing of the vaccination.
The 2021 budget projects the fiscal deficit to narrow to 6.6 percent of GDP.
IMF staff projects that, in the absence of specific measures to back the 2021 deficit objective, the fiscal deficit could be higher at over 9 percent of GDP.

Strictly prioritize spending on health and social protection while exerting control over:
- the wage bill,
- ill-targeted energy subsidies,
- transfers to state-owned enterprises.
Continue to strengthen targeted safety nets and favor growth-enhancing public investment.
A broad-based and credible reform plan backed by Tunisian society and international development partners is critical to achieve durable and inclusive growth over the medium term.

Several large SOEs are saddled with debt, have accumulated arrears, and benefit from government guarantees, posing fiscal and financial risks.
Staff welcomes authorities’ efforts to start to disentangle and resolve some cross-arrears, and encourages adoption of a medium-term reform plan that:
- “triages” SOEs based on their financial viability, strategic importance, and nature of their activities;
- centralizes their oversight in a single entity;
- strengthens corporate governance;
- improves transparency and financial reporting.
Improving the financial position of the social insurance system would also reduce fiscal risks.

The Central Bank of Tunisia’s (CBT) monetary policy has helped support credit and liquidity, while inflation continued to fall.
Staff urges the authorities to avoid future monetary financing of the government, warning it:
- risks reversing gains achieved in terms of lowering inflation;
- could weaken the exchange rate and international reserves;
- could undermine financial stability.
Monetary policy should continue its focus on inflation by steering policy rates, while preserving two-sided exchange rate flexibility.
The CBT should closely monitor the financial sector, as the full impact of the pandemic on the financial sector is yet to be observed.

Raise potential and inclusive growth through more private sector initiative and competition, including removing monopolies and other distortions.
Support reforms advancing anti-corruption, good governance, and transparency as cross-cutting themes.
Support authorities’ objective to cover at least 30 percent of its energy needs through renewables by 2030, to help combat climate change and diversify energy supply.
Build a “social compact” with stakeholders covering:
- the civil service wage bill (noted as currently among the highest in the world),
- subsidy reform,
- the role of state-owned enterprises,
- the informal sector,
- tax equity,
- anti-corruption reforms,
- the business environment.

IMF Communications Department — January 23, 2021