IMF Executive Board Concludes 2012 Article IV Consultation with Tunisia

Public Information Notice (PIN) No. 12/96
August 3, 2012

Public Information Notices (PINs) form part of the IMF's efforts to promote transparency of the IMF's views and analysis of economic developments and policies. With the consent of the country (or countries) concerned, PINs are issued after Executive Board discussions of Article IV consultations with member countries, of its surveillance of developments at the regional level, of post-program monitoring, and of ex post assessments of member countries with longer-term program engagements. PINs are also issued after Executive Board discussions of general policy matters, unless otherwise decided by the Executive Board in a particular case.

On July 25, 2012, the Executive Board of the International Monetary Fund (IMF) concluded the Article IV consultation with Tunisia.1


The January 2011 revolution marked the beginning of an historical era for Tunisia. Following the overthrow of the former President, Tunisia has moved steadily forward with its democratic transition. The successful elections of a Constituent Assembly in October 2011 were a milestone. A new coalition government, led by the Islamic Party (Ennahda) with two secular parties, was formed. The constituent assembly is now preparing a new constitution, on the basis of which new general elections are scheduled to take place in March 2013.

While the political transition has continued to progress, Tunisia experienced a severe recession in 2011 amid domestic and regional turmoil. Real GDP contracted by 1.8 percent, reflecting a sharp decline in tourism and foreign direct inflows. As the result of the economic downturn and the return of Tunisian workers from Libya, unemployment soared to 19 percent in 2011, with youth unemployment at 42 percent. Tunisia’s external position weakened, with the current account deficit widening substantially to 7.3 percent of GDP in 2011 and official reserves declining from US$9.5 billion at end-2010 to US$7.5 billion at end-2011. After decelerating to 3.5 percent in 2011, inflation accelerated to 5.7 percent in April 2012 (year-on-year).

The authorities implemented an expansionary policy mix to address social demands and support the economy. With an increase in current budget spending owing to an increase in the wage bill, larger food and energy subsidies, and new social measures, as well as increased capital spending, and notwithstanding a significant increase in revenue, the overall fiscal deficit widened to 3.5 percent of GDP in 2011 from 1.1 percent in 2010. As a result, following a decline in the last decade to 40 percent of GDP in 2010, the public debt ratio increased to 44.5 percent of GDP at end-2011. Monetary policy has been supportive of bank credit, with large liquidity injection and a reduction in the policy interest rate.

The economic downturn, particularly in the tourism sector, deteriorated the quality of the banks’ portfolio. In response, the central bank relaxed its regulatory requirements to allow banks to reschedule loans for companies affected by the recession and injected large amount of liquidity in the banking system to help banks in an environment of declining assets performance. As a result, most banks became heavily dependent on central bank’s refinancing.

Signs of a rebound have emerged in early 2012, with real GDP increasing by 4.8 percent
(year-on-year) in the first quarter and tourism and FDI picking up. A recovery in real GDP growth would also be supported by a sizable growth-supporting fiscal expansion. However, risks to the short-term outlook are large and tilted to the downside, including a worse-than-anticipated recession in Europe which would depress exports, an escalation of domestic social tensions which would hamper foreign and domestic investment, and capacity constraints and delays in financing which could curb the envisaged growth-supporting fiscal stimulus. On the upside, a rapid stabilization of the situation in Libya could bolster investors’ confidence.

Tunisia’s medium-term economic growth potential remains favorable, but unleashing it requires a comprehensive package of structural reforms to foster private investment. Achieving higher and more inclusive growth over the medium term will be necessary to reduce high unemployment, especially among the youth, and address social and regional disparities. Real growth would gradually reach 6 percent by 2017 in a baseline scenario which assumes continued macroeconomic stability, improvement in governance and the business environment, reforms of the labor market and education system to address the labor skills mismatches, and a strengthening of the financial sector. Achieving higher growth will also require that large external financing, including FDI inflows and borrowing by the government and corporate sectors, can be mobilized.

Executive Board Assessment

Executive Directors noted that following Tunisia’s political transition, the country faces pressing economic and social challenges, including elevated unemployment and regional disparities. Directors stressed the need to lay the ground for transforming the economy and promoting stronger and more inclusive growth. With the economic recovery facing risks from the unsettled political situation and the weak global environment, Directors saw a need to support economic activity while safeguarding macroeconomic stability.

Directors saw room for fiscal policy to support growth and employment in the short term. They generally considered the planned targeted expansion in public investment—while containing current spending—to be appropriate. In this regard, they welcomed the authorities’ efforts to streamline public procurement and improve investment execution. Directors emphasized that fiscal consolidation should resume over the medium term to preserve fiscal and debt sustainability, and highlighted the need for a clear consolidation plan. They supported planned tax reforms to strengthen revenue and make the tax system more equitable and supportive of growth. They also emphasized the need to control medium-term public expenditures, including the wage bill, and to reform the subsidy and pension systems.

Directors supported the tightening of monetary policy to contain inflation, and welcomed the central bank’s readiness to increase the policy rate if inflationary pressures persist. They underscored the importance of strengthening the institutional framework for monetary policy, as well as the coordination of monetary and exchange rate policies. Directors noted that greater exchange rate flexibility can help preserve foreign reserves. Directors emphasized the need to ensure the central bank’s independence for the conduct of monetary and exchange rate policies, as well as for banking supervision.

Directors encouraged the authorities to press ahead in addressing the banking sector vulnerabilities identified in the FSSA. They emphasized the need to decisively address high NPLs and bank recapitalization issues, as well as improve the governance of public banks. They also stressed the importance of aligning banking supervision with international standards. Directors encouraged the central bank to develop an exit strategy to unwind gradually its large liquidity support to banks while continuing to meet banks’ liquidity needs.

Directors considered that comprehensive structural reforms are needed to reorient the Tunisian economy and harness its potential for higher and more inclusive growth. With the need to reduce unemployment, reform of the labor market and the education system will be key. Improving the business environment and governance will also be important to increase private sector investment. The development of high-value-added sectors will help absorb skilled labor. Directors highlighted the need to prioritize reforms while improving implementation capacity.

Tunisia: Selected Economic and Financial Indicators, 2008–13
        Est. Projections
2008 2009 2010 2011 2012 2013

Production and income (percent change)


Nominal GDP

10.9 6.3 7.8 2.2 8.6 8.2

Real GDP

4.5 3.1 3.0 -1.8 2.7 3.5

GDP deflator

6.1 3.1 4.7 4.1 5.8 4.6

Consumer price index (CPI), average

4.9 3.5 4.4 3.5 5.0 4.0

Gross national savings (percent of GDP)

22.1 21.9 21.6 16.8 18.1 18.9

Gross investment (percent of GDP)

25.9 24.8 26.4 24.1 25.1 25.9

External sector (percent change)


Exports of goods, f.o.b. (in $)

26.6 -24.8 14.0 8.5 0.9 5.3

Imports of goods, f.o.b. (in $)

28.7 -21.9 15.9 7.7 2.2 5.6

Exports of goods, f.o.b. (volume)

5.5 -9.6 6.7 -1.5 -1.5 4.8

Import of goods, f.o.b. (volume)

7.3 1.0 -1.8 -6.0 5.0 6.5

Trade balance (in percent of GDP)

-8.9 -8.5 -10.3 -10.4 -11.1 -11.4

Current account, excluding grants (percent of GDP)

-3.8 -2.8 -4.8 -7.3 -7.0 -6.9

Foreign direct investment (percent of GDP)

5.7 3.3 3.0 0.9 2.5 2.8

Terms of trade (deterioration -)

0.1 7.6 -9.6 -4.0 5.1 1.4

Real effective exchange rate (depreciation -) 1/

-0.7 -1.1 -0.5 -1.8 ... ...

Central government (percent of GDP, unless


otherwise indicated) 2/


Total revenue, excluding grants and privatization

23.8 23.1 23.3 24.7 23.8 23.0

Total expenditure and net lending

24.8 26.1 24.4 28.2 30.8 28.1

Central government balance, excluding grants and



-1.0 -3.0 -1.1 -3.5 -7.0 -5.1

Central government balance, including grants,


excluding privatization

-0.7 -2.7 -1.0 -3.2 -6.4 -5.0

Total government debt (foreign and domestic)

43.3 42.9 40.5 44.4 45.7 50.5

Foreign currency public debt (percent of total debt)

60.8 58.4 60.6 58.0 61.4 58.5

Money and credit (percent change)


Credit to the economy

14.0 10.3 19.6 13.5 5.7 ...

Broad money (M3) 3/

14.4 13.0 12.1 9.2 10.8 ...

Liquidity aggregate (M4)

14.2 12.7 12.2 9.2 10.8 ...

Velocity of circulation (GDP/M3)

1.62 1.52 1.46 1.37 1.34 ...

Interest rate (money market rate, percent, e.o.p) 4/

4.90 4.10 4.12 3.05 ... ...

Official reserves


Gross official reserves (US$ billions, e.o.p)

9.0 10.6 9.5 7.5 8.2 8.7

In months of imports of goods and services, c.i.f. 5/

4.4 6.6 5.1 3.8 4.0 4.0

Total external debt


External debt (US$ billions)

20.6 21.5 21.4 22.0 24.2 26.1

External debt (percent of GDP)

48.8 48.2 48.5 51.0 53.7 55.8

Debt service ratio (percent of exports of GNFS)

8.6 11.9 10.5 11.7 10.4 9.8

Financial market indicators


Stock market index 6/

2,892 4,292 5,113 4,722

Memorandum items:


GDP at current prices (TD millions)

55,296 58,768 63,380 64,802 70,402 76,182

GDP at current prices (US$ billions)

44.9 43.5 44.3 46.0 46.1 48.0

GDP per capita (US$)

4,346 4,171 4,199 4,320 4,284 4,409

Unemployment rate (percent) 7/

12.6 13.3 13.0 18.9 ... ...

Population (millions)

10.3 10.4 10.5 10.7 10.8 10.9

Exchange rate: dinar/US$ (average)

1.23 1.35 1.43 1.41

Sources: Tunisian authorities; and IMF staff estimates and projections.

1/ Information Notice System.

2/ Excludes the social security accounts.

3/ Financial system (deposit money banks and development banks).

4/ 2011 data is the money market rate on 10/17/2011.

5/ End-of-year reserves over current year imports of goods and services.

6/ TUNINDEX. (1000 = 12/31/1997), with 2011 data at 10/17/2011.

7/ New series based on the ILO definition of the labor force.

1 Under Article IV of the IMF's Articles of Agreement, the IMF holds bilateral discussions with members, usually every year. A staff team visits the country, collects economic and financial information, and discusses with officials the country's economic developments and policies. On return to headquarters, the staff prepares a report, which forms the basis for discussion by the Executive Board. At the conclusion of the discussion, the Managing Director, as Chairman of the Board, summarizes the views of Executive Directors, and this summary is transmitted to the country's authorities. An explanation of any qualifiers used in summings up can be found here:


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