Press Release No. 18/128

IMF Statement on Tunisia

April 13, 2018

• Economic growth is picking up, but risks to macroeconomic stability have also risen.

• Strong policy and reform implementation will lower risks to the budget and decelerate inflation.

• Discussions on the near-term economic reform priorities will continue in Washington during the IMF’s Spring Meetings from April 20–22.

An International Monetary Fund (IMF) staff team, led by Bjoern Rother, visited Tunisia from April 4–11 to discuss the country’s recent economic developments and the authorities’ policy plans under Tunisia’s economic reform program supported by a four-year IMF Extended Fund Facility (EFF) arrangement (see Press Release 16/238) :

“Opposite trends continue to characterize the Tunisian economy in early 2018. Economic growth is picking up, led by a good agriculture season, increases in investment and an early recovery in exports. On the other hand, risks to macroeconomic stability have risen: inflation has risen rapidly to 7.6 percent in March, international reserves remain below 90 days of import cover, and public and external debt have reached 71 and 80 percent of GDP, respectively.

“Addressing economic imbalances is critical to keep the recovery on-track and strengthen the foundations for fair and equitable economic growth in the future. Containing debt today will help prevent increasing taxes tomorrow. To ensure that the budget deficit will decline in line with the objective of the 2018 Budget Law, it is necessary to reduce unfair energy subsidies through increases in domestic energy prices that follow international oil prices. The public-sector wage bill is very large and any further wage increase would be very difficult to sustain, unless growth surprises on the upside. Similarly, raising the retirement age and additional parametric reforms on pensions are crucial to contain the deficits in the social security system.

“The IMF team also agrees with the central bank that anchoring inflation expectations through additional increases in the policy interest rate will be crucial if inflation does not come down quickly. Lowering inflation will protect the poor, maintain the purchasing power of the Tunisian people, and stabilize the macroeconomic outlook.

“Regarding Tunisia’s external situation, a more flexible exchange rate will help rebuild international reserves and continue to encourage exports. The dinar’s remaining overvaluation can be corrected without an abrupt adjustment.

“The Tunisian authorities and the IMF team agreed to continue discussions on the near-term economic reform priorities under the EFF in Washington during the Spring Meetings from April 20–22.

“The IMF team met with the Head of Government Chahed, Minister of Finance Chalghoum, Minister of Investment Laâdhari, Minister of Major Reforms Rajhi, and Central Bank Governor El Abassi. It also had discussions with representatives of Union Générale Tunisienne du Travail (UGTT), Union Tunisienne de l’Industrie, du Commerce et de l’Artisanat (UTICA), and civil society. The mission would like to thank the authorities and all those with whom they met for their warm welcome and constructive discussions.”