Press Release No. 18/279

IMF Executive Board Completes Third Review under the Extended Fund Facility (EFF) Arrangement for Tunisia

July 9, 2018

• The government’s reform program aims at strengthening the recovery by reducing macroeconomic imbalances, ensuring adequate social protection, and encouraging private sector-led job creation.
• Growth-friendly and socially conscious reforms will help reduce fiscal and current account deficits, reverse debt accumulation, and raise investment and social spending.
• Monetary policy should continue to focus on curbing inflation.

On July 6, 2018 the Executive Board of the International Monetary Fund (IMF) completed the third review of Tunisia’s economic program supported by an arrangement under the Extended Fund Facility (EFF). The completion of the review allows the authorities to purchase an amount equivalent to SDR 176.7824 million (about US$249.1 million), bringing total purchases under the arrangement to the equivalent of SDR 808.1485 million (about US$1,139.0 million).

The four-year EFF arrangement in the amount of SDR 2.045625 billion (about US$2.9 billion, or 375 percent of Tunisia’s quota at the time of approval of the arrangement) was approved by the Executive Board on May 20, 2016 (see Press Release No. 16/238). The government’s reform program that is supported by the EFF arrangement aims at strengthening the recovery by reducing macroeconomic vulnerabilities, ensuring adequate social protection, and fostering private sector-led, job-creating growth. Priorities include growth-friendly and socially conscious reforms aimed at stabilizing public debt while raising investment and social spending. Monetary policy focuses on curbing inflation, continued exchange rate flexibility, and strengthening international reserves. Structural reforms supported under the arrangement focus on improving governance, the business climate, fiscal institutions, and the financial sector.

Following the Executive Board discussion on Tunisia, Mr. Mitsuhiro Furusawa, Deputy Managing Director and Acting Chair, made the following statement:

“Growth picked up in early 2018 and confidence has improved, but macroeconomic imbalances persist. Unemployment has dropped only marginally, inflation is high, the budget and current account deficits are large, and international reserves are below the recommended level.

“Policy and reform implementation has improved markedly since the Second Review. The Tunisian authorities remain firmly committed to a socially-balanced, gradual approach to macroeconomic adjustment that is supported by the four-year arrangement under the Extended Fund Facility. The success of the authorities’ program depends on sustained efforts to reduce macroeconomic vulnerabilities, ensure adequate social protection, and foster job creation.

“Achieving the authorities’ fiscal targets requires addressing budget pressures. Policy priorities for 2018 include stronger revenue collection, energy price adjustments to limit the impact of international oil prices on the budget, voluntary separations for civil servants, the absence of new wage increases, unless growth surprises on the upside, and pension reform.

“The recent significant hike in the policy interest rate demonstrates the central bank’s strong commitment to price stability. Further rate hikes may be needed if inflation does not decelerate, especially as key interest rates remain negative in real terms.

“Exchange rate flexibility, supported by more competitive central bank foreign exchange auctions, is critical to help improve the current account position and rebuild international reserves.

“The authorities have increased social transfers and progressed with the database on vulnerable families. Pension reform, as well as efforts to better target social policies, should be accelerated.

“The one-stop shop for investors and the negative list of investment authorizations are positive signals for investors. Structural reform priorities going forward include the appointment of the members of the High Anti-Corruption and Good Governance Authority and reforms of the Anti-Money Laundering/Combating the Financing of Terrorism regime.

“Strong implementation of the authorities’ program is essential to mitigate economic, social, and political risks. Building on the strong partnership with the international donor community, it will be important to sustain strong donor financial support and capacity building to help ensure a successful transition to an economy that fosters inclusive growth with the private sector as its main engine.”