Press Release No. 18/367

IMF Executive Board Completes Fourth Review Under Extended Fund Facility Arrangement (EFF) for Tunisia

October 1, 2018

• The recovery is strengthening, but risks continue to weigh on the outlook.
• The government’s program aims at reducing macroeconomic imbalances, while providing social protection, and encouraging private sector-led job creation.
• Fiscal and monetary policies seek to reduce debt, support inclusive growth, and curb inflation.

On September 28, 2018, the Executive Board of the International Monetary Fund (IMF) completed the Fourth Review of Tunisia’s economic program supported by an arrangement under the Extended Fund Facility (EFF). The Board’s decision makes available to Tunisia SDR 176.7824 million (about US$247 million), bringing total disbursements to SDR 984.9309 million (about US$1.4 billion). 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).

Priorities of the government’s economic reform program that is supported by the EFF arrangement include growth-friendly and socially conscious reforms. Fiscal policies aim at mobilizing revenue and containing current expenditure to reduce Tunisia’s debt burden, and increase public investment and social spending to support sustainable and inclusive growth. Monetary policy focuses on curbing inflation, and continued exchange rate flexibility will help to strengthen international reserves. To maintain adequate social protection, the authorities have increased social transfers to vulnerable households, are working on the better targeting of social expenditure, and submitted a pension law proposal to Parliament. Structural reforms supported under the arrangement include strengthening 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:

“The Tunisian authorities’ efforts to reduce macroeconomic imbalances are bearing fruit. Growth accelerated in the first half of 2018, but unemployment and inflation remain high. High oil prices continue to weigh on the external and fiscal balances, investment is weak, and international reserves cover less than three months of imports.

“Policy and reform implementation has improved further since the Third Review. The Tunisian authorities remain committed to the socially-balanced approach to macroeconomic adjustment supported by the four-year EFF arrangement.

“Strong efforts are required to achieve the agreed fiscal targets. Policy priorities include stronger revenue collection, regular energy price adjustments, strict wage bill management, and reforms to ensure the financial viability of pensions.

“Further monetary tightening is warranted to reduce inflation. The CBT demonstrated its commitment to price stability by policy rate hikes, but key interest rates remain negative in real terms. Thus, policy rate should increase further to avoid further erosion of the purchasing power of the local currency and anchor inflationary expectations.

“Reducing external imbalances hinges on a market-determined exchange rate. Competitive foreign exchange auctions, backed by effective communication, would support this strategy. Sustained tightening of macroeconomic policies will help to mitigate the impact of the exchange rate depreciation on debt.

"The authorities’ reform agenda depends on maintaining adequate social protection. The recent decision to broaden coverage of vulnerable families benefiting from social transfers, also captured in the new QPC on social spending, should be implemented quickly. Completing the database of vulnerable households will be critical for better social targeting. Any changes in subsidies for food staples should only be considered once adequate safety nets are in place.

“Continued business climate, governance, and financial sector reforms are critical. The authorities should maximize the impact on growth of the new one-stop shop for investors, the negative list of investment authorizations, and the Start-up Act. The appointment of the members of the High Anti-Corruption Authority would be an important step to strengthen enforcement of existing laws and regulations. In the financial sector, the resolution of the BFT, further strengthening of supervisory framework, and progress on the AML/CFT regime are needed.

“Strong program implementation is necessary to reduce macroeconomic imbalance and foster inclusive growth in the difficult political and security environment. Continued support of the donor community is critical for Tunisia’s successful transition.”