Press Release No. 19/211

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

June 12, 2019

• Growth remains subdued and elevated macroeconomic vulnerabilities persist, but policy efforts are starting to show results.
• Tunisia’s budget allows for maintaining growth-enhancing investment and increasing social spending, but there is no room for relaxing the effort on taxes or current expenditure after the recent increase in civil service wages.
• Near-term policies should continue to focus on improving fiscal and external deficits to overcome the otherwise unsustainable debt dynamics, reducing inflation, and strengthening the social safety net for low-income households.

On June 12, 2019, the Executive Board of the International Monetary Fund (IMF) completed the Fifth Review of Tunisia’s economic program supported by an arrangement under the Extended Fund Facility (EFF). The Board’s decision makes available to Tunisia an amount equivalent to SDR 176.7824 million (about US$245 million), bringing total disbursements to SDR 1,161.7133 million (about US$1.6 billion), and catalyze much-needed financing from other partners and international markets. In completing the review, the Board also approved the authorities’ request for waivers of non-observance of end of March 2019 performance criteria on net international reserves and net domestic assets. These waivers were granted on the ground of the corrective measures undertaken by the authorities.

The Executive Board also approved the authorities’ request for rephasing of purchases under the arrangement, including the requested reduction of the total access under the arrangement to an amount equivalent to SDR 1.9522533 billion (about 358.1 percent of Tunisia’s quota). The four-year EFF arrangement was approved by the Executive Board in May 2016 (See Press Release No. 16/238) for an original amount equivalent to SDR 2.045625 billion (about US$2.9 billion or 375 percent of Tunisia’s quota at the time of approval of the arrangement). 

Socially-balanced macroeconomic stabilization remains the government’s priority for 2019, which the EFF arrangement supports. Fiscal policies aim at mobilizing revenue and containing current spending to reduce Tunisia’s budget deficit, while maintaining public investment and strengthening the social safety-net for low-income households. Monetary policy focuses on curbing inflation, and continued exchange rate flexibility will help to improve the current account deficit and international reserves. Structural reforms supported under the arrangement include measures to improve the business climate, broaden access to finance, and reduce corruption.

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

“While improving over the course of 2017 and 2018, growth remains subdued and elevated macroeconomic vulnerabilities persist, but policy efforts are starting to show results. A strong revenue effort and energy subsidy reform have supported significant fiscal deficit reduction, monetary tightening has started to reduce inflation, and lower foreign exchange (FX) interventions have allowed the exchange rate to better reflect fundamentals. Against the backdrop of a challenging domestic socio-political environment and external pressures, program performance since the Fourth Review has been mixed.

“Socially-conscious stabilization efforts will have to remain center stage to reduce vulnerabilities. Near-term policies should continue to focus on improving fiscal and external deficits to reverse the adverse debt dynamics, reducing inflation, and strengthening the social safety net for low-income households. Improved communication of policy and reform objectives and their rationale will facilitate implementation.   

“Reducing the fiscal deficit to 3.9 percent of GDP in 2019 will require unwavering discipline. The authorities’ strategy relies on strong revenue collection, targeted energy subsidy reforms with improved communication, and tight wage bill management. The budget allows for maintaining growth-enhancing investment and increasing social spending, but there is no room for relaxing the effort on taxes or current expenditure after the recent increase in civil service wages.

“Monetary policy needs to focus on maintaining price stability. Additional policy rate hikes would be warranted if inflation projections for December 2019 exceed the target. Success with disinflation will also depend on reducing central bank refinancing and on reforming the collateral framework, while preserving financial stability.

“Reducing external imbalances hinges on a market-determined exchange rate. Competitive FX auctions together with reduced Central Bank interventions and effective communication to the market remain critical to improve the current account and reserves cover. Efforts to strengthen social protection should continue. In particular, increased transfers to low-income households should quickly follow the recent measures to improve access to public health care.

“Structural reforms should focus on enhancing the business climate and improving access to finance to boost private-sector led growth. The appointment of the members of the High Anti-Corruption Authority would help address corruption concerns.

“Program risks remain very high. The authorities' steadfast commitment to the policy and reform agenda, quarterly monitoring, and strong financial and capacity building support by Tunisia’s external partners will remain essential for their mitigation.”