Tu­nisia's econ­omy proves re­silient in dif­fi­cult en­vi­ron­ment: IMF

The Pak Banker - - COMPANIES/BOSS -

Mr. Amine Mati, IMF Mis­sion Chief for Tu­nisia af­ter hold­ing talks with Tu­nisian author­i­ties said IMF staff reached staff-level un­der­stand­ings with the Tu­nisian author­i­ties on the sixth re­view un­der the SBA. These un­der­stand­ings are sub­ject to ap­proval by IMF man­age­ment and the Ex­ec­u­tive Board, which is ten­ta­tively sched­uled to con­sider the re­view in late Septem­ber. Upon com­ple­tion of this re­view, SDR 214.87 (about $303.08 mil­lion) will be made avail­able to Tu­nisia.

The mis­sion wel­comes the author­i­ties' con­tin­ued com­mit­ment to im­ple­ment­ing their na­tional eco­nomic pro­gram fol­low­ing the suc­cess­ful con­clu­sion of their po­lit­i­cal tran­si­tion, and looks for­ward to con­tin­u­ing the close co­op­er­a­tion to achieve the pro­gram ob­jec­tives of macroe­co­nomic sta­bil­ity and stronger and more in­clu­sive growth.

"In re­cent years, Tu­nisia's econ­omy has been re­silient in a pe­riod marked by a dif­fi­cult in­ter­na­tional eco­nomic en­vi­ron­ment, spillovers from re­gional con­flicts, in­creased se­cu­rity risks, and high so­cial ten­sions.

"How­ever, af­ter reach­ing 2.4 per­cent in 2014, growth mo­men­tum has waned. Growth is pro­jected to slow to 1 per­cent for 2015 as the reper­cus­sions of the tragic Bardo and Sousse at­tacks and per­sis­tent so­cial ten­sions- as shown by work stop­pages and strikes- damp­ened the ben­e­fits from the post­tran­si­tion con­fi­dence boost, lower global oil prices and the eu­ro­zone re­cov­ery. Ex­ter­nal im­bal­ances are ex­pected to re­main high, with the cur­rent ac­count deficit im­prov­ing marginally to 8.5 per­cent of GDP in 2015 while for­eign ex­change re­serves re­mained at an ap­pro­pri­ate level of 4months im­port cov­er­age, which is nec­es­sary to strengthen ex­ter­nal buf­fers and re­duce vul­ner­a­bil­i­ties. In­fla­tion­ary pres­sures are ex­pected to re­main con­tained, helped by lower energy and food prices, and a pru­dent mon­e­tary pol­icy.

"In re­sponse to the changes in the do­mes­tic and in­ter­na­tional en­vi­ron­ment, the author­i­ties' pro­gram has been ad­justed to re­spond to the cur­rent chal­lenges, and over­all per­for­mance un­der the Fund-sup­ported pro­gram has been sat­is­fac­tory in view of those chal­lenges. All end-March 2015 quan­ti­ta­tive per­for­mance cri­te­ria have been met ex­cept for the in­dica­tive floor on so­cial spend­ing. Progress on struc­tural re­forms has been slow, but picked up re­cently on the bank­ing sec­tor front.

"The mis­sion wel­comed the mod­est loos­en­ing of the fis­cal stance in 2015 to ac­com­mo­date the short-term eco­nomic fall­out of the re­cent eco­nomic slow­down, in­clud­ing through in­creased se­cu­rity ex­pen­di­tures and trans­fers to SMEs. The mis­sion noted the grow­ing public sec­tor wage bill and called for the need to con­tain it to make room for pri­or­ity and pro­duc­tive cap­i­tal spend­ing, which had reached record lows.

"The re­cent re­duc­tion in energy sub­si­dies, re­sult­ing from the de­cline in global oil prices, is a welcome de­vel­op­ment. An au­to­matic fuel price for­mula should be de­signed ur­gently to al­low for a much needed de­cline in do­mes­tic re­tail fuel prices, which are cur­rently above in­ter­na­tional lev­els for some prod­ucts. It will also be im­por­tant for the gov­ern­ment to move quickly in adopt­ing the tax re­form, whose de­sign fol­lowed a long process of con­sen­sus build­ing dur­ing the na­tional tax con­sul­ta­tions, and aims at pro­mot­ing greater trans­parency, ef­fi­ciency and eq­uity.

"A pru­dent mon­e­tary stance would con­tinue con­tain­ing in­fla­tion­ary pres­sures while greater ex­change rate flex­i­bil­ity-in­clud­ing through con­tin­u­ing to limit for­eign ex­change in­ter­ven­tions to smooth large fluc­tu­a­tions-will con­trib­ute to re­duc­ing ex­ter­nal im­bal­ances and strength­en­ing re­serve buf­fers.

"The im­ple­men­ta­tion of the author­i­ties' broad re­form agenda is pro­gress­ing. How­ever, at 15.2 per­cent un­em­ploy­ment, there is an ur­gent need to push ahead with struc­tural re­forms to boost job cre­ation and help meet the as­pi­ra­tions of the Tu­nisian pop­u­la­tion for a more in­clu­sive so­ci­ety.

"The re­form of the bank­ing sec­tor is of par­tic­u­lar sig­nif­i­cance. Steps taken to strengthen public banks, such as the ini­ti­a­tion of the re­cap­i­tal­iza­tion of public banks and changes in their gov­er­nance frame­work, are im­por­tant. The adop­tion of a new bank­ing law and fur­ther strength­en­ing of the su­per­vi­sory and reg­u­la­tory frame­work will be needed to con­struct a mod­ern bank­ing sec­tor and fa­cil­i­tate fi­nan­cial sec­tor in­ter­me­di­a­tion.

"Cre­at­ing a level play­ing field for in­vestors will re­quire adopt­ing and im­ple­ment­ing key leg­is­la­tion, such as bank­ruptcy and com­pe­ti­tion laws. Ad­vances in strength­en­ing the so­cial safety net by bet­ter iden­ti­fy­ing and tar­get­ing the vul­ner­a­ble pop­u­la­tion is also welcome."

The two-year SBA in the amount of SDR 1.146 bil­lion (about US$1.68 bil­lion, 400 per­cent of Tu­nisia's quota) was ap­proved by the Ex­ec­u­tive Board on June 7, 2013 (See Press Re­lease No. 13/202). The fifth re­view un­der the SBA was ap­proved by the Board on De­cem­ber 12, 2014, bring­ing to­tal dis­burse­ments to date to SDR 787.87 mil­lion or about $1.15 bil­lion. A 7 month ex­ten­sion of Tu­nisia's SBA to De­cem­ber 31, 2015 was ap­proved in May 2015.

The mis­sion vis­ited Tu­nis in June and July 2015 to carry out dis­cus­sions with the Tu­nisian author­i­ties on the Ar­ti­cle IV con­sul­ta­tion and the sixth re­view of their eco­nomic and fi­nan­cial pro­gram sup­ported by a Stand- By Ar­range­ment (SBA). Dis­cus­sions con­tin­ued in Washington. The mis­sion thanks the author­i­ties and all those with whom they met for their warm welcome, and frank and fruit­ful dis­cus­sions.

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