Tunisia's economy proves resilient in difficult environment: IMF

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.