Tunisian authorities and IMF reach Staff Level Agreement

"The Tunisian authorities and the IMF team reached a staff-level agreement on the policies needed to complete the fourth review of Tunisia’s Extended Fund Facility (EFF),” said head of IMF staff team Björn Rother.

Following a mission to Tunisia August 15-31, 2018, 31 to discuss the authorities’ policy plans under the Fourth Review of Tunisia’s economic reform program supported by a four-year IMF Extended Fund Facility (EFF) arrangement, the official recalled that “the Tunisian authorities emphasized their intention to continue to act decisively to contain the budget deficit, which would allow the IMF’s Executive Board to consider the Fourth Review at the end of September.”

In a press release on Friday, the IMF specified that the “completion of the review would make available SDR 177 million (about US$257 million), bringing total disbursements under the EFF to about US$1.5 billion.”

Rother pointed out in a statement that "there are some encouraging signs that economic activity is picking up. The Tunisian economy grew 2.6 percent (year-on-year) in the first half of this year, with robust performance in agriculture, tourism, and services. The number of tourists visiting Tunisia since the start of the year is the highest since 2010.”

He added that “the authorities’ commitment to reducing fiscal imbalances is also bearing fruit. The execution of the budget in the first six months of 2018 is consistent with achieving a significant deficit reduction this year. Containing deficits will help reduce Tunisia’s high public debt that burdens the economy and future generations.”

"Additional economic reforms, which include strengthening governance and enforcement in the government’s anti-corruption fight, are necessary to overcome investor reluctance and build confidence,” he affirmed, adding that “these efforts will help unleash the potential of private sector and generate more opportunity and jobs for all Tunisians.”

The official specified that "long-standing economic imbalances continue to pose significant risks to the Tunisian economy. Inflation declined marginally in July, but at 7.5 percent, it remains considerably higher than in previous years. Money and credit have continued to increase rapidly and the dinar has depreciated further, which will likely create new inflationary pressures in the months ahead,” underlining that the expected improvement in the current account deficit has been delayed.

"Staying the course on reducing the fiscal deficit this year and next is critical to stabilise debt and reduce excessive demand for imports given the recent increase in global oil prices. It will remain particularly important to pursue reforms of untargeted energy subsidies, manage carefully the public wage bill, and put the public and private pension funds on a sustainable basis,” Rother pointed out, specifying that “these steps will help contain expenditure that disproportionately benefits the better-off. They will also make more resources available for public investment, which will boost growth and jobs, to the benefit of the young and the unemployed.”

The IMF team welcomes the government’s intention to further increase social spending, which it views as critical to protect the poor and vulnerable in the period ahead.

"The Central Bank of Tunisia is right to remain vigilant, as the recent decline in inflation could be temporary. If inflation were to pick up again in the months ahead, additional increases in interest rates would be necessary to anchor inflation expectations and maintain economic stability.