IMF Reaches Staff-Level Agreement for Completion of First Review of Tunisias Extended Fund Facility

Stocks and Financial Services Press Releases Tuesday April 18, 2017 08:58
IMF--18 Apr--International Monetary Fund

End-of-Mission press releases include statements of IMF staff teams that convey preliminary findings. The views expressed in this statement are those of the IMF staff and do not necessarily represent the views of the IMF's Executive Board. Based on the preliminary findings of this mission, staff will prepare a report that, subject to management approval, will be presented to the IMF's Executive Board for discussion and decision.

The IMF supports the government's efforts to create economic opportunities and jobs for all Tunisians, stabilize public finances for the benefit of future generations, and protect the vulnerable in these challenging times.Tunisia's economy faces significant challenges, including high external and fiscal deficits, increasing debt, and growth that is too low to reduce unemployment.Increasing social spending and strengthening the social safety net will protect the most vulnerable and their purchasing power.An International Monetary Fund (IMF) mission led by Mr. Björn Rother visited Tunis from April 7 – 18, 2017, to conduct the first review of Tunisia's economic program supported by the four-year IMF Extended Fund Facility (EFF) approved in May 2016(see Press Release No. 16/238). At the conclusion of the mission, Mr. Rother issued the following statement:

"Following productive talks, the IMF staff team and the Tunisian authorities reached a staff-level agreement on the policies needed to complete the first review of Tunisia's EFF. The staff level agreement is subject to approval by the IMF's Executive Board. Completion of the review would make available SDR 227.3 million (about US$308 million), bringing total disbursements under the EFF to about US$627.5 million.

"Tunisia's economy faces significant challenges. Fiscal and external deficits reached record levels, the wage bill as a percent of GDP has climbed to one of the highest in the world, and public debt further increased to 63 percent of GDP at the end of 2016. Core inflation edged up. Growth in 2017 is expected to double to 2.3 percent, but will remain too low to significantly reduce unemployment, especially in the interior regions and among the youth.

"The difficult economic situation requires strong and urgent action to maintain macroeconomic stability and boost job creation. The IMF team welcomes the determination of the national unity government to act swiftly, guided by priorities of the "Accord de Carthage" and the 5-year Development Plan. The policies supported by the EFF are helping to translate the authorities' agenda into specific actions.

"Creating more economic opportunity for all Tunisians and protecting the health of public finance are at the heart of the government's economic strategy. In the near term, the priorities center on increasing tax revenue in an equitable way, implementing the civil service reform strategy that puts the wage bill on a sustainable trajectory, reducing energy subsidies, and covering the immediate liquidity deficits in the social security system. Increasing social spending and improving the targeting of the social safety net will protect the most vulnerable and their purchasing power in these difficult times. A tighter monetary policy would counteract inflationary pressures, and greater exchange rate flexibility would help narrow the large trade deficit.

"The government has made encouraging progress in advancing delayed reforms to tackle the structural barriers weighing on the Tunisian economy. Critical elements of this agenda include new legislation for investment and competition, work towards the establishment of a new constitutional body for the fight against corruption, and measures to reform public banks and public enterprises. Comprehensive pension reform will make the retirement system viable for future generations.

"Tunisia's participation in the G20 initiative Compact with Africa will be an opportunity to build on the success of last November's investor conference Tunisia 2020 and re-affirm the government's determination to build a better economic future for Tunisia. Rigorously implementing the comprehensive reform package supported under the EFF will ultimately unlock the significant long-term potential of the Tunisian economy and improve living conditions of all Tunisians.

"Staff met with the Head of Government Youssef Chahed, Minister of Finance Lamia Zribi, Minister of Investment Fadhel Abdelkefi, Minister of Energy Hela Cheikhrouhou, and Central Bank Governor Chedly Ayari. It also had discussions with representatives of Union Generale Tunisienne du Travail (UGTT), Union Tunisienne de l'Industrie, du Commerce et de l'Artisanat (UTICA), and civil society; and coordinated closely with the World Bank and other external partners of Tunisia. The mission would like to thank the authorities and all those with whom they met for their warm welcome and the frank and productive discussions."

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