It was anticipated that the 2.9 billion-dollar loan from the International Monetary Fund (IMF) to Tunisia was subject to conditions and commitments by the country’s authorities.
That is the way it goes. Indeed, the IMF, without being strictly a bank, still has some tics, like imposing its conditions for loans to ensure the borrower State has the means to repay.
This has allowed the fund to be viable in the long term and continue to weigh in leading world affairs, especially in emerging and under-developed countries. The other reason the IMF sets the framework for its lending is to say of political and geostrategic order.
This is related to the fact that behind the IMF there are states, and they before all defend interests. And they actually have an interest in the fact that least developed countries remain stable and relatively prosperous, if only for the continuity of trade and business as a whole. Indeed, “states do not have friends, they have only interests,” as aptly said by General de Gaulle.
Everyone wondered what Tunisia would have conceded so that the IMF, once again, despite the very worrying signals from the country’s economy, agrees to open the tap.
The institution has published recently a paper that sheds light on Tunisia’s commitments. The paper contained the report of the IMF, which was presented to the Board in May 2016. This document contains the economic policies defined by Habib Essid’s government, in exchange for the IMF loan, under the EFF.
The IMF provides support for arguments of BCT
Regarding monetary and foreign exchange policies, the Tunisian authorities have pledged to conduct a prudent monetary policy takes into account of economic uncertainties. According to the government, maintaining the downward trend in inflation, a reasonable increase in the volume of public borrowing and economic activity far below its potential bring water to its mill and argue for the monetary policy being conducted (which is calibrated on a positive real interest rate of 1%).
According to the Tunisian authorities, weak inflationary pressures following the recent waves of wage increase reinforce this orientation.
However the IMF staff have insisted that a positive real interest rate should be maintained in order to anchor inflationary expectations and anticipate the likely pressures to depreciation. They support the stance of the BCT to revise the fall in October 2015 rates if inflationary pressures resurface.
Better limiting inflation, a battle to win
The Tunisian authorities have also pledged to aim for net domestic assets in order to keep the swelling money supply at the same level with the inflation target, at least until we have a clear idea of inflation.
The paper also expects improved cash forecasting and consolidation of the safeguards mechanism to strengthen the monetary transmission mechanisms and the management of bank liquidity.
Finally the IMF report recommends that the BCT better disseminates its main objectives and its commitment in terms of economic policy; it also suggests a more flexible exchange rate and adopting a control system based on risk, so as to give substance to a real inflation targeting mechanism.
The question is what will the national unity government in the making, led by Youssef Chahed, do to keep the commitments made by the previous team…