Despite the challenging domestic and regional environment, Tunisia has registered a strong fiscal performance in the first half of this year, and continued fiscal consolidation remains essential to anchor the North African country’s macroeconomic stabilisation, according to the International Monetary Fund (IMF).
Following the completion of the fourth review of Tunisia’s economic performance focused on macroeconomic stabilisation and sector reforms, IMF Deputy Managing Director and Acting Chair of the Fund’s Executive Board Naoyuki Shinohara said progress in the country’s political transition was helping to galvanise support from development partners.
In a statement made available to PANA here Monday, Shinohara welcomed fiscal measures undertaken by Tunisian authorities to offset spending pressures, saying: “Recent increases in energy prices — together with the implementation of new programmes to protect the poor — will help reduce vulnerabilities.
“Energy subsidy reform and a strict control of the wage bill will improve budget composition, which will also benefit from increased social and investment expenditures.”
Completion of the review has enabled an immediate disbursement of SDR 143.25 million (about US$217.5 million), bringing total disbursements to SDR 716.25 million (about US$1.1 billion), under a two-year stand-by arrangement in the amount of SDR 1.146 billion (about US$1.74 billion, or 400 percent of Tunisia’s quota at the IMF).
“Tunisia is set to complete its political transition with the advent of elections in the last quarter of 2014,” said Shinohara. “Nonetheless, the economic situation remains difficult. Growth is timid, unemployment remains high, and rising external imbalances are putting pressures on the exchange rate and reserves.”
In his view, comprehensive revenue reforms, strengthened public financial management and reform of public enterprises would support fiscal consolidation and help generate more inclusive growth.
“A tighter monetary policy would help counter inflationary pressures and reduce exchange rate pressures. Further exchange rate flexibility would help rebuild foreign reserve buffers, correct large external imbalances, and improve competitiveness,” he said.
In its analysis of Tunisia’s public and external debt sustainability, the IMF staff report pointed out that an expansionary fiscal policy in the aftermath of the revolution, combined with a decline in economic activity, increased public debt.
“After having declined from an average of 60 percent of GDP in the 1990s to 40.7 percent of GDP in 2010, the debt-to-GDP ratio increased in 2011 to 44.5 percent and remained practically unchanged until 2013, though it is expected to increase to about 7 percentage points of GDP to 51.7 percent of GDP by end-2014,” the report said.
In spite of the increasing debt, the country’s debt level “continues to be relatively comfortable and lower than in similar countries in the region, despite high deficit levels since the revolution,” the report observed.
Main risks relate to regional and domestic security tensions, setbacks in the political transition, and weaker economic activity in major trading partners.
Meanwhile, Tunisia’s external debt declined sharply in recent years from over 65 percent of GDP in 2002 to 48 percent of GDP at end-2011, on the back of a strong fiscal adjustment and moderate current account deficits.
“The [Tunisian] authorities have followed prudent borrowing policies, refraining from accessing international capital markets and opting instead for concessional resources from multilateral and development banks,” the IMF report noted. ” As a result, Tunisia’s external debt sustainability risks appear contained in the period ahead.”