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Tunisia: budget policy designed by government independently, up to detractors to present alternative if they have

Taoufik Rajhi is Minister in charge of Major Reforms. He is also in charge of relations with the IMF, one of Tunisia’s main donors.

In an interview with AfricanManager, he responds to those who circulate information that the relations of the Tunisian government with the IMF would have deteriorated.

Question: First of all you have just returned from Beirut where you chaired the thirtieth Ministerial Session of the Economic and Social Commission of West Asia (ESCWA). What were the results?

Answer: It was Tunisia’s turn to preside over this commission for three years. The meeting was successful and is usually organized around three ministerial discussion meetings and parallel expert meetings.

We discussed technology in the face of the challenges of sustainable development. We adopted the Beirut Declaration on Technology for Sustainable Development, which would be the Arab platform for unifying actions in the field to achieve the economic and social development goals established by the United Nations.

Question: And Tunisia in all this?

Answer: On the contrary, we have promoted the recent Tunisian experience in reforming the sector and in particular the adoption of the Startup Act, which is revolutionary in many respects.

The biggest challenge in the Arab world is the unemployment of young graduates and the development of technologies in young people can only be done by encouraging the creation of startups.

We insisted on the role of the State to invest in the technological infrastructure but also on the reform of the legislative framework like the Startup Act in Tunisia but also a fiscal and financial framework as advantageous at the same time as the financing structures.

Question: There has been a lot of misinformation these days about the government-IMF relationship, going so far as to sound about the break-up, the non-disbursement and the cancellation of the visit of the MENA Director. What is it exactly?

Answer: I followed all this bitterness because at the moment we are working hard on the economic recovery of the country and in a crucial period of realization of the financing provided by the Budget Law 2018, untruths arise and sometimes manipulated by “professional” media.

Contrary to all that has been said, the visit of the MENA Director scheduled for Monday June 25 has been postponed for July 26 because of the visit of the King of Jordan to Washington on June 25.

It is inconceivable that the Director of the region is abroad at the time of the visit of the highest official in his country, which is in difficulty.

In addition, the Review was conclusive since the experts’ visit and even in terms of the achievement of the quantitative objectives and structural benchmarks; it is by far the best, since it is the first Review where we do not ask for a derogation.

In addition the date of the Executive Board meeting had been fixed for one month for the 6 of July and was confirmed last Friday with irony by the IMF communication officer at the usual conference.

Personally, I anticipate, as in the World Bank’s Board of Directors on June 27, a unanimous decision approving the staff report that focused on the progress made in reform.

Besides, I can announce to you that the next review will be on August 15th and it will be conclusive inchallah.

Question: your critics tell you that the government is only applying the dictates of the IMF?

Answer: This populist assertion is an insult to Tunisia and especially to the Administration and makes me personally laugh.

Do we need the IMF to know that we should reduce the budget deficit, reform our coffers, control our energy compensation spending or master the payroll? Do we need the IMF to know that it is imperative to reform our public enterprises, modernize the tax administration, and improve tax collection?

Besides nowhere you will find a reference to the reform of public enterprises or social funds in the program of the IMF or the WB.

I have a lot of fund reading that the IMF has asked for the privatization of state-owned enterprises, whereas this question does not exist anywhere in our discussions or in the documents exchanged.

It is misinformation and the manipulation of public opinion and it makes us deviate from the essential thing that is the reform and modernization of the state.

The IMF comes to discuss this budget policy with the government in a constructive dialogue and on an equal footing and we always end up convincing it.

How else do you explain the payment of salary increases through the tax credit mechanism, the exorbitant amount of oil subsidy or even the new social package? We are aware of our problems and we are still finding solutions and that is how we have kept the IMF on our side, while other countries are in disarray and in trouble and are sending their senior officials to Washington to convince.

Tunisia’s fiscal policy is designed by the Tunisian government in complete independence and it up to the detractors to present the alternative if they have any.

Question: There is a progress that is that of the improvement of state revenues by tracking the fraudsters, corruption!

Answer: But this is not in itself an alternative fiscal policy. Successive governments are aware of this and have improved the legal and repressive arsenal and the results are better, although much remains to be done.

In any case yes to the fight against tax evaders, tax evasion, corruption but those who think that the money collected will be used to pay wages and compensation of energy are wrong. The money raised will go to the poor and the middle classes. We have just done this when we saw an improvement in tax revenues through a social package including the integration of 35,000 needy families and the bonus of 500 dinars for new middle-class students to reduce their back-to-school expenses.

Question: How can you justify the rise in fuel prices?

Answer: The energy bill is a headache for Tunisian governments since the revolution. This year we have projected in the Budget Law 2018 on the basis of a price of a barrel of $ 54 an overall energy subsidy cost (gas, electricity and fuel) of 2,400 million dinars.

The budget should support 1,500 million dinars and the rest should be sought by sectoral and price adjustment policies amounting to 900 million dinars.

We announced all this in December 2017, stating that we will make a quarterly adjustment in line with the automatic price adjustment rule which monthly adjustment was scheduled for July 2017 and have since been postponed until July 2018.

Question: But the barrel price is far from $ 54 today.

Answer: As the barrel price has risen since the beginning of the year, the Government set up in February a task force which I chair; it is devoted to “monitoring the budgetary risks of the rise in the price of oil”.

We made a first revision in February on the basis of an average price of $ 62 and we estimated at that time the total cost to 3,000 MDT and increased the weight supported by the budget from 1,500 MD to 2,100 MDT not to further affect the weight of adjustments households.

Unfortunately in May and on the basis of an average price of $ 70, the bill rose to 4,035 MD, which is twice the one provided for by the Budget Law 2018.

Once again, we decided to increase the share of the budget from 1,500 and 2,100 to 2,700 MD, i.e. 1,100 additional support from the state budget and not provided for in the Budget Law 2018 and which will be financed indirectly by the Tunisian taxpayer.

Question: Who will bear the increase in the price of a barrel of oil?

Answer: The budget cannot afford more and we are resolved not to go beyond this amount of 2,700 MD in 2018 regardless of the price of the barrel and monitor the price of the barrel closely monthly and make the monthly adjustments necessary with the automatic adjustment rule.

Our next assessment of the situation is next October to see what are the decisions needed to stay in the 2,700 MD amount.

Moreover, the Parliament has allowed us only 1,500 MD and we are at 2,700 DM and we must go to it for a supplementary budget law just for that.

No one accepts that all Tunisian taxpayers pay 80% of the fuel subsidy to the 20% of the richest.

We do not want to go into debt to pay for oil subsidy but for schools, universities, hospitals, infrastructure …OK.

Question: You have no other solutions to reduce the energy bill?

Answer: Of course, yes. Non-renewable energies first and we started rationalization of energy consumption, especially during the summer including by the administration.

New non-polluting products such as premium because it is inconceivable that we continue in Tunisia to consume diesel while it is banned in European countries and it is difficult to find it on the international market.

We should also have an energy policy that respects the environment and in my opinion should be banned gradually ordinary gas in Tunisia and replace it with a less polluting product.

In addition, public and non-public public transport including taxis must think of the electric car or gas. This surely requires infrastructure and incentives, but the state is ready to do it for the good of the country.

Instead of negotiating tariffs, negotiate an urban transport strategy in conjunction with a clean energy strategy.

These are the real issues to be debated in the country. We must also develop financial hedging techniques against the risk of rising oil prices. I set up a team that reflects on the issue.

Question: Let’s go back to the burning question of retirees who are upset about paying their pensions.

Answer: On this subject, there is a misunderstanding. There are two problems. The first is the payment of pensions of pension funds and the second is the increase in pensions.

For the former, the problem is structural and due to the 1985 reform that did everything to distribute the surplus of the system at that time and did not foresee the demographic transition.

The government has given priority to this issue and has first assured the pensions of 2016, 2017 and still 2018 by injecting direct transfer of 300 MD, 600 MD, respectively, and other this year.

The difficulties of this year were foreseen and the government with the participation of the social partners has prepared a minimalist reform but the social partners have taken time to validate the tripartite commission’s choices to their structures despite multiple reminders by the government.

That is why the government validated the results of the tripartite commission and sent the law to the Parliament. The law had been ready since last year and if we had adopted this reform and if it had been applied since January we would not be there. So we cannot fault the government that is ahead of the social partners in terms of reform of the funds and nor for its financial support to the CNRPS to fill its structural deficit.

Question: And for the increases in the pensions of the CNSS?

Answer: Here again there are two problems: the increase of the CNSS pensions, which is based on the increase of the SMIG, and the increase of the CNRPS pensions, which is done according to the equalization mechanism.

For the first problem, the government is studying the issue and assessing the impact. Indeed, the CNSS does not have the means to finance the increase of the pensions of the CNSS because already it has a structural deficit and is paying the current pensions by nibbling the contributions of the health insurance of the CNAM.

Any decision to increase the SMIG will result in an additional deficit of the CNSS from which it is necessary to make the right decision but also to accompany a structural reform. The decision to increase the SMIG is imminent.

Question: And for CNRPS pension increases?

Answer: For the increase of the CNPRS pensions and beyond the fact that the CNRPS cannot afford to pay the pensions per se because of the structural deficit, we had a problem of the Court of Auditors which considers that the tax credit is not a salary increase and therefore it was a management fault to adjust the CNRPS pensions accordingly in 2017.

Recall that the State financed the application of equalization in 2017 which is proportional to half of the 2017 wage increases.

In 2018 we had the tax credit payment of the second half of the 2017 increase that was paid in three months (January, February and March) and the last tranche of the specific increase of 2018. Normally, the CNRPS should apply equalization but on the one hand it does not have the financial resources and on the other hand it runs up against the opinion of the Court of Auditors. We are working on a solution in the days that follow but still it is the State that will bear this cost. The reform of the CNRPS is more than an emergency, it is vital. I hope the parliament will get to the issue quickly.

Question: It is understood that you do not appreciate the recent increase of the BCT key rate?

Answer: I do not like to comment on the monetary policy of the BCT at all because I strongly believe in the independence of the BCT. Basically, it is legitimate for a central bank to address inflation and regardless of the monetary component of inflation, the increase in the key rate is unpopular in Tunisia because the supply of Tunisian banks in terms of Credit interest is variable (MMR + a margin rate) apart from Islamic banks and credits over 15 years.

In theory, the objective of raising the key rate is to reduce the granting of credits to finance the new demand for consumption or investment credit. In Tunisia, we just want it to slow down new consumer credit and not investment. However, since Tunisian banks only bear credit risk and not interest rate risk and do not offer fixed rates like the majority of countries, the majority of loans are at variable rates, and consequently the increase in the MMR reduces the purchasing power of households with outstanding loans and increases the cash flow of companies. It is a collateral effect that makes the decision unpopular.

Question: What to do then?

Answer: It would be necessary to change the legislation so that banks offer fixed rates to households and businesses alongside variable rates whose variability is limited as in the European countries, especially as a rate curve makes it possible to calculate the risk premium. Those who are risk-averse will choose the fixed rate loan and will be safe from the increase in the MMR, the others will take the variable rate at their own risk, even if they can

benefit in the event of a decline, but all this will remove the decision to increase the MMR from unpopularity and become a technical decision on monetary policy.

Question: But in any case the increase in MMR will affect investment decisions and beyond recovery?

Answer: You are right and that is why the government decided to develop soft loans for SME investment in order to absorb the adverse effect of rising MMR. We even wanted a sort of quantitative easing targeted at business investment, which has already been decided. Other measures will follow to protect the investment that drives growth.

Question: We have the impression that you forget the essential, which is the social.

Answer: Never. As early as January 2018, the government realized the need to mitigate the impact of inflation by increasing the allocation of needy families by 30 dinars, to align pensions in the private sector below 180 dinars at this threshold and to offer free care to unemployed young people.

Other measures were taken in June, they concern the absorption in one go of the waiting list, the support of the school subscriptions of their children as well as the premium of 500 dinars for the new students in order to reduce family spending on the start of the school year due to the success of their children in the baccalaureate.

Remember that two scheduled salary increases were paid during the first four months of 2018. Half of the 2017 increase that was paid in January, February and March and the specific increase of 50-40 dinars per month in April 2018.

If it is possible to do more it will be done but now the financial constraints are at a maximum.

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