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Tunisia-IMF: the topside and the underside

Much has been said about the commitments made by the Tunisian authorities to the International Monetary Fund to ensure the disbursement of the tranches of the Extended Fund Facility (EFF) loan, which is intended to assist the country facing serious imbalances in the payment balance due to structural impediments.

But to grasp its true scope and settle the matter once and for all, we just need to refer to the letter of intent that the Tunisian government sent to the Bretton Woods Institution to provide it with all the guarantees that its recommendations will be applied to the letter.

In this letter dated June 22, 2018, bearing the signature of Governor of the Central Bank, Marouane El-Abassi, and Minister of Finance, Mohamed Ridha Chalghoum, it is stated that the “resolute choice made to reshape the Tunisian economy calls for accelerated concrete reforms to strengthen economic recovery through investment, exports and more private initiative.

“Committing to these economic goals may seem difficult but is nevertheless essential and we must explain this choice to the public,” said the Tunisian government, which expresses its commitment to implement its reform plan both through the adoption of texts and the effective implementation of concrete reform proposals.

It concedes, however, that the results obtained could have been better without the poor performance of the mining sectors due to social problems.

Nevertheless, it assures us that “the Tunisian economy is now on an upward trajectory, where growth is increasingly dependent on investment and exports, fostering inclusive growth in the medium term”.

It notes that the “gradual reorientation of fiscal policy” shows that tax revenues have increased by 12 per cent compared to the first quarter of 2017, while current expenditures have decreased by 10 per cent, with payroll having declined by 9 per cent at the end of March.

At the same time, investment spending rose by 22%, confirming the objective of redirecting public spending towards investment.

At the end of March, the stock of public debt reached 68.45% of GDP against 61.89% for the same period last year, it added.

Inflation “major concern”

Turning to inflation, which has become “a major concern”, it points out that its rate reached 7.7% in May 2018, the highest level since 1991, explaining it by “several exceptional factors”, including an orientation of monetary policy which is not restrictive enough, accompanied by the depreciation of the exchange rate and a strong growth of financing to the economy.

Indeed, the increase in the key interest rate and the widening of the corridor between deposit and lending rates at the Central Bank have not succeeded in reducing the money market rate (MMR) in real terms and thus reducing the bank refinancing volumes for the BCT.

The latter reached new records to exceed 14 billion dinars in mid-May 2018.

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