Although affected by the current crisis, Tunisia has weathered its impact relatively well so far. Real GDP growth slowed down from an average of 4.6 percent in 2008 to 0.5 percent in the first quarter of 2009, reflecting mainly a fall in exports of manufactured goods to EU countries, according to the Executive Board of the International Monetary Fund (IMF) which concluded the Article IV consultation with Tunisia. This drop was partially offset by buoyant growth in the mining and energy sectors and in some services. Domestic demand was sustained by investment and strong consumption fueled by salary increases. Inflation declined from an average of 5 percent in 2008 to 3½ percent (year-on-year) in June 2009 due to the fall in global food and fuel prices and an appropriate monetary policy.
The current account deficit, after widening in 2008, contracted in the first quarter of 2009 thanks to lower import prices and resilient tourism and remittances receipts, the report added . Despite somewhat smaller foreign investment inflows in early 2009, reserves reached US$9 billion at end-May 2009 (5.6 months of projected imports).
The fiscal deficit declined markedly in 2008 to 1.2 percent of GDP and the public debt-to-GDP ratio was further reduced from 50 percent in 2007 to 47½ percent in 2008. Revenue was boosted by buoyant customs duties levied on higher priced imports and strong corporate income tax receipts from high 2007 profits. Combined with lower interest payments, this more than offset expenditure overruns on subsidies for staple foods and petroleum products due to higher world prices.
Banks were not directly affected by the global financial crisis since they rely only slightly on external financing and their profitability increased in 2008, which contributed to a buoyant stock market. Credit to the economy further increased in the first quarter of 2009. Banks’ soundness indicators continued to improve in 2008, but the level of non performing loans (NPLs) remains relatively high.
The authorities promptly deployed measures to contain the impact of the global crisis, including with the recently adopted fiscal stimulus package of about 1.4 percent of GDP and a more accommodating monetary policy by the Central Bank of Tunisia (BCT) in 2009, with the objective to reach a 3 percent real GDP growth this year. The medium-term outlook is favorable, based on the projected global economic recovery.
Executive Directors commended the authorities for the good performance of the Tunisian economy in the context of the global crisis, due to strong fundamentals resulting from sound policies implemented over the years. Directors considered that the growth outlook is favorable but that Tunisia still faces downside risks—pertaining to the transmission of the recession in Europe and the speed of impact of fiscal stimulus—and challenges related to the still high level of unemployment.
Directors supported the authorities’ temporary expansionary fiscal stance to mitigate the impact of the global crisis and recommended that the fiscal stimulus be executed rapidly and have well-targeted expenditure in order to be most effective. They encouraged the authorities to consider extending the fiscal stimulus into 2010, given the still weak outlook anticipated in partner countries.
Directors congratulated the Tunisian authorities’ for their pragmatic and steadfast approach to trade and financial integration, despite the currently adverse global environment. They noted that negotiations with the EU to extend the Association Agreement to services could become a key anchor for a gradual overhaul and liberalization of the services sectors and welcomed Tunisia’s active participation in the regional integration effort. They recommended reducing the most-favored nation tariffs to prevent trade diversion and enhance geographic diversification. Directors welcomed continued improvement in the business climate through ongoing tax and customs administration reforms and programs supported by International Financial Institutions