Tunisia: 2021 Article IV Consultation—Press Release; Staff Report; and Statement by the Executive Director for Tunisia
Author:
International Monetary Fund. Middle East and Central Asia Dept.
Search for other papers by International Monetary Fund. Middle East and Central Asia Dept. in
Current site
Google Scholar Close
Publication Date:
26 Feb 2021
eISBN:
9781513570600
Language:
English
Keywords:
reform program; wage bill; procurement contract; authorities' effort; government database; Government debt management; Budget planning and preparation; Inflation; Global
Download PDF (1.5 MB)

1. Covid-19 has hit Tunisia hard with many lives lost. Proactive policy actions and confinement measures in March 2020 contained human contagion and fatalities. However, once measures were relaxed over the summer, there was a ‘second wave’ with a strong increase in the number of cases, straining hospital capacity, and the authorities gradually re-imposed some containment measures (Text Figure 1). The authorities are securing 500,000 doses to start a first campaign of vaccinations in February and are aiming to secure enough doses to vaccinate half of the population starting in April–May.

Abstract

1. Covid-19 has hit Tunisia hard with many lives lost. Proactive policy actions and confinement measures in March 2020 contained human contagion and fatalities. However, once measures were relaxed over the summer, there was a ‘second wave’ with a strong increase in the number of cases, straining hospital capacity, and the authorities gradually re-imposed some containment measures (Text Figure 1). The authorities are securing 500,000 doses to start a first campaign of vaccinations in February and are aiming to secure enough doses to vaccinate half of the population starting in April–May.

Economy Hard Hit in 2020 Amid Initial Rapid Response

1. Covid-19 has hit Tunisia hard with many lives lost. Proactive policy actions and confinement measures in March 2020 contained human contagion and fatalities. However, once measures were relaxed over the summer, there was a ‘second wave’ with a strong increase in the number of cases, straining hospital capacity, and the authorities gradually re-imposed some containment measures (Text Figure 1). The authorities are securing 500,000 doses to start a first campaign of vaccinations in February and are aiming to secure enough doses to vaccinate half of the population starting in April–May.

Text Figure 1.
Text Figure 1.

Tunisia: Covid-19 Related Developments, 2020–21

Citation: IMF Staff Country Reports 2021, 044; 10.5089/9781513570600.002.A002

2. A new government took office amid a fragile political and socio-economic context. The 2019 elections resulted in a fragmented political landscape, and a third cabinet within a year took office in September 2020. Meanwhile, social tensions continued, and the ten-year anniversary (on January 14, 2021) of the democratic transition was marked by the start of violent night protests, which quickly spread across the country. These protests, mostly from disaffected youth, partly reflect unmet aspirations, lack of economic opportunities, and the continued difficult Covid-19 situation.

3. The pandemic caused an economic downturn, and unemployment and poverty increased. Real GDP contracted by an estimated 8.2 percent in 2020 (Figures 1–3). Tourism and transport were hit hard, while manufacturing declined in the export-oriented automotive cable and textile industries. In an INS/IFC business survey from 2020Q3, five percent of firms responded that they were permanently closed and 37 percent of respondents felt uncertain about their near-term prospects.1 The unemployment rate jumped to 16.2 percent at end-September (from 14.9 percent at end-2019), disproportionally affecting low-skilled workers, women, and youth. The recent protests underscore the urgent need to create economic opportunities to reduce unemployment, including among the youth. The World Bank also estimates an increase in the poverty rate from 14 percent pre-Covid to over 20 percent in 2020,2 and UNICEF expects an increase in child poverty by 6–10 percentage points.3 Inflation slowed because of the contraction in domestic demand and lower international fuel prices.

Figure 1.
Figure 1.

Tunisia: Real Sector Developments, 2010–20

Citation: IMF Staff Country Reports 2021, 044; 10.5089/9781513570600.002.A002

Figure 2.
Figure 2.

Tunisia: External Sector Developments, 2010–20

Citation: IMF Staff Country Reports 2021, 044; 10.5089/9781513570600.002.A002

Figure 3.
Figure 3.

Tunisia: Fiscal Sector Developments, 2010–20

Citation: IMF Staff Country Reports 2021, 044; 10.5089/9781513570600.002.A002

4. Tunisia’s current account deficit narrowed in 2020. Exports contracted amid weak global demand, but import compression and lower international energy prices resulted in a narrower trade deficit. Transport and tourism receipts were hit hard (the latter collapsing by more than 60 percent), but remittances increased by almost 12 percent (y-o-y). The current account deficit narrowed to about 6.8 percent of GDP, and gross official reserves increased to about US$9 billion (4.6 months of imports). The real effective exchange rate appreciated by nearly 5 percent in 2020 (through October), mainly due to the price differential with trading partners.

5. The authorities focused on supporting the vulnerable and stabilizing the economy. Emergency measures of 4.3 percent of GDP aimed to support affected economic sectors and poor and vulnerable populations (Box 1). The Central Bank of Tunisia (CBT) lowered its policy rate twice (to 6.25 percent) and took accommodative regulatory actions. The RFI disbursement in April 2020 supported the authorities’ efforts and provided a buffer for international reserves.

Policy Measures in Response to Covid-19

article image
Source: Tunisian authorities and IMF staff estimates and calculations; see also Policy Responses to Covid-19, at https://www.imf.org/en/Topics/imf-and-covid19/Policy-Responses-to-COVID-19.

6. The fiscal deficit and public debt increased sharply, eroding Tunisia’s already limited fiscal space. Staff estimates that the fiscal deficit (excl. grants) reached 11.5 percent of GDP in 2020 (Text Table 1). Revenue (excl. grants) dropped by about 9 percent (y-o-y) through October 2020, especially from a lower tax intake, while additional hiring (about 40 percent of which was in the health sector, including to fight the pandemic) pushed the civil service salary bill to 17.6 percent of GDP, among the highest in the world (Annex III). Higher outlays on salaries and crisis-response measures were offset by lower investment spending and energy subsidies, as oil prices dropped. The authorities relied heavily on domestic financing sources (9.4 percent of GDP) and Parliament voted to allow the CBT, on an exceptional basis, to lend TD 2.81 billion (2.5 percent of GDP) directly to the Treasury, over strong reservations from the CBT.4 Central government public debt is estimated to have increased from 72 percent of GDP in 2019 to nearly 87 percent of GDP by end-2020.

Text Table 1.

Tunisia: Fiscal Developments, 2019–20

(In percent of GDP)

article image
Sources: Tunisian authorities’ budget and IMF staff calculations.

7. The loss-making SOE sector worsens the fiscal situation dramatically. The large and untransparent SOE sector is saddled with debt, government guarantees, and arrears, which were exacerbated by the pandemic (Annex IV). Data on financial information for 30 SOEs shows end-2019 debt of about 40 percent of GDP (which likely increased in 2020), of which about 15 percent of GDP were covered by government guarantees as of mid-2020. SOEs drain scarce budgetary resources, with annual budgetary transfers amounting to 7–8 percent of GDP in recent years.5 To meet liquidity needs, SOEs also resort to bank financing (the stock of bank loans to SOEs is about 17 percent of GDP), in particular from state-owned banks (SOBs), and have accumulated arrears. The government itself also has even larger arrears to SOEs (Text Figure 2).6 This reflects poor financial management and governance of SOEs, a pricing policy that does not cover costs, bloated costs (e.g., significant hiring for socio-political purposes), inadequate information on their financial conditions, and supervision spread over several line ministries. The SOEs’ monopolistic nature also reduces incentives to improve productivity.

Text Figure 2.
Text Figure 2.

Tunisia: Cross-Arrears of State-Owned Enterprises, 2019 and 2020 1/

(In percent of GDP)

Citation: IMF Staff Country Reports 2021, 044; 10.5089/9781513570600.002.A002

Sources: Tunisian authorities’ budget and IMF staff calculations. The data on State-SOE arrears are for June 2020, all other data are for 2019 as included in the 2020 budget annex, and information from CNAM and PCT. Arrows in yellow are arrears from the government to SOEs; arrows in blue are arrears from SOEs to other entities (SOEs, government, social security funds, etc.)1/ STIR: Société Tunisienne des industries de Raffinage; STEG: Société Tunisienne de l’Electricité et du Gaz; ETAP: Entreprise Tunisienne d’Activités Pétrolières; SNDP: Société Nationale de Distribution des Pétroles; CNSS: Caisse Nationale de Sécurité Sociale; NRPS: Caisse Nationale de Retraite et de Prévoyance Sociale; and PCT: Pharmacie Centrale de Tunisie.

8. The financial sector seems to have weathered the Covid-19 crisis so far. The sector has been supported by accommodating policies of the CBT and relief in prudential provisions. However, the full impact of the pandemic is yet to be observed, as regulatory easing measures, including repayment moratoria, could delay a full evaluation of losses and need for higher provisions. Also, the sector entered the crisis with underlying vulnerabilities: high non-performing loans (at 13.1 percent overall, and 17 percent for SOBs as of end-September 2020), substantial exposure to credit risk to affected sectors and SOEs, relatively shallow capital buffers, and tight liquidity (though the latter improved in 2020.) These vulnerabilities are higher for the three largest SOBs, representing about 35 percent of total bank assets. Bank credit to SOEs (at times with government guarantees) has recently grown to 9 percent of total bank loans, resulting in higher concentration of exposures and increased sovereign-bank linkages.

Outlook—Modest Recovery and Significant Risks to Economic Stability

9. Growth is expected to recover modestly in 2021, and the fiscal deficit to narrow. Staff projects real GDP growth of 3.8 percent in 2021, with some rebound in domestic demand and in most sectors hit by the crisis, though agricultural output is expected to decline due to cyclical factors. The current account deficit would widen as imports resume while international reserves would decline. The 2021 budget projects a decline in the fiscal deficit (excl. grants) to 6.6 percent of GDP, reflecting mainly the unwinding of temporary measures, a lower wage bill, and reduced energy subsidies. However, neither does the 2021 budget specify how such savings will be achieved, nor does it include the potential hiring of 10,000 long-term unemployed workers or the first phase of the hiring/regularization of some 30,000 ouvriers de chantiers (agreed in 2020, 0.5 percent of GDP). It also excludes potential arrears clearance to STIR and the Office des Céréales (0.7 and 0.8 percent of GDP, respectively), still under review by the authorities, and does not account for higher oil prices than assumed in the budget. Thus, staff projects a baseline fiscal deficit (excl. grants) of 9.9 percent of GDP in 2021.

10. Covering the fiscal financing needs in 2021 may prove challenging. The 2021 budget expects to cover some 70 percent of the gross fiscal financing need (15.4 percent of GDP) through external borrowing, including market issuance of 5.3 percent of GDP (about US$2.2 billion), which may pose fiscal risks. Staff’s baseline scenario for 2021 projects a higher fiscal financing need (18.3 percent of GDP, compared with 17.2 percent of GDP in 2020), and relatively more domestic financing compared with the budget (Text Table 2). Contingent measures (on revenue and spending) may be needed in case such financing proves challenging.

Text Table 2.

Tunisia: Gross Financing Needs, 2021

(Staff baseline projection; percent of GDP)

article image
Sources: Tunisian authorities’ budget and IMF staff calculations.

11. Tunisia’s external position is weaker than implied by fundamentals and desirable policies. Staff estimates the 2020 current account (CA) “gap” of about -3.4 percent of GDP (Appendix I). This gap corresponds to a real effective exchange rate overvaluation in the order of 5–10 percent. External sector sustainability remains a source of macroeconomic vulnerability.

12. The medium-term outlook depends critically on the future path of fiscal policy, and public debt would become unsustainable unless a strong and credible reform program were adopted with broad support. Without a medium-term reform program in place, staff’s baseline assumes limited reform appetite, with the civil service wage bill, ill-targeted energy subsidies, and SOE liabilities crowding out social and growth-enhancing public investment, and private sector investment remaining subdued. This would result in an increasingly difficult macroeconomic situation, with annual growth of barely two percent, high fiscal deficits, growing contingent liabilities, and hard to fill financing needs. It would also lead to continued heavy reliance on domestic financing, with risks of a sovereign/bank feedback loop and unsustainable public debt (DSA, Appendix II). Limited fiscal adjustment and rising debt would in turn result in large current account deficits and dwindling reserves, untenable pressure on the exchange rate, and rising inflation, thus also aggravating growing external vulnerabilities (Text Table 3).

Text Table 3.

Tunisia: Selected Economic Indicators: Baseline Scenario, 2017–25

article image
Sources: Tunisian authorities; IMF staff estimates and projections.

Assuming capital controls and a flexible exchange rate.

13. Risks will abound and vulnerabilities persist over the medium term (RAM, Annex I). Immediate risks stem from the uncertainty around the extent and length of the pandemic and the vaccination program. The political will to adopt difficult reforms could be challenged and social discontent may increase. Tunisia is likely to remain in a vulnerable setting for years to come, in light of structural weaknesses, high financing needs, reliance on external funding, and risk of domestic and external shocks.

Authorities’ Views

14. The authorities were more optimistic about baseline projections. They expected real GDP growth of 4 percent in 2021 and saw further upside, pointing to the cushioning impact of emergency measures and renewed gas production at the Nawara field. They saw signs that several sectors had started to rebound already in June and noted that additional public hiring could also impact domestic demand and growth. They saw a lower current account deficit in 2021, in the range of 7–8 percent of GDP. Over the medium term, the authorities envisaged annual real GDP growth of 3.0–3.5 percent, a fiscal deficit gradually falling to 3 percent of GDP, and a public debt ratio topping off at around 90 percent of GDP.

Policy Discussions—from Stabilization to Recovery and Sustainability

15. The authorities face the dual challenges of supporting the recovery and promoting inclusive growth, while restoring fiscal and external sustainability. The immediate priorities are to continue to save lives and livelihoods and prepare for vaccination delivery. The authorities also need to urgently address Tunisia’s unsustainable fiscal and external imbalances, while enhancing social protection and strengthening the health and education systems. This will require strict prioritization of spending in favor of health and social safety nets, and reducing the fiscal deficit, starting in 2021, by tackling the civil service wage bill, ill-targeted subsidies, and loss-making SOEs. Measures that strengthen tax equity, reorient spending toward investment (education, health, and infrastructure), and promote good governance and competition would support the recovery and job-rich growth prospects. The CBT should stop financing the government, continue its focus on achieving low inflation while maintaining exchange rate flexibility, and closely monitor and manage evolving financial stability risks. Exchange rate flexibility together with deep structural reforms—fiscal consolidation, SOE reforms, and policies to increase private sector participation and competition—are also needed to bring the external position back into balance over the medium term. Urgent action is needed to advance the structural reforms, given the significant effort and time that will be required to implement them.

16. Meeting the dual challenges hinges on the implementation of a strong and credible reform program that is supported by all stakeholders.7 Given past failures and resistance, the authorities should consult and communicate with the broader public a medium-term reform program that will take the country in a new direction. To ensure its success, the reform program and associated medium-term fiscal framework would need to be supported by a social compact, with the main stakeholders committing to support the reforms within their remit. To incentivize all partners to participate, the social compact should cover a range of reform areas, including public sector wage negotiations, subsidy and SOE reform, informality, tax policy (including equity), anti-corruption, and the business environment (Text Figure 3).

Text Figure 3.
Text Figure 3.

Tunisia: Priority Policy and Reform Area

Citation: IMF Staff Country Reports 2021, 044; 10.5089/9781513570600.002.A002

17. Staff discussed with the authorities a medium-term reform scenario (Text Box 2). The size and pace of the adjustment strike a balance between what is feasible in Tunisia’s fragile socio-political context and the effort needed to restore macroeconomic balances. The scenario would bring fiscal deficits and public debt down towards sustainable levels over the medium term (the latter below 85 percent of GDP) (Text Table 4, Text Figure 4, and Tables 10–11). The primary fiscal balance (excl. grants) would improve from -8.2 percent of GDP in 2020 to 1.6 percent of GDP in 2025, (i.e., some 5 pps. of GDP, excluding one-off arrears clearance and Covid-related measures). Given large financing needs over the foreseeable future, the size and pace of adjustment will also depend on the availability of such financing.

Summary of the Reform Scenario

The scenario reflects a strong reform agenda buttressed by a social compact and national communication effort. Such reforms would aim to restore sustainable macroeconomic positions, strengthen the safety net, increase inclusive and job-rich growth through private-sector initiative and competition (including by tapping into emerging sectors such as digitalization and renewable energy to help address climate change). It rests on the following:

  • A central government debt ratio falling to about 85 percent of GDP over the medium term, with the primary balance (excl. grants) improving to about 1.6 percent of GDP.

  • A wage bill dropping to nearly 14.5 percent of GDP by 2025, phased-out energy subsidies (with maintained social tariffs), reforms of loss-making SOEs, and more equitable and growth-friendly taxation. The fiscal mix would be reoriented to support the social safety net and public investment (especially in health, education, and infrastructure).

  • A limited net domestic financing of the budget (below 2 percent of GDP annually), with open market operations of the CBT strictly to support monetary policy objectives.

  • A gradual decline in inflation to 4 percent over the medium term, supported by a transparent monetary policy which focuses on low inflation.

  • A flexible exchange rate, with fiscal adjustment and SOE and pro-competition reforms allowing to reduce the current account deficit and strengthen external balances.

  • International reserves maintaining a comfortable 4 months of import coverage.

  • Unabated efforts to strengthen good governance and transparency.

  • Free and fair competition and private investment that drive higher inclusive growth and job creation. (Quasi-)monopolies currently maintained by SOEs and other unnecessary impediments to competition would be lifted.

  • Efforts to improve governance and fighting corruption would be cross-cutting themes.

  • Annual real GDP growth would gradually increase towards 3 percent, reflecting the higher potential of the economy.

Text Figure 4.
Text Figure 4.

Tunisia: Comparison of Baseline and Reform Scenarios, 2018–25

Citation: IMF Staff Country Reports 2021, 044; 10.5089/9781513570600.002.A002

Source: IMF staff estimates and projections.
Text Table 4.

Tunisia: Selected Economic Indicators: Reform Scenario, 2017–25

article image
Sources: Tunisian authorities; IMF staff estimates and projections.

Assuming capital controls and a flexible exchange rate.

Table 1.

Tunisia: Selected Economic and Financial Indicators, 2017–25

article image
Sources: Tunisian authorities; and IMF staff estimates and projections.

Excludes social security accounts, public enterprises, and local governments.

Social spending includes social transfers and programs as well as capital expenditures of the ministries of education, health, social affairs, youth and sports, and women and family affairs. It does not include emergency COVID-related spending in 2020 and 2021.

In addition to central government debt, SOE debt of and guarantees to the 30 largest SOEs amounts to almost 40 and 15 percent of GDP, respectively.

Table 2.

Tunisia: Real Sector, 2017–25

(In percent)

article image
Sources: Tunisia authorities, and IMF staff projections.

Output measured using current and previous year prices.

Excludes food and energy items.

Excludes fresh food and administered prices (Central Bank of Tunisia’s definition).

Table 3.

Tunisia: Balance of Payments, 2017–25 1/

(In millions of U.S. dollars, unless otherwise indicated)

article image
Sources: Tunisian authorities; and IMF staff estimates and projections.

In accordance with the Fifth Edition of the Balance of Payments and Investment Position Manual (BPM5).

Short-term defined as one year or less remaining maturity.

Table 4.

Tunisia: Central Government Fiscal Operations, 2018–26

(In millions of dinars, cumulative flow since the beginning of the year)

article image
Sources: Tunisian authorities; and IMF staff estimates.

Social spending includes social transfers and programs as well as capital expenditures of the ministries of education, health, social affairs, youth and sports, and women and family affairs. It does not include emergency COVID-related spending in 2020 and 2021.

Table 5.

Tunisia: Central Government Fiscal Operations, 2018–26

(In percent of GDP)

article image
Sources: Tunisian authorities; and IMF staff estimates.

Social spending includes social transfers and programs as well as capital expenditures of the ministries of education, health, social affairs, youth and sports, and women and family affairs. It does not include emergency COVID-related spending in 2020 and 2021.

Table 6.

Tunisia: Monetary Survey, 2017–25

(In millions of dinars, end-of-period stocks)

article image
Sources: Tunisian authorities; and IMF staff estimates and projections.
Table 7.

Tunisia: Central Bank Survey, 2017–25

(In millions of dinars, end-of-period stocks)

article image
Sources: Central Bank of Tunisia; and IMF staff estimates.

Includes subscription to the IMF and the AMF.

Includes the main refinancing facility (appel d’offres) and the lending and deposit facilities.

Excludes deposits of other financial institutions, individuals, and non-financial enterprises.

Table 8.

Tunisia: External Financing Needs, 2017–25

(In millions of U.S. dollars, unless otherwise indicated)

article image
Sources: Tunisian authorities; and IMF staff projections.

Central government includes IMF purchases made available for budget support.

Central Bank includes IMF purchases made available for BOP support.

Includes public and private entreprises.

Includes changes in banks’, corporates’, and households’ net foreign assets; errors and omissions; and other liabilities.

Table 9.

Tunisia: Financial Soundness Indicators of the Banking Sector, 2010–20

(In percent, unless otherwise indicated)

article image
Source: Central Bank of Tunisia.

Coverage of private sector credit may differ from that of Table 7.

The definition of the liquidity ratio was modified in 2015. Liquid assets now include only treasury bills and cash. Using the new definition, the end-December 2014 liquidity ratio would have been 6 percent ... = not available.

Indicators were calculated based on the new reporting.

Preliminary data.

Table 10.

Tunisia: Reform Scenario: Selected Economic Indicators, 2017–25

article image
Sources: Tunisian authorities; and IMF staff estimates and projections.

Excludes social security accounts, public enterprises, and local governments.

Social spending includes social transfers and programs as well as capital expenditures of the ministries of education, health, social affairs, youth and sports, and women and family affairs. It does not include emergency COVID-related spending in 2020 and 2021.

In addition to central government debt, SOE debt of and guarantees to the 30 largest SOEs amounts to almost 40 and 15 percent of GDP, respectively.

Table 11.

Tunisia: Reform Scenario: External Financing Needs, 2017–25

(In millions of U.S. dollars, unless otherwise indicated)

article image
Sources: Tunisian authorities; and IMF staff projections.

Central government includes IMF purchases made available for budget support.

Central Bank includes IMF purchases made available for BOP support.

Includes public and private entreprises.

Includes changes in banks’, corporates’, and households’ net foreign assets; errors and omissions; and other liabilities.

Authorities’ Views

18. The authorities agreed with the need for a medium-term reform program that restores fiscal and external sustainability. The Ministry of Finance, Economy, and Investment Promotion (MoF) intends to achieve a primary surplus over the medium term and keep expenditure growth below the nominal growth rate, with the view to stabilize public debt. Nevertheless, they considered the pace of the consolidation path suggested in the reform scenario overly ambitious and hard to implement in the current delicate socio-political context, and believed that real GDP growth could exceed 3 percent over the medium term. They also noted the importance of further reducing inflation, as this would allow the Central Bank to cut the policy rate and thus ease the debt service burden. The MoF also favored exchange rate stability to avoid imported inflation, strengthen investor confidence, and contain the debt-to-GDP ratio. The authorities confirmed the importance of preserving the CBT’s independence and agreed that low and stable inflation should be the target of monetary policy.

A. Immediate Priorities: Saving Lives and Stabilizing the Economy

19. To address immediate challenges, staff proposed targeting a fiscal deficit of 6.7 percent of GDP in 2021. This would improve the primary deficit (excl. grants) by about 4.8 percent of GDP, thanks in part to non-recurrence of one-off 2020 expenditures of 2.1 percent of GDP. To this end, it will be necessary to restrict the wage bill and energy subsidies while prioritizing urgent expenditure related to health and protection of vulnerable populations, including through the following measures:

  • Wage bill. Reducing the civil service wage bill to 16.8 percent of GDP (versus staff’s baseline of 17.5 percent) would still allow a margin for hiring in priority sectors such as health. To set expectations for managing the public wage bill, the authorities could pre-announce specific rules such as: freezing promotions for one year, committing to a replacement ratio of 1:4, stopping hiring for purely socio-political reasons, staggering the hiring over the fiscal year, and limiting any potential salary increases to half of inflation, starting in 2021. Staff cautioned the authorities against creating new public agencies with a view to reduce the wage bill, as this would imply higher contingent liabilities for the government and weaken further fiscal imbalances.

  • Energy subsidies. The 2021 budget foresees a decline in energy subsidies to 0.3 percent of GDP, with monthly price changes limited to 2 percent under the automatic fuel price adjustment mechanism. However, oil prices are currently projected to exceed the US$45 per barrel envisaged in the 2021 budget. Staff advised reforming the adjustment mechanism for the three main fuels by letting prices at the pump move more closely with import prices and widening the band for monthly price adjustments. In the context of a broader reform of STEG, the authorities should also consider increasing electricity and gas tariffs, while preserving social tariffs for poor households.

  • Transfers and other subsidies. The authorities should expand social spending and accelerate the work to better target transfers (including by expanding the AMEN database of eligible households). They should also closely monitor transfers to SOEs and link them to improvements in performance (see below).

  • Arrears clearance. The authorities should urgently implement a clearance plan for accumulated arrears of the social security system to CNAM (health insurance) and the PCT (Central Pharmacy), especially in light of the current pandemic, as well as arrears to SOEs.

  • Financing. Given debt sustainability concerns, the authorities should seek concessional long-term external financing, while rolling over maturing market financing. Staff urged the authorities to avoid a repeat of monetary financing of the budget and encouraged them to prepare contingency measures (raising additional revenue or cutting spending), if available financing fell short.

Authorities’ Views

20. The authorities agreed with the immediate priorities of saving lives and livelihoods and starting to restore fiscal and external sustainability. They believed that the 2021 budget addresses those priorities and that the fiscal deficit (excl. grants) target of 6.6 percent of GDP is achievable. They agreed that the financing plan for 2021 was ambitious and counted on strong support from development partners, including the Fund. The CBT stressed that the monetary financing at end-2020 had been a one-off operation, while the Tunisian authorities confirmed the importance of maintaining Central Bank independence.

B. Restoring Fiscal and External Sustainability and Reorienting the Budget to Support Inclusive Growth and Job Creation

21. Restoring fiscal and external sustainability and reorienting priorities toward social and investment spending (health, education, infrastructure) are needed to promote inclusive growth and job creation. The reform scenario would reduce the fiscal deficit (excluding grants) to 1.7 percent of GDP and bring public debt below 85 percent of GDP over the medium term. At the same time, social spending would increase to almost 3 percent of GDP and public investment would exceed 6 percent of GDP. The quantitative framework to guide such decisions rests on:

  • Restraining the wage bill. The civil service wage bill would grow by less than inflation annually and fall to about 14.5 percent of GDP by 2025 (i.e., the level of 2018–19). In addition to the near-term measures discussed above, the authorities could rationalize allowances and commit to an audit to identify and remove ghost workers. They should also agree with stakeholders to implement competitive recruitment practices, conduct holistic rather than piecemeal wage bargaining, and adopt a civil service reform to facilitate reallocation of staff across functions and regions. The fiscal space from wage bill restraint could support spending on the safety net and priority investment.

  • Phasing out wasteful subsidies, starting with the energy sector. Energy subsidies should be phased out over the medium term, while preserving social tariffs for poor households alongside improvements in the social safety net. These reforms should be embedded in a comprehensive reform program of the energy sector (including STEG and STIR) including by addressing monopoly issues (e.g., for electricity production, fuel production, and distribution).

  • Reforming SOEs to reduce contingent liabilities. The authorities should adopt a reform program for the SOE sector (see below) to urgently address fiscal and financial risks (debt of the central government and SOEs combined exceeds 100 percent of GDP), and improve performance over the medium term.

  • Strengthening safety nets to support the poor and vulnerable. The authorities are developing the infrastructure around the new database for low-income households (AMEN) and the unique identifier, which over time will allow to better target social policies.8 Once the system is operational, a targeted monthly cash transfer to households could be introduced to offset the impact of the elimination of energy subsidies.

  • Increasing public investment to support growth and job creation. The Covid-19 crisis has underlined the need for investment in health, education, and critical infrastructure with a strong multiplier on growth. The authorities can also play an enabling role to tap opportunities from emerging sectors, such as digitalization and the green economy. They should also consider public-private partnerships (PPPs) to leverage private-sector expertise and financing, while improving the PPP framework to mitigate associated risks and ensure strong governance. Fund TA, including PIMA follow-up, is available to support the authorities’ efforts.

  • Making taxes more equitable and growth friendly. Tax policies that widen the tax base, increase tax progressivity, and improve administration would allow reducing tax rates over time. Additional measures should focus on recovering revenue lost during the crisis, bringing the informal sector into the tax net (including revisiting the régime forfaitaire), making spot audits operational, improving information sharing, streamlining tax expenditures and exemptions, and eliminating remaining tax distortions between the on-shore and off-shore sectors. Over the medium term, the authorities could develop property taxation and improve the progressivity of taxes.

Authorities’ Views

22. The authorities shared the priorities for fiscal reforms but had reservations on the proposed pace. They believed that the wage bill reform would require more time to reach consensus with multiple civil partners. The MoF indicated that the government wage bill could be controlled by creating public agencies and transferring some staff from the central government.

C. Reforming SOEs and Reducing Fiscal Risks

23. Tackling the vulnerabilities and risks posed by SOEs will require sustained and broad-ranging reforms. These should encompass:

  • An immediate audit of arrears and urgent clearance strategy for the largest firms, starting with STIR, STEG, and the Office des Céréales.

  • A medium-term reform plan to: (i) define the role of public enterprises in the economy and classify them according to their viability (to tackle losses, restructure, and strengthen their financial situation, and consider divesting non-viable ones), strategic importance, and nature of their activities (while considering divesting from commercial SOEs) (see Annex IV for detailed policy suggestions); (ii) centralize their monitoring and management in a single structure dedicated to state holdings; (iii) strengthen corporate governance; and (iv) improve financial reporting and transparency. In this context, a draft law to reform SOE oversight and governance was recently withdrawn from Parliament for further review.

  • The role of the state in state-owned banks should also be reassessed, given the heavy public- sector presence in the sector, which could strengthen the viability and competitiveness of the banking sector.

24. Strengthening the social insurance system would also reduce fiscal risks. The financial position of the social security funds remains fragile. Both CNSS and CNSRP face tight liquidity and delayed disbursements to the health insurance fund (CNAM), in turn causing arrears to the Central Pharmacy. The authorities should enforce payment discipline to avoid the recurrence of new arrears. The reform of social security funds should lead to better matching of benefit levels and available funding. It would require assessing the financial gap and parametric reform options of the social security funds to ensure their long-term viability.

Authorities’ Views

25. The authorities agreed with the need to reform the SOE sector. They highlighted that they are already exploring ways to settle cross-arrears. They confirmed that one objective would be to divest from sectors and activities that can be handled by the private sector. The resumption of the privatization program would also help boost private sector development. The MoF intends to request TA from the Fund in this area.

D. Strengthening the Monetary Policy Framework and Financial Stability

26. Staff urged the authorities to avoid monetary financing of the budget. Such policy may reverse the CBT’s recent progress in reducing inflation, unsettle inflation expectations, adversely affect the exchange rate and reserves, and ultimately undermine the credibility and independence of the CBT. Staff also recommended that the CBT closely monitor inflation developments and the impact of the operation on money markets, and to stand ready to sterilize the impact on liquidity.

27. Monetary policy should continue to focus on inflation while preserving exchange rate flexibility. The CBT has moved away from quantitative targeting and steers the overnight interbank rate toward the policy rate using active liquidity management. The current monetary policy stance remains focused on continuing the disinflation effort (Text Figure 5). Staff noted that the nominal exchange rate has remained broadly stable as of late and cautioned that targeting the exchange rate would be inconsistent with progress towards inflation targeting. Staff also advised the authorities to implement the longstanding Fund recommendation to repeal limits on lending and deposit rates (which are currently not binding anyway). The removal of these caps would strengthen the transmission of monetary policy, foster competition for deposits (hence deposit growth and financial deepening), reduce distortions on risk pricing, and allow SMEs greater access to finance.

Text Figure 5.
Text Figure 5.

Tunisia: CBT Policy Rate and Inflation; Effective Exchange Rates, 2010–21

Citation: IMF Staff Country Reports 2021, 044; 10.5089/9781513570600.002.A002

Sources: Tunisian authorities and IMF staff calculations.

28. Staff cautioned against liberalizing FX operations and reducing capital account controls before economic and financial stability are well-anchored. The authorities are preparing regulations to facilitate the use of derivatives in managing exchange rate risks. They plan to reduce exchange and capital controls over the medium term and are interested in receiving Fund TA in this area. Staff advised to prepare a gradual and conditions-based plan that balances financial stability and business environment objectives. To accompany exchange rate flexibility, and in line with MCM TA advice, this process would include: (i) supporting the development of a deep and liquid FX market; (ii) setting up systems to review and manage exchange rate risks; (iii) formulating a coherent FX intervention strategy; and (iv) upgrading FX regulations.

29. Vulnerabilities in the financial sector will need to be addressed. Enhanced monitoring of the banking sector would help detect emerging problems and possible risks to financial stability, e.g., from exposure of SOBs to troubled SOEs, or from concentration of credit risk in some sectors. The CBT announced a new methodology in January 2021 to calculate collective provisions aimed at addressing potential financial stability concerns that may arise from the debt repayment moratoria. The CBT conducted stress testing of banks in 2020 to assess the potential impact on credit risk, and staff recommended further stress testing as the pandemic continues to linger. It also welcomed the CBT’s plans to undertake an asset quality review in 2021. To improve NPL management, the authorities recently relaxed tax write-off conditions for fully provisioned NPLs. Staff recommended that, notwithstanding moratoria on repayments, NPLs be transparently recorded and urged the authorities to resolve remaining structural issues related to NPLs.9 Finally, the CBT should prepare a strategy and communication plan to phase out Covid-related measures, once the recovery is underway.

30. Staff encouraged the authorities to implement the recommendations of the safeguards assessment. The 2020 safeguards assessment found that the CBT has made progress to address safeguards concerns. A plan has been approved to transition to International Financial Reporting Standards (IFRS), and steps are being taken to address emerging risks in cybersecurity. Further work is needed to increase capacity of the internal audit function and establish a risk management function. The institutional and personal autonomy provisions have scope for strengthening at the time of the next revision of the central bank law. The CBT has recently received TA on improving internal controls, following up on the safeguard recommendations.

Authorities’ Views

31. The CBT confirmed that its primary focus is to achieve low and stable inflation through the use of its policy rate. The CBT noted that its limited participation in the exchange rate market has been for price discovery purposes and noted that the stable exchange rate was a result of the implementation of sound monetary policy. It confirmed the intention to move to inflation targeting and requested further assistance to properly sequence reforms in the current context. The CBT underlined that the stress-testing exercise showed that banks’ capital ratios would decline as a result of the Covid-19 crisis, but remain, on average, above regulatory minimums. It also stressed that the increase in collective provisions will enhance banks’ resilience when debt repayment moratoria end.

E. Promoting Private Sector Activity

32. Increasing potential growth and making it more inclusive, with more job creation, will require increased private sector participation and competition. To reverse the trend of gradually declining private investment and lagging labor productivity, there is a need to strengthen Tunisia’s competitiveness and attractiveness for private-sector initiatives. Policy measures would include lifting (quasi-)monopolies in economic sectors currently dominated by SOEs, removing unnecessary regulatory hurdles (including on authorizations for market entry), and tackling other obstacles, such as lowering the cost for registering property, easing land dispute resolution, and improving the quality of land administration. Measures that enable private sector participation and increase productivity would also contribute to restoring Tunisia’s external position.

33. Investments in renewable energy would help address the impact of climate change and diversify energy supply. The authorities’ objective is to meet 30 percent of Tunisia’s energy needs with renewable energy by 2030, notably wind and solar power. Investments in renewables offer great potential: they would help meet climate change commitments and diversify Tunisia’s energy sources. Early indications from a solar tender project suggest that investments in renewables would be cost effective and improve the financial position of STEG. Staff encourages the authorities to explore options for private-public sector initiatives to help finance climate adaptation and mitigation projects, and to revisit carbon prices and taxation to help reduce carbon emissions.

34. Policies to advance financial inclusion would also support private sector growth and job creation. The authorities could build on the experience with Covid-19 by broadening the implementation of de-cashing and connecting of bank accounts to bank cards for low-income households. More generally, they could provide greater transparency in financial transactions to leverage new technologies (Text Figure 6). The authorities could also speed up the adoption of legislation on credit bureaus, private equity, and secure transactions, prepared with support from development partners. Over the medium term, operationalizing a national collateral registry and launching a national credit registry would also support financial deepening and inclusion.

Text Figure 6.
Text Figure 6.

Use of Digital Payments, 2014–17

Citation: IMF Staff Country Reports 2021, 044; 10.5089/9781513570600.002.A002

Sources: Global Findex Database, World Bank.

F. Strengthening Governance

35. Good governance, anti-corruption, and transparency should be cross-cutting themes for the reform program. To reverse perceptions of corruption and eroding trust in the government, the authorities can further improve the credibility, effectiveness, and transparency of their anti-corruption framework. In that regard, approval of the decree that allows public access to asset declarations for the highest categories of civil servants (including enforcement mechanisms) would be a welcome first step, and efforts are also underway to strengthen the capacity to investigate by linking government databases. In this context, the authorities should implement all the regulations they passed over the past years and digitize the government sector to minimize opportunities for corruption. The authorities can also anchor the prevention and detection of corruption on effective implementation of anti-corruption and AML/CFT regimes (e.g., enhanced due diligence for politically exposed persons, suspicious transaction reporting, and entity transparency). Staff advised endowing anti-corruption agencies with sufficient resources and selecting the members of the Executive Board of the High Anti-Corruption and Good Governance Authority (HACGGA).

36. Covid-related expenditures and measures need to be effective and transparent. The Cour des Comptes plans to conduct an audit of the public-private Covid-19 fund. Current regulations require that all government procurement contracts, including those for recent Covid- related spending, should be published on a dedicated government website. To be fully effective, the data on this site could be more easily accessible and have information on the beneficiaries of the contracts, along with validation of delivery. Staff advises that the authorities conduct a comprehensive ex post audit of crisis-mitigation spending 6–12 months after the end of the fiscal year and publish its results on the government’s website.

Staff Appraisal

37. Staff welcomes the authorities’ policy response to the Covid-19 crisis in the context of an unprecedented downturn. The authorities provided immediate support to the health sector, affected people and firms, while the CBT’s accommodative actions supported credit and liquidity. Yet, real GDP is estimated to have contracted by an unprecedented 8.2 percent in 2020. The increase in the fiscal deficit and debt eroded remaining fiscal space, while the current account deficit narrowed from lower import demand and resilient remittances. Staff expects that growth may rebound modestly in 2021, as the pandemic is brought under control, but with substantial downside risks.

38. The two immediate policy priorities are to save lives and livelihoods until the pandemic wanes, and to start putting fiscal and external balances back on a sustainable trajectory, while protecting the poor. The 2021 budget aims to strike this balance, with the budgeted fiscal deficit projected to narrow amidst high and uncertain financing needs. However, in the absence of clear policy measures, staff’s baseline projects a higher deficit. Staff calls on the authorities to strictly prioritize spending in favor of health and social protection, while exerting strict control over the civil service bill, ill-targeted energy subsidies, and transfers to inefficient state-owned enterprises. Staff encourages the authorities to continue to strengthen safety nets by reaching targeted groups and to enhance public investment.

39. The medium-term outlook depends critically on the future path of fiscal policy, and public debt would become unsustainable, unless a strong and credible reform program were adopted with broad support. Given past reform failures and resistance, staff urges the authorities to consult and communicate with the broader public a medium-term reform program that will take the country in a new direction. To be credible and gain buy-in, the reform program and associated medium-term fiscal framework would need to be supported by a social compact, with the main stakeholders committing to support reforms within their remit. Even so, risks would abound, and vulnerabilities persist over the medium term.

40. Staff calls on the authorities to put public finances back on a sustainable path, reorient expenditure to increase social protection and job-creating investment, and make taxation more equitable. Staff supports the authorities’ intention to strike a balance between what is feasible in Tunisia’s fragile socio-political context and the effort that is needed to bring Tunisia’s macroeconomic balances back towards sustainability. To this end, tax policies should become more equitable and growth friendly, while expenditure rationalization should seek to restrain the civil service wage bill and phase out wasteful subsidies in a socially conscious way. In this context, staff cautions against creating new public agencies to reduce the wage bill, as this would add contingent liabilities rather than solving the problem. Staff urges the authorities to continue strengthening safety nets by reaching targeted groups, including by digital means. It also encourages the authorities to preserve and enhance public investment, including by tapping into digitalization and the green economy, and leveraging public-private partnerships.

41. The SOE sector needs urgent and broad-ranging reforms. Staff welcomes the authorities’ efforts to resolve cross-arrears and encourages them to adopt a medium-term reform plan for the sector to improve SOE performance and reduce fiscal risks. Such a plan would ‘triage’ SOEs based on their financial viability, strategic importance, and nature of their activities (and be followed by restructuring or divesting as relevant); centralize their monitoring and management in a single entity; strengthen corporate governance; and improve financial reporting and transparency. Improving the financial position of the social insurance system would also reduce fiscal risks.

42. Staff urges the authorities to avoid monetary financing of the budget. Staff noted that such financing could undermine the CBT’s progress in reducing inflation, unsettle inflation expectations, adversely affect the exchange rate and reserves, and ultimately undermine the credibility and independence of the central bank. The CBT should stand ready to act, if the recent monetary financing disturbed money markets or fueled inflation. Monetary policy should focus on inflation by steering short-term interest rates, while preserving exchange rate flexibility. Staff estimates that the exchange rate is overvalued relative to fundamentals, suggesting the need for exchange rate flexibility together with further reforms to narrow the gap. Staff encourages the authorities to implement the roadmap towards inflation targeting. Staff advises to prepare a gradual and conditions-based plan to gradually liberalize FX operations and reduce capital account restrictions, carefully balancing financial stability and business environment objectives. As the full impact of the pandemic on the financial sector is yet to be observed, the CBT should closely monitor financial sector soundness and enforce prudential rules, including in banks with large and concentrated exposures to SOEs and affected sectors.

43. Increasing potential growth and making it more inclusive, with more job creation, will require more private sector participation and competition. Staff urges the authorities to open SOE-dominated sectors to competition and remove unnecessary hurdles. Staff welcomes the authorities’ objective to cover at least 30 percent of Tunisia’s energy needs with renewables by 2030, which would help combat climate change and diversify energy supply. Staff also welcomes the authorities’ ongoing efforts to increase financial inclusion, including by leveraging digital technologies.

44. Good governance, anti-corruption, and transparency should be cross-cutting themes for the years ahead. To that end, the authorities should enforce all governance-related regulations they have passed over the past years and digitize the government sector to minimize opportunities for corruption. Good governance in crisis-mitigation spending, including the effectiveness and transparency of Covid-related spending, is critical. To that end, effective implementation of anti-corruption and AML/CFT regimes will ensure transparency and accountability in public service, improve the business climate, and contribute to inclusive and sustainable growth.

45. The next Article IV consultation with Tunisia is expected to be conducted on the standard 12-month cycle.

Figure 4.
Figure 4.

Tunisia: Monetary Sector Developments, 2010–20

Citation: IMF Staff Country Reports 2021, 044; 10.5089/9781513570600.002.A002

Appendix I. External Sector Assessment

Tunisia’s external position in 2020 is weaker than implied by fundamentals and desirable policies, based on an estimated current account (CA) “gap” of about -3.4 percent of GDP. This gap corresponds to a real effective exchange rate overvaluation in the order of 5–10 percent. External sector sustainability remains a source of macroeconomic vulnerability, and exchange rate flexibility together with deep structural reforms—fiscal consolidation, reform of state-owned enterprises, and policies to increase private sector participation and competition—would be required to bring the external position back into balance over the medium term.

A. External Balance Sheets

1. Tunisia’s net international investment position (NIIP) has worsened in recent years, and external debt is rising. The country’s net debtor position has gradually deteriorated over the 2010s, reaching 155 percent of GDP in 2019 (Figure 1). Foreign assets had declined to 23 percent of GDP by 2019, while foreign liabilities rose significantly, to 178 percent of GDP. Most of the deterioration in the NIIP is due to a more than doubling of government medium and long-term external debt over the past ten years, to 52 percent of GDP, while short-term credit quadrupled to 24 percent of GDP over the same period.

Figure 1.
Figure 1.

Net International Investment Position

(In percent of GDP)

Citation: IMF Staff Country Reports 2021, 044; 10.5089/9781513570600.002.A002

Sources: BCT and IMF staff calculations.

2. The large net debtor position also translates into external vulnerabilities. The high share of external debt in total central government debt (71 percent in 2019) increases debt sustainability risks given the overvalued exchange rate (see exchange rate assessment below). In addition, SOE external debt to GDP is estimated at 20.5 percent of GDP in September 2020. The growing stock of external debt also leads to large gross amortization needs. In 2019, total external debt service amounted to 7.6 percent of GDP and 11 percent of exports of goods and services, respectively.

B. Current Account Balances

3. After peaking in 2018, the current account deficit improved in 2019 despite a further worsening in the energy balance. The current account deficit in 2019 moderated to 8.4 percent of GDP, down from 11.1 percent of GDP the year before (Figure 2). This improvement reflected a sharp compression of imports (8.6 percent drop y-o-y in volume). However, the trade deficit remained elevated at nearly 14 percent of GDP, more than half of which due to the energy deficit. The high trade deficit was partly compensated by a strengthening income balance. The number of tourists peaked at 8 million in 2019 and tourism receipts grew by 23 percent. However, tourism revenues remained below their peak, due in part to a structural shift in the composition of non-resident entries, from the traditional European markets to the Maghreb countries (Algeria and Libya), and other markets (e.g. Russia) which generally have different spending patterns (Central Bank of Tunisia, 2019). Lastly, remittances have been rising steadily.

Figure 2.
Figure 2.

Current Account Dynamics, 2010–20

Citation: IMF Staff Country Reports 2021, 044; 10.5089/9781513570600.002.A002

Sources: INS, National Authorities and IMF staff calculations.

4. The pandemic has had a strong impact on the current account. The collapse in exports and imports for the first nine months of 2020 narrowed the trade balance to 10 percent of GDP, with nearly half of it coming from the energy deficit (from lower international oil prices). As of 2020Q3, tourism revenue had collapsed to 2.2 percent of GDP (compared with 5.1 percent over the same period in 2019), while remittances showed resilience at 6.6 percent of GDP (compared with 6.2 percent of GDP over the same period in 2019). As a result, the current account deficit had shrunk to 7.4 percent of GDP as of 2020Q3, compared with a deficit of 9 percent over the same period in 2019. For the year, staff estimates a current account deficit of 6.8 percent of GDP.

5. In 2019, rising foreign currency inflows from tourism revenue and remittances led to an accumulation of reserves for the first time in seven years. The 2019 build-up in reserves was also the result of central bank purchases of FX. Central bank net FX purchases totaled US$462.1 million in 2020. While reserves cover were below adequate levels in 2019, they are estimated to exceed 100 percent of the ARA metric in 2020 (Figure 3).

Figure 3.
Figure 3.

Foreign Financing and Reserves Adequacy

Citation: IMF Staff Country Reports 2021, 044; 10.5089/9781513570600.002.A002

Sources: National Authorities and IMF staff calculations.

C. Saving-Investment Balance

6. National savings have declined sharply, and investment has dropped moderately in recent years. National savings have steadily declined over the years, to 8.8 percent of GDP in 2019, reflecting both a decline in private savings and an erosion of government savings (Figure 4). The trend drop in private investment may be attributed in part to excessive regulations in product markets, complex administrative procedures, and a financial system that does not favor start-ups and growing companies (OECD, 2018). The authorities adopted legislation in 2019 to strengthen the attractiveness of Tunisia as an investment destination, with the aim of kick-starting the reform process of business investment (IMF, 2019b). However, this process was interrupted in 2020 with the outbreak of the Covid-19 pandemic.

Figure 4.
Figure 4.

Saving and Investment, 2010–20

Citation: IMF Staff Country Reports 2021, 044; 10.5089/9781513570600.002.A002

Sources: National Authorities and IMF staff calculations.

D. Exchange Rate Assessment

7. The depreciation of the real effective exchange rate (REER) over 2016–19 helped contain external imbalances. The REER depreciation over this period (totaling 19 percent) helped increase export volumes of olive oil, textiles, and manufactured goods (Figure 5). However, the impact of the depreciation on exports of mechanical and electrical industries was limited, presumably because these have a high import content. Also, it appears that the reaction of imports to the REER depreciation was sluggish.

Figure 5.
Figure 5.

Real and Nominal Effective Exchange Rates

(Jun. 2016=100)

Citation: IMF Staff Country Reports 2021, 044; 10.5089/9781513570600.002.A002

Sources: National Authorities and IMF staff calculations.

8. The REER started appreciating as of March 2019, which could raise concerns about future price competitivenes. The trend in the depreciation of the REER started reversing in March 2019 and resulted in an 18 percent appreciation by October 2020 (o.w. 5 percent in 2020), mostly from price differentials with trading partners.

9. The Fund’s external balance assessment suggests that Tunisia’s real exchange rate is overvalued in the order of 5–10 percent. The Fund’s external balance assessment (EBA) uses three different approaches to assess the REER: the current account (CA) model, the external stability (ES) approach, and the real exchange (REER) model (Table 1). The CA model applied to Tunisia establishes a current account (CA) norm of -4.3 percent of GDP in 2020. In light of the exceptional circumstances of the Covid-19 pandemic, the CA model adjusts the 2020 CA balance (-6.8 percent of GDP) both for cyclical factors and for temporary Covid-19 related factors (the latter accounting for loss in tourism revenue and a temporary decrease in the energy deficit).1 These two adjustments result in an adjusted CA balance of -7.7 percent of GDP for 2020; the difference with the CA norm then gives a corresponding CA gap of -3.4 percent of GDP. Based on a current account elasticity to the real exchange rate of -0.37, this CA gap in turn corresponds to an REER overvaluation of 9.1 percent. The CA gap and associated REER overvaluation are mainly driven by the fiscal deficit. The alternative ES approach suggests an overvaluation in the REER of 13.2 percent (based on the benchmark of a sustainable NIIP corresponding to -78 percent of GDP).2 Both these estimates, which are subject to considerable uncertainty, suggest that the external position is “weaker” than warranted based on fundamentals and desired policy settings. Using the CA method as the main reference, the results indicate that the REER is overvalued—likely in the order of 5–10 percent— compared to fundamentals.

Table 1.

Tunisia: 2020 External Sector Assessment

(Percent of GDP, unless otherwise indicated)

article image

Cyclically adjusted, including multilateral consistency adjustments. Sources: EBA and IMF staff calculations.

E. Non-Price Competitiveness

10. Restoring Tunisia’s external balance will require deep structural reforms. A depreciation of the exchange rate alone will not durably restore Tunisia’s external position. Reducing the current account deficit to sustainable levels over the medium term would first and foremost require fiscal consolidation, which in turn would require a strong and credible structural reform program. The structural reform program would also need to put state-owned enterprises on a sound financial footing and open them up to private sector competition.

11. Tunisia has other non-price competitiveness challenges that impede external adjustment. In light of Tunisia’s sluggish productivity growth compared with peers, additional reforms to strengthen Tunisia’s competitiveness and attractiveness as a destination for private sector-led investment would also help reduce the current account gap and REER overvaluation (Figure 6). Such reforms would help reverse Tunisia’s deterioration in competitiveness ranking relative to peers in recent years. Labor market rigidities, slow innovation, and weaknesses in the business environment all contribute to non-price competitiveness in Tunisia.

Figure 6.
Figure 6.

Non-Price Competitiveness

Citation: IMF Staff Country Reports 2021, 044; 10.5089/9781513570600.002.A002

Appendix II. Debt Sustainability Analysis

Staff assesses that public debt would become unsustainable unless a strong and credible reform program were adopted with broad support. Debt sustainability risks are compounded by SOE contingent liabilities and guarantees, financing risks, and REER overvaluation. A course correction is therefore urgently needed. Bringing the economy back on a sustainable trajectory will critically depend on a strong fiscal consolidation and reform effort, while prioritizing spending to combat the pandemic in the short term and support the most affected groups. Continued access to concessional financing from the international community will also be key in supporting these efforts. The external DSA suggests that external debt is elevated and sensitive to exchange rate shocks.

A. Public Debt Sustainability

1. Public debt increased significantly in 2020 as a result of the Covid-19 crisis. In 2019, the central government debt stock had declined from 77½ to 72 percent of GDP mainly as a result of dinar appreciation and low real interest rates. This decline was abruptly reversed in 2020 with the outbreak of the Covid-19 pandemic. The combination of the sharp contraction of real GDP in 2020 (estimated at 8.2 percent) and the deterioration of the primary fiscal deficit (to 8.2 percent of GDP, excl. grants)—from lower revenues, Covid-19 response measures, but also from scaled-up hiring and salary increases and energy subsidies—resulted in a sharp increase in Tunisia’s public debt ratio, to 87.6 percent of GDP. The debt-to-GDP ratio now significantly exceeds the emerging market debt burden benchmark of 70 percent of GDP and, once government guarantees and other debt of SOEs are fully accounted for, the public debt stock would exceed 100 percent of GDP.

2. A strong fiscal consolidation and medium-term structural reform program are urgently needed to restore public debt sustainability. Staff’s baseline scenario, reflected in this DSA, considers that, in the absence of fiscal discipline and a credible medium-term framework, the central government debt would continue to gradually increase, and reach nearly 100 percent of GDP over the medium term. Gross public financing needs would also stay elevated, in the range of 14–18 percent of GDP annually. Under this baseline scenario, substantial domestic financing (including indirectly from the central bank) would fuel inflation and reserves losses, and, ultimately, result in untenable pressure on the exchange rate.1, 2 A strong and credible reform scenario, with resolute and sustained reform efforts to reduce the fiscal deficit starting already 2021, and underpinned by a medium-term fiscal policy framework and broad political support, projects that fiscal balances and the public debt ratio could be put back on a sustainable trajectory, reducing public debt to below 85 percent of GDP over the medium term.3 However, even under such a scenario, risks would remain elevated, including from exchange rate depreciation, the availability of financing, and the existence of large contingent liabilities from SOEs (see also below).

3. Public debt sensitivity to shocks has increased. Stress scenarios identify significant risks from exchange rate depreciation and failure to implement fiscal adjustment, especially if combined with sustained lower growth. Outcomes are also highly sensitive to changes in underlying assumptions.

  • A series of stress tests highlight additional risks to debt sustainability. Stress tests confirm the vulnerability of public debt to a real exchange rate depreciation, low growth, and fiscal shocks. Additional stress test scenarios indicate that a failure to implement fiscal adjustment would put debt on a more explosive path. A number of other tests, including a customized scenario of a major security incident, a combined macro-fiscal shock, and a contingent liability shock (see also below) suggest that public debt could exceed 100 percent of GDP before 2025.

  • The heat map indicates heightened risks from the debt level, high financing needs, and the debt profile (Figure 3). Along with steadily rising public debt, gross fiscal financing needs would remain elevated throughout the forecast horizon, in the range of 14–18.3 percent of GDP annually. Risks to the debt profile arise from the bond spread, external financing requirement, public debt held by non-residents, and the share of public debt held in foreign currency—all of which exceed the relevant benchmark. A mitigating factor is that a large part of the external public debt is held by the official sector and with relatively long maturities.

  • The stochastic approach stresses the risk of policy slippages. The asymmetric distribution of estimated outcomes in the fan chart shows that debt levels could become durably entrenched above 90 percent of GDP, with risks tilted to the upside.

Figure 1.
Figure 1.

SOE Debt, by type of lender

(Stock, in percent of GDP)

Citation: IMF Staff Country Reports 2021, 044; 10.5089/9781513570600.002.A002

Source: MoF and staff calculations.
Figure 2.
Figure 2.

Stock of SOE Guarantees, by type of lender

(In percent of GDP)

Citation: IMF Staff Country Reports 2021, 044; 10.5089/9781513570600.002.A002

Source: MoF and staff calculations.Note: Calculations based on accumulation of flows from 2016 to June 2020.
Figure 3.
Figure 3.

Tunisia: Public DSA Risk Assessment

Citation: IMF Staff Country Reports 2021, 044; 10.5089/9781513570600.002.A002

Source: IMF staff.1/ The cell is highlighted in green if debt burden benchmark of 70% is not exceeded under the specific shock or baseline, yellow if exceeded under specific shock but not baseline, red if benchmark is exceeded under baseline, white if stress test is not relevant.2/ The cell is highlighted in green if gross financing needs benchmark of 15% is not exceeded under the specific shock or baseline, yellow if exceeded under specific shock but not baseline, red if benchmark is exceeded under baseline, white if stress test is not relevant.3/ The cell is highlighted in green if country value is less than the lower risk-assessment benchmark, red if country value exceeds the upper risk-assessment benchmark, yellow if country value is between the lower and upper risk-assessment benchmarks. If data are unavailable or indicator is not relevant, cell is white. Lower and upper risk-assessment benchmarks are: 200 and 600 basis points for bond spreads; 5 and 15 percent of GDP for external financing requirement; 0.5 and 1 percent for change in the share of short-term debt; 15 and 45 percent for the public debt held by non-residents; and 20 and 60 percent for the share of foreign-currency denominated debt.4/ Long-term bond spread over U.S. bonds, an average over the last 3 months, 07-Oct-20 through 05-Jan-21.5/ External financing requirement is defined as the sum of current account deficit, amortization of medium and long-term total external debt, and short-term total external debt at the end of previous period.

4. The above-mentioned baseline results and stress tests do not yet reflect the additional risks from SOEs, whose large outstanding debt and guarantees pose significant fiscal and financial risks. While full data on all SOEs is not available, partial data on 30 SOEs shows a debt stock of almost 40 percent of GDP, with 20 percent of GDP due to banks and suppliers, and the rest to social security funds, other SOEs and the government. In addition, partial data shows that SOEs benefit from significant government guarantees, estimated at 15 percent of GDP at mid-2020 (Figures 1 and 2). Adding SOE debt to central government debt would push total public debt well above 100 percent of GDP. A stress test that simulates the impact of the realization of contingent liabilities of 13 percent of GDP (10 percent realization of public guarantees and 3 percent recapitalization needs) highlights the significant risks from SOEs. Under such a scenario, gross financing needs would jump to 35 percent in 2021, posing even bigger challenges to debt sustainability.

5. On the positive side, there remain a number of factors that could help attenuate debt sustainability risks. First, Tunisia has maintained access to financing at a low cost, with effective interest rates staying below inflation in recent years. Almost half of Tunisia’s public debt is owed to bilateral donors and multilateral institutions with low average interest rates and relatively long maturities. In addition, part of Tunisia’s past Eurobond issuances were covered by third-party sovereign guarantees (US and Japanese governments). Second, banks’ exposure to sovereign debt has remained relatively low so far, though it has increased in 2020 to an estimated 12.2 percent of GDP. That said, large financing needs in the coming years could result in the government relying increasingly on domestic and external market financing, unless the donor community steps up concessional financing.

6. Overall, strong policy implementation and continued access to concessional financing will be critical to put public debt back on a sustainable trajectory. The reform scenario would bring central government public debt back towards a sustainable path (below 85 percent of GDP) by 2025 (see Text Table 4, Text Box 2, Tables 10–11 and Appendix Figure 8). Contingency planning will be important to respond pro-actively to shocks. Such contingency planning should further reprioritize spending with the objective of reducing discretionary/nonurgent expenditure while safeguarding social programs. It would also be important to maintain an active dialogue with the donors to mobilize additional budget financing on concessional terms or in the form of grants.

Figure 4.
Figure 4.

Tunisia: Realism of Baseline Assumptions

Citation: IMF Staff Country Reports 2021, 044; 10.5089/9781513570600.002.A002

Source : IMF Staff.1/ Plotted distribution includes all countries, percentile rank refers to all countries.2/ Projections made in the spring WEO vintage of the preceding year.3/ Tunisia has had a positive output gap for 3 consecutive years, 2017–2019. For Tunisia, t corresponds to 2020; for the distribution, t corresponds to the first year of the crisis.4/ Data cover annual obervations from 1990 to 2011 for advanced and emerging economies with debt greater than 60 percent of GDP. Percent of sample on vertical axis.
Figure 5.
Figure 5.

Tunisia: Public Sector Debt Sustainability Analysis (DSA) – Baseline Scenario

(In percent of GDP)

Citation: IMF Staff Country Reports 2021, 044; 10.5089/9781513570600.002.A002

Source: IMF staff.1/ Public sector is defined as central government and includes public guarantees, defined as .2/ Based on available data.3/ Long-term bond spread over U.S. bonds.4/ Defined as interest payments divided by debt stock (excluding guarantees) at the end of previous year.5/ Derived as [(r – π(1+g) – g + ae(1+r)]/(1+g+π+gπ)) times previous period debt ratio, with r = interest rate; π = growth rate of GDP deflator; g = real GDP growth rate; a = share of foreign-currency denominated debt; and e = nominal exchange rate depreciation (measured by increase in local currency value of U.S. dollar).6/ The real interest rate contribution is derived from the numerator in footnote 5 as r – π (1+g) and the real growth contribution as -g.7/ The exchange rate contribution is derived from the numerator in footnote 5 as ae(1+r).8/ Includes changes in the stock of guarantees, asset changes, and interest revenues (if any). For projections, includes exchange rate changes during the projection period.9/ Assumes that key variables (real GDP growth, real interest rate, and other identified debt-creating flows) remain at the level of the last projection year.
Figure 6.
Figure 6.

Tunisia: Composition of Public Debt and Alternative Scenarios

Citation: IMF Staff Country Reports 2021, 044; 10.5089/9781513570600.002.A002

Source: IMF staff.
Figure 7.
Figure 7.

Tunisia: Public DSA Stress Tests

Citation: IMF Staff Country Reports 2021, 044; 10.5089/9781513570600.002.A002

Source: IMF staff.
Figure 8.
Figure 8.

Tunisia: Public Sector Debt Sustainability Analysis (DSA) – REFORM Scenario

(In percent of GDP)

Citation: IMF Staff Country Reports 2021, 044; 10.5089/9781513570600.002.A002

Source: IMF staff.1/ Public sector is defined as central government and includes public guarantees, defined as .2/ Based on available data.3/ Long-term bond spread over U.S. bonds.4/ Defined as interest payments divided by debt stock (excluding guarantees) at the end of previous year.5/ Derived as [(r – π(1+g) – g + ae(1+r)]/(1+g+π+gπ)) times previous period debt ratio, with r = interest rate; π = growth rate of GDP deflator; g = real GDP growth rate; a = share of foreign-currency denominated debt; and e = nominal exchange rate depreciation (measured by increase in local currency value of U.S. dollar).6/ The real interest rate contribution is derived from the numerator in footnote 5 as r – π (1+g) and the real growth contribution as -g.7/ The exchange rate contribution is derived from the numerator in footnote 5 as ae(1+r).8/ Includes changes in the stock of guarantees, asset changes, and interest revenues (if any). For projections, includes exchange rate changes during the projection period.9/ Assumes that key variables (real GDP growth, real interest rate, and other identified debt-creating flows) remain at the level of the last projection year.

B. External Debt Sustainability

7. Tunisia has elevated external debt. The external debt-to-GDP ratio reached 97.4 percent in 2018 and declined to 92.8 percent in 2019. The improvement in 2019 was thanks to currency appreciation (which started in February 2019 and continued over the course of 2020) and the reduction in the current account deficit. External debt is estimated at 94.7 percent of GDP in 2020, of which 74 percent is medium- to long-term and 80 percent is public external debt. The bulk of the external debt is held by official creditors or is backed by a third-party guarantee (see Table 1 and IMF Country Report No. 17/203).

Table 1.

Tunisia: External Debt, September 2020

article image
Source: Tunisian authorities and IMF staff calculations.

8. External debt is expected to remain high over the medium term. Staff’s baseline scenario projects that external debt would decline somewhat over the medium term but remain elevated and reach about 96 percent over the medium term (Table 2). The slight decline in external debt over the medium term, despite rising public debt in the baseline scenario, is attributable to a number of factors, including reserves drawdown and increased reliance by the central government on domestic debt.

Table 2.

Tunisia: External Debt Sustainability Framework, 2015–25

article image
Sources: IMF Country desk data; and staff estimates.

Derived as [r – g – r(1+g) + ea(1+r)]/(1+g+r+gr) times previous period debt stock, with r = nominal effective interest rate on external debt; r = change in domestic GDP deflator in US dollar terms, g = real GDP growth rate, e = nominal appreciation (increase in dollar value of domestic currency), and a = share of domestic-currency denominated debt in total external debt.

The contribution from price and exchange rate changes is defined as [-r(1+g) + ea(1+r)]/(1+g+r+gr) times previous period debt stock. r increases with an appreciating domestic currency (e > 0) and rising inflation (based on GDP deflator).

Defined as current account deficit, plus amortization on medium- and long-term debt, plus short-term debt at end of previous period.

The key variables include real GDP growth; nominal interest rate; dollar deflator growth; and both non-interest current account and non-debt inflows in percent of GDP.

The implied change in other key variables under this scenario is discussed in the text.

Long-run, constant balance that stabilizes the debt ratio assuming that key variables (real GDP growth, nominal interest rate, dollar deflator growth, and non-debt inflows in percent of GDP) remain at their levels of the last projection year.

9. External debt is sensitive to exchange rate depreciation. Tunisia’s external debt profile is characterized by a low average interest rate, relatively long maturities, a substantial share of concessional debt, and a large grant element on new external debt (see Table 1 and IMF Country Report No. 19/223). This makes Tunisia’s external debt relatively robust to most shocks, except for a large real exchange rate depreciation (Figure 9). A sharp real exchange rate depreciation—simulated by a one-time 30 percent depreciation in the second year of projection—would sharply increase external debt (to about 152 percent of GDP in 2021) and remain high throughout the projection period.

Figure 9.
Figure 9.

Tunisia: External Debt Sustainability: Bound Tests 1/ 2/

(In percent of GDP)

Citation: IMF Staff Country Reports 2021, 044; 10.5089/9781513570600.002.A002

Sources: IMF, Country desk data, and staff estimates.1/ Shaded areas represent actual data. Individual shocks are permanent one-half standard deviation shocks (except for growth which is a 3/4th standard deviation). Figures in the boxes represent average projections for the respective variables in the baseline and scenario being presented. Ten-year historical average for the variable is also shown.2/ For historical scenarios, the historical averages are calculated over the ten-year period, and the information is used to project debt dynamics five years ahead.3/ Permanent 1/4 standard deviation shocks applied to real interest rate, growth rate, and current account balance.4/ One-time real depreciation of 30 percent occurs in 2021.
Table 3.

Tunisia: Amortization and Interest Payments of Central Government Debt, 2020–36

article image
*Amortization schedule uses IMF exchange rate forecasts Source: IMF staff projections based on data from the authorities as of September 2020.

Annex I. Risk Assessment Matrix1

article image
Source: IMF staff.

Annex II. Integrated Capacity Building Priorities, 2021–23

article image
article image
*/ Ongoing TA.

Annex III. Trends in the Civil Service Wage Bill

1. Tunisia’s civil service wage bill is one of the highest in the world. It grew from 10.7 percent of GDP in 2010 to 14.6 percent of GDP in 2019 (including wage components paid out as tax credits to public sector workers) and is estimated to have reached 17.6 percent of GDP in 2020 (Figure 1). This level is well above the median of 8.7 percent of GDP in non-oil producing emerging markets for 2020 and ranks Tunisia as the highest among non-oil producing emerging markets.

Figure 1.
Figure 1.

Central Government Wage Bill in non-Oil Producing Emerging Markets, 2020

(In percent of GDP)

Citation: IMF Staff Country Reports 2021, 044; 10.5089/9781513570600.002.A002

Source: WEO database.

2. The civil service wage bill crowds out other budget priorities. The wage bill consumed about 75 percent of tax revenues in 2020, up from 53 percent in 2010 (Figure 2). The wage bill is also almost three times the size of public investment and almost six times spending on social programs (Figure 3).

Figure 2.
Figure 2.

Central Government Wage Bill in non-Oil Producing Emerging Markets, 2020

(In percent of tax revenues)

Citation: IMF Staff Country Reports 2021, 044; 10.5089/9781513570600.002.A002

Source: WEO database.
Figure 3.
Figure 3.

Composition of Government Spending, 2020

(In percent of total)

Citation: IMF Staff Country Reports 2021, 044; 10.5089/9781513570600.002.A002

Note: Spending does not include the one-off repayment of government arrears to SOEs in 2020.Source: Supplementary 2020 budget and staff estimates and projections.

3. The steady increase in the civil service wage bill is due to both headcount additions and salary increases.

  • Headcount additions. In the first years after the revolution (2011–15), the civil service saw a significant expansion with many of the new recruits among the lower qualification staff (manual workers). The total number of staff increased by 5½ percent per year on average during that period. A further hiring push took place for security personnel after 2015, to address higher threat levels in Tunisia’s post-terrorist attack environment (Figure 4). Significant new hiring also occurred in 2020, with the total civil service increasing by about 4 percent (about 40 percent of that increase was due to the health sector.) In the 2021 budget, the hiring of additional 16,500 civil servants is envisaged, with the Ministry of Education accounting for 53 percent of the increase in total headcount, and the Interior Ministry for 38 percent. Other potential increases in 2021 that were not yet included in the 2021 budget are the agreed hiring of about 10,000 of long-term unemployed and the regularization of about 6,000 road construction workers (part of the regularization of about 31,000 ouvriers de chantiers that could take place over several years.) Also not included in the central government headcount are the estimated 100,000 people employed by SOEs with the latter at times used to create jobs for social purposes, especially in the disadvantaged region of the south (e.g. associated with industries such as phosphate and oil).

  • Salary increases. The bulk of the increase in the civil service wage bill over time has been due to salary increases (Figure 5). Because the wage increases were only partially followed by the private sector, public sector salaries are on average about twice as high as those in the private sector (although this may mask some heterogeneity across categories of workers.) In recent years, the budget has had to absorb a package of legacy wage hikes for 2016–18 (1.2 percent of GDP) that were legally agreed by a previous government. In February 2019, the authorities accepted a further wage increase totaling about 1.5 percent of GDP. This increase was delivered in three tranches, the first paid out in 2019, the second and a third in 2020. In addition, in 2020, another 0.3 percent of GDP increase in salary was decided, following an agreement between the UGTT labor union and the ministry in charge of civil servants.

Figure 4.
Figure 4.

Civil Service Wage Bill: Composition

(Billions of TD, including tax credits)

Citation: IMF Staff Country Reports 2021, 044; 10.5089/9781513570600.002.A002

Note: Wage spending in the social sector comprises that of the Ministries of Education, Higher Education, Health, and Social Affairs, and in the security sector that of the Ministries of Defense and Interior.Sources: Tunisian authorities and IMF staff calculations
Figure 5.
Figure 5.

Civil Service Wage Bill Growth: Contributions

(Percentage points)

Citation: IMF Staff Country Reports 2021, 044; 10.5089/9781513570600.002.A002

Sources: Tunisian authorities, and IMF staff calculations

4. Fund staff has consistently advised the authorities to take steps to contain the civil service wage bill, which has proved to be a challenge for the authorities. The average civil service salary has doubled between 2011–20, outpacing other sectors in the economy (Figure 6). Staff has emphasized that the regular increases have been unfair, unaffordable, and detrimental to macroeconomic stability. One element of the authorities’ strategy involved setting hiring limits, which limited new recruitments to 3,000 in 2018 and to slightly over 4,000 in 2019. Given the structure of the civil service, the potential gains in headcount from natural attrition have been relatively limited. Voluntary departure and early retirement schemes generated significantly less interest than hoped for (some 6,600 civil servants left compared with an expected 20,000–25,000), reflecting in part the poor state of the private sector job market.

Figure 6.
Figure 6.

Average Annual Salaries, 2010–19

(In thousands of Tunisian Dinars)

Citation: IMF Staff Country Reports 2021, 044; 10.5089/9781513570600.002.A002

Sources: National Authorities and IMF staff calculations.

Annex IV. SOE Reform

1. SOEs play a dominant role in the Tunisian economy. There are over 100 SOEs in Tunisia, out of which 55 are commercial SOEs.1 They are present in a broad spectrum of the Tunisian economy—from manufacturing of tobacco and cement to the production and distribution of electricity—often with a monopoly position. Seven of the ten largest firms in the country are owned by the government. In 2014, SOEs accounted for 9.5 percent of GDP.2

2. SOEs in Tunisia are opaque, and available information indicates that they are in a poor financial position. There is no systematically updated and consolidated financial information on SOEs in Tunisia. Partial data based on financial information for the 30 largest SOEs show that their financial situation is fragile (Figure 1). In the aggregate, these 30 SOEs were making losses in recent years, and 21 out of 30 had losses in 2019. Furthermore, the capital (own funds) of these enterprises has been rapidly declining, and 14 of the 30 were technically insolvent (i.e., had negative capital) in 2019. Three of the largest SOEs (national fuel, electricity, and grain companies) had negative capital totaling almost 5 percent of GDP.

Figure 1.
Figure 1.

Tunisia: Financial Indicators of 30 Largest SOEs

Citation: IMF Staff Country Reports 2021, 044; 10.5089/9781513570600.002.A002

3. SOEs have large arrears and cross arrears with the Government, the social security Funds, and other entities. Those arrears are often cascading with spillover effects, including on the private sector, as significant arrears may concern private suppliers (Figure 2). The full scale of arrears is currently being evaluated by authorities, but the key elements can be summarized focusing on a sample of 30 SOEs gathering most of the financial stakes:3

  • Cross-arrears within the energy sector: The electricity and gas and refining companies (STEG and STIR) have financial difficulties and liquidity issues that result in arrears, totaling 2.5 percent of GDP, mainly due to the production and distribution companies (ETAP and SNDP);

  • Cross-arrears between SOEs and the State: as of mid-2020, arrears from SOEs to the state total 5.5 percent of GDP (with 25 percent of it originating from the energy and agriculture sectors) and arrears from the State to SOEs total 7.9 percent of GDP;

  • Cascading arrears within the social security funds and the health sector: The two main retirement funds (for the private and public sectors) have arrears of 4.1 percent of GDP toward the Health Care Fund (CNAM), partly originating from the SOE sector’s overdue social contribution (0.7 percent of GDP). The arrears to CNAM fund are in turn cascading to the SOE responsible for importing and commercializing pharmaceutical products (Pharmacie Centrale) for a total of 0.4 percent of GDP.

  • Debt to entities outside the public sector that may include arrears to suppliers: based on a sample of 30 SOEs (including the social security funds) the level of debt due to other entities totals 3.1 percent of GDP.

Figure 2.
Figure 2.

Tunisia: Cross-Arrears of SOEs, 2019 and 2020 1/

(In percent of GDP)

Citation: IMF Staff Country Reports 2021, 044; 10.5089/9781513570600.002.A002

Sources: Tunisian authorities’ budget and IMF staff calculations. The data on State-SOE arrears are for June 2020, all other data are for 2019 as included in the 2020 budget annex, and information from CNAM and PCT. Arrows in yellow are arrears from the government to SOEs; arrows in blue are arrears from SOEs to other entities (SOEs, government, social security funds, etc.)1/ STIR: Société Tunisienne des industries de Raffinage; STEG: Société Tunisienne de l’Electricité et du Gaz; ETAP: Entreprise Tunisienne d’Activités Pétrolières; SNDP: Société Nationale de Distribution des Pétroles; CNSS: Caisse Nationale de Sécurité Sociale; NRPS: Caisse Nationale de Retraite et de Prévoyance Sociale; and PCT: Pharmacie Centrale de Tunisie.

4. A number of factors present in many other emerging and developing countries may also explain the weak performance of Tunisian SOEs (April 2020 Fiscal Monitor).4 They include: (i) unfunded mandates, including firms’ lack of freedom to set prices or tariffs to cost-recovery levels; (ii) government bailouts, i.e. the expectation that governments will eventually compensate, or bail out, the SOE for losses, which creates incentives for managers not to pursue efficiency, to take larger risks, or to borrow excessively; (iii) weak corporate governance and oversight, with boards lacking independence to take commercial decisions, government agencies not having sufficient information or capacity to properly monitor SOEs, and guidelines for financial reporting by SOEs missing or being inadequate. Weak governance and corruption are among the main sources of the difficulties that SOEs face (Baum and others 2019).5

5. SOEs tend to drain scarce budget resources. In recent years, transfers from the budget to SOEs were large and stable, in the range of 7–8 percent of GDP. About 40 percent of these transfers are paid to three large enterprises in the form of subsidies on grain, fuel, and electricity. But there are substantial transfers to other companies as well, and some of those transfers pay for SOEs’ investments and wage bills. Despite the importance of these transfers for the budget, fiscal reports do not provide a complete and fully transparent picture of all fiscal flows related to SOEs, apart from the main subsidies.

6. In addition to direct burden on the budget, SOEs present significant fiscal risks, as their weak financial performance generates high indebtedness. SOEs are highly indebted, with total debt of 30 largest SOEs reaching almost 40 percent of GDP in 2019 (and expected to have increased further in 2020). Almost half of that debt is to banks, with the balance due mainly to the state, other SOEs, and the social security. Furthermore, a significant part of SOE debt to domestic banks and international multilateral and bilateral lenders (estimated at 15 percent of GDP in mid-2020) is covered by government guarantees. The use of these guarantees is dominated by a few large borrowers, notably the Office des Céréales and the national electricity and fuel companies STEG and STIR (Figure 3). An approach of providing guarantees for borrowing can be used during periods of tight budget, when governments may prefer to issue guarantees rather than give direct transfers to SOEs. Nevertheless, the volume of these guarantees presents a significant contingent liability for the government, especially given the weak financial position of SOEs. Since 2016, the government has set an annual ceiling of TD 3 billion for new guarantees that can be provided to SOEs, and this ceiling has been increased to TD 5 billion in 2019 and TD 7 billion in 2020 and 2021 (6.3 percent of 2020 GDP).6 Due to mounting pressures, these ceilings were almost completely exhausted in recent years, and preliminary information indicates that demand for guarantees in 2021 exceeds the ceiling again.

Figure 3.
Figure 3.

Tunisia: Government Guarantees by Borrower, 2016–2020:06

(In millions of dinars)

Citation: IMF Staff Country Reports 2021, 044; 10.5089/9781513570600.002.A002

Source: Tunisian draft budget law for 2021, Annex 8.

7. The SOE sector distorts competition and generates a drag on the economy. Although SOEs account for only about 3–4 percent of total employment, their presence introduces significant distortions in the labor market. Average salaries in SOEs have been rising faster than in other sectors of the economy in recent years, and it is estimated that in 2019 the average SOE salary was 50 percent higher than the average salary in the civil service, and more than twice the average salary in the economy overall (Figure 4). Such high remuneration adversely affects competitiveness, in particular in sectors that are critical to the Tunisian economy (e.g., in transport, logistics) and puts a drag on the performance of the private sector.

Figure 4.
Figure 4.

Tunisia: Average Salary: SOEs, Civil Service, and Overall; 2017ala19

(In thouusands of dinars per year)r)

Citation: IMF Staff Country Reports 2021, 044; 10.5089/9781513570600.002.A002

Sources: Tunisian authorities (LdF2021) and IMF staff calculations

8. The weak financial performance of the national electricity and gas utility (STEG) exemplifies the problems faced by Tunisian SOEs.7 STEG is highly indebted (total debt of 10.6 percent of GDP, with 3.7 percent of GDP covered by government guarantees) and has negative capital. A benchmarking exercise with other SOEs in 58 countries and in the same sector shows that the STEG performs relatively worse than its peers (Figure 5). Its profitability is well below the 25th percentile of other countries’ SOEs in the same sector. In addition, STEG is highly leveraged and it is operationally inefficient, as indicated by the low ratio of operating revenue per employee.

Figure 5.
Figure 5.

Benchmarking the STEG with Other Electricity SOEs

Citation: IMF Staff Country Reports 2021, 044; 10.5089/9781513570600.002.A002

Sources: STEG 2019 financial statement and IMF staff calculations using Baum and others (2020).Notes. STEG data are based on its 2019 financial statement. Profitability is measured by the return on assets; leverage by the ratio of non-current liabilities to assets and; efficiency by the ratio of operating revenue per employee. The blue dots are the median, top 75th and bottom 25th percentile of the distribution of each indicator in other countries. Operating revenue per employee is in millions of USD.

9. The Tunisian authorities have been receiving technical and financial support from various partners to improve the governance and financial performance of SOEs. These partners include France (AFD), Germany (KfW), the IMF, the European Bank for Reconstruction and Development (EBRD), and the World Bank and includes support and reform plan to key SOEs, especially in the energy sector.

10. The SOE law is currently under review by the Tunisian authorities. A draft SOE law was submitted to Parliament in February 2020 but was withdrawn for further review. The broad goal of the draft law is to amend the outdated SOE Law 89–9 by: (i) enhancing governance and transparency of SOE operations—including the creation of an independent autonomous agency to supervise the SOE sector (the authority under which this agency would operate is still under discussion) instead of line ministries—and (ii) professionalizing the boards of SOEs. Once enacted, this law could provide a legal foundation to implement a package of reforms to improve the economic and financial situation of SOEs and limit fiscal risks and ensure adequate and unified oversight of the sector.

11. The authorities should develop and implement a comprehensive SOE reform program. The new strategy should be comprehensive, have a clear timeline, and start with providing a clear view of the financial situation of all SOEs. The overall goal would be to improve efficiency and service delivery, promote greater oversight and accountability, and increase competition and investment. To that end, the plan should focus on (i) clearing the cross arrears and arrears to ensure a stabilization of their financial situation; (ii) elaborating a strategic plan to reform SOEs with the objective to rationalize the SOE portfolio, (iii) centralizing the monitoring of SOEs; (iv) strengthening governance of SOEs; and (v) improving analysis and transparency of financial information regarding SOEs.

Clearing the Cross Arrears to Stabilize the Financial Situation of SOEs

12. Clearing (cross-)arrears is a prerequisite to sanitize the financial situation of SOEs and should start with a review and analysis of arrears due. This would involve accounting for cross-arrears and cascading arrears with an analysis of their nature: age, source (for example, are those originating from arrears that are due by another entity) and the settlements involved. An audit could happen within a short time span and be based on a risk assessment (focusing control on arrears with high risk and/or large financial stakes) and be performed by one of the internal audit institutions. External audit can also be involved as independent third party to review the results and provide credibility to the exercise.

13. The next step would be to sign and implement clearing agreements between the different parties involved. To this end, the exact amount of compensations should be calculated and included in the respective budget of the state and the SOEs. The agreements should also include provisions in terms of concrete actions to prevent future occurrence of arrears. Once the compensations have been implemented, a strong priority should be given to clear arrears with suppliers and the private sector.

Designing and Implementing a Strategic Plan to Perform a Triage of SOEs

14. A strategy for a triage should be designed with a clear objective of rationalizing the portfolio of SOEs. This strategy could allow to proceed with the triage of SOEs and differentiate between strategic and non-strategic ones, and those that compete unnecessarily with the private sector without a clear social rationale. The aim should be to bring in private-sector competition and improving efficiency and service delivery (see République Tunisienne 2018 and April 2020 Fiscal Monitor). This triage can be based on a set of predefined criteria:

  • Viability and profitability of the business model: this assessment can be based on key inputs including main financial ratios (such as profitability, solvability and liquidity), the medium-term business plan, and the overall financial performance of the company over the last years;

  • Strategic importance for the government: this should assess whether the company is operating in an area that the government assesses as vital, for example by delivering key public services or building and maintaining infrastructures that are deemed important for economic growth;

  • Nature: the initial business purpose of the company and whether an intervention from the State made it drift from its initial goal (for example, if the company hired employees for social purpose). Another important angle to analyze is whether the company is currently operating in the private sector and, if yes, whether this sector allows for open competition since monopolies can act as disincentive for private sector participation;

  • Overall future role in the economy: this should include a long-term analysis on what the company will bring to the economy (for example by aligning it to long-term development plans such as the National Development Plan), what its impact is on the banking sector; this analysis could include an overall risk assessment to the medium and long-term.

15. The triage can take place according to options available in terms of reform and restructuring. Some SOEs may require one-off recapitalization and restructuration, or ongoing transfers from the government which should come along with clear reform plans in terms of financial performance and governance, as well as a close monitoring (see below options to improve governance and surveillance). If the SOE is not profitable but assessed as strategic to the government, one could consider the option of shifting its status from SOE to that of public entity, as this usually involves less financial independence and closer scrutiny (those entities are usually considered as a direct extension of the public administration). A stronger participation from the private sector (through PPPs and concessions), privatization, and ‘run-off management procedures’ resulting eventually in the closure of the SOE, are other options to consider if the profitability cannot be restored. 8

16. A realistic pricing policy for services and goods provided by the SOE sector should accompany this restructuring strategy. The major SOEs are suffering structural losses because they operate with regulated pricing policies that do not align with the charges incurred. For companies that remain in the public domain, a reform of subsidized tariffs to progressively allow cost-recovery levels would create fiscal space to implement inclusive social policies and foster private sector participation in the economy. This reform could start in the energy and agriculture sectors that are the largest in terms of subsidies. On a similar matter, improving the situation of the three social security funds through reforms to reach fiscal sustainability would also reduce fiscal risks.

Centralizing the Monitoring of SOEs

17. The authorities should submit a (revised) version of the draft law to Parliament soon and adopt and implement a regulatory framework. The surveillance of SOEs is currently scattered across the various line ministries and other government entities. The MoF―through the Direction Générale des Participations (DGP)―does not currently have a global view of the portfolio of SOEs. There is a need to break the silo approach of sectoral ministries by centralizing the oversight of SOEs within an autonomous agency, possibly under the oversight of the MoF. A centralized model provides the potential for ensuring consistency between the ownership and financial oversight functions (Baum and others 2020).9 For Tunisia, this approach could start with the largest ones and have a timeline for completion for all SOEs.

18. The revised law and the regulatory framework should have clear provisions to strengthen surveillance of SOEs. It should specify the role of the future autonomous agency responsible for supervising the SOE sector in terms of mandate and organization. A good practice is to bring the autonomous agency under the responsibility of a single entity to avoid possible conflicts and simplify oversight – in the Tunisian context, the Ministry of Finance should be considered for this role. The law and the regulatory framework should also clarify how the agency will interact with SOEs in terms of surveillance and monitoring. It could also benefit from a clear delineation between (i) public entities classified as government units that provide non– market services or goods and (ii) SOEs that operate in the private sector with differentiated approach for surveillance.10

Strengthening Governance of SOEs

19. Provisions on Governance of SOEs should focus on the key role that the board needs to play in terms of decision making. The boards of SOEs play a limited role under current law. The new law aims to strengthen their independence, responsibility, and accountability. The appointment of professional and independent directors, and the reduction of the direct control of line ministries in the management and decision-making process of SOEs would be fundamental in helping to change the governance of SOEs, along with ensuing changes. To this end, two key objectives should be pursued:

  • Professionalization of the board member function: as an example, a number of countries (China, Poland, India) require by law a certain proportion of independent board members with skills related to the sector the SOE operates in;

  • Improve the level of information available for strategic and operational decision-making: this should happen including by strengthening audit committees as well as internal control and risk management.

Improving Analysis and Transparency of Financial Information Regarding SOEs to Strengthen Decision Making and Potential Investors Confidence

20. Consolidation of fiscal statistics to include the SOE sector can take place in the short term. As a first step, the authorities should properly account for the existence of government guarantees in public debt data. Subsequently, the authorities could consider covering SOEs in fiscal targets (e.g. overall deficit or debt limits), including though consolidation into general government data. This could foster incentives for fiscal discipline and more transparency and ensure that the broader fiscal policy goals are consistent across the public sector (April 2020 Fiscal Monitor). The government could start by including in its fiscal targets those SOEs that pose significant fiscal risks and also prioritize the social security funds.

21. The DGP could strengthen the analysis of financial performance of SOEs based on key financial ratios. To this end, the availability of data from SOEs in a reliable and timely manner should be improved. The DGP should collect regular data from SOEs and perform an analysis of key financial ratios (such as profitability, solvency, and liquidity) which could serve as a basis to better analyze and monitor fiscal risks stemming from SOEs. This result of the analysis could result in regular reporting for better informed decision making by the government, for example when granting guarantees or taking strategic decisions when drafting a “contrat de programme”.

22. From a medium-term perspective, authorities could implement an IT system to gather financial data from SOEs. This would allow to gather financial data from SOEs such as the initial budget, financial statements, and main economic and financial indicators, all in a unified and automated manner. For example, Morocco has implemented such a system, which also allows budget execution monitoring, and which includes a repository of key documentation (such as board decisions, results of specialized commissions) as well as synthetic dashboards with financial performance.

23. Improvements of the budget annex on SOEs and drafting a fiscal risk statement would strengthen fiscal transparency on SOEs and potential investors confidence. The authorities’ budget annex on SOEs contains a wealth of information on the financial performance for most of the key SOEs and is a much welcome step toward fiscal transparency. Going forward, the annex should progressively include: (i) key financial information required for all the largest SOEs; (ii) a consolidated net position for the SOE sector; and (iii) insights on the government strategy per each sector, starting with key sectors such as energy and agriculture. The Fiscal Risk Statement (or a discussion on fiscal risks to be annexed to the Budget Law) could in turn contain a SOE section to discuss the main fiscal risks stemming from the SOE sector such as spillover to the financial sector and arrears, as well as government plans to mitigate the risks.
1

World Bank (2020). “Business Pulse Tunisie. Impact de la crise COVID-19 sur le secteur privé informel.”

2

World Bank (2020). “Tunisia Economic Monitor. Rebuilding the Potential of Tunisian firms.”

3

UNICEF (2020). “Tunisie: Impact des mesures de confinement associées à la pandémie COVID-19 sur la pauvreté des enfants.”

4

The CBT can purchase government securities through open market operations in the secondary market for monetary policy purposes; the Central Bank law does not allow direct monetary financing. The exceptional loan was extended at zero interest rate and with maturity of five years (o.w. one year grace).

5

Almost 40 percent of transfers are directed to three SOEs in the form of subsidies for cereals, fuel, and electricity.

6

At end-June 2020, the stock of SOEs’ arrears to the government was estimated at TD 6.2 billion and the stock of government arrears to SOEs at TD 8.8 billion.

7

The authorities’ medium-term reform program could be supported by technical assistance from development partners, including the IMF (Annex II), and the medium-term macroeconomic framework could be complemented by a debt management strategy.

8

The authorities are working with the World Bank to expand the AMEN social program to facilitate cash transfers and other services. The aim is to increase the coverage of cash transfers from 9 percent to 15 percent of the population over 2019–22. They have also expanded child support to ages 0–5 and to larger households, with the support of development partners.

9

With WB support, the authorities plan for a holistic strategy including legal, prudential, and institutional aspects of NPL resolution.

1

The EBA CA model adjusts for movements in domestic and world output gaps, which affect trade flows and CA balances, as well as for movements in the commodity terms-of-trade. The Covid-19 adjustment strips out other transitory factors from the CA that capture the Covid-19 crisis impact, especially for economies exposed to hard-hit sectors such as tourism.

2

As noted, the third EBA approach uses the REER model from the “EBA-Lite” method. This approach suggests an undervaluation of 50 percent. Staff gives more weight to CA model, which has often proven to be more informative and reliable than the REER model (IMF, 2019), and which also conforms with persistent non-price competitiveness challenges of the Tunisian economy.

1

The macro framework and DSA do not explicitly incorporate this outcome.

2

The baseline assumes that further indirect monetary financing would be likely; it does not explicitly assume a repeat of the end-2020 direct monetary financing operation given that this is not allowed by the Central Bank Law.

3

The main elements of the reform scenario are found in Text Table 4, Box 2, and Tables 10–11 of the Staff Report and in the DSA’s Appendix II Figure 8.

1

The Risk Assessment Matrix (RAM) shows events that could materially alter the baseline path (the scenario most likely to materialize in the view of IMF staff). The relative likelihood is the staff’s subjective assessment of the risks surrounding the baseline (“low” is meant to indicate a probability below 10 percent, “medium” a probability between 10 and 30 percent, and “high” a probability between 30 and 50 percent). The RAM reflects staff views on the source of risks and overall level of concern as of the time of discussions with the authorities. Non-mutually exclusive risks may interact and materialize jointly. “Short term (ST)” and “medium term (MT)” are meant to indicate that the risk could materialize within 1 year and 3 years, respectively.

1

This means an entity that engages predominantly in economic activities and sells all or most of its output to the market. The GFS Manual 2014 defines an entity as a SOE when four criteria are met: (i) the entity is resident of the economic territory; (ii) the entity is an institutional unit; (iii) the entity is controlled by government, another public company or any combination of general government and public corporations; and (iv) the public entity is a market producer. A market producer is an institutional unit that provides all or most of its output at economically significant prices.

2

République Tunisienne (2018), ‘’Livre Blanc : Rapport de synthèse sur la réforme des entreprises publiques en Tunisie.”

3

Based on preliminary and non-exhaustive data published in 2019 and 2020.

4

International Monetary Fund (2020), “State-Owned Enterprises: The Other Government”, Fiscal Monitor, April 2020.

5

Baum, A., C. Hackney, P. Medas, and M. Sy (2019), “Governance and SOEs: How Costly is Corruption?”, International Monetary Fund, Working Paper No 19–253.

6

Putting a limit on the new issuances of guarantees per year can be interpreted as reflecting the risk appetite of a government. A good practice is to identify expected losses (in case that the guarantees are called) and include a provision for losses in the budget.

7

Société Tunisienne de l’Electricité et du Gaz (STEG).

8

In a ‘run-off management procedure’, the company continues to honor current contracts but does not accept new business, which eventually leads to its closure.

9

Baum, A., P. Medas, A. Soler, and M. Sy (2020), “Managing Fiscal Risks from State-Owned Enterprises,” International Monetary Fund, Working Paper 20/213.

10

This delineation can rely on the IMF 2014 Government Finance Statistics Manual.

  • Collapse
  • Expand
Cover IMF Staff Country Reports
Tunisia: 2021 Article IV Consultation-Press Release; Staff Report; and Statement by the Executive Director for Tunisia
Author:
International Monetary Fund. Middle East and Central Asia Dept.
Volume/Issue:
Volume 2021: Issue 044
Publisher:
International Monetary Fund
ISBN:
9781513570600
ISSN:
1934-7685
Pages:
97
DOI:
https://doi.org/10.5089/9781513570600.002
  • <sup><xref ref-type="fig" rid="RA002fig01">Text Figure 1.</xref></sup>
    View in gallery
    Text Figure 1.

    Tunisia: Covid-19 Related Developments, 2020–21

  • <sup><xref ref-type="fig" rid="RA002fig07">Figure 1.</xref></sup>
    View in gallery
    Figure 1.

    Tunisia: Real Sector Developments, 2010–20

  • Figure 2.
    View in gallery
    Figure 2.

    Tunisia: External Sector Developments, 2010–20

  • <sup><xref ref-type="fig" rid="RA002fig09">Figure 3.</xref></sup>
    View in gallery
    Figure 3.

    Tunisia: Fiscal Sector Developments, 2010–20

  • <sup><xref ref-type="fig" rid="RA002fig02">Text Figure 2.</xref></sup>
    View in gallery
    Text Figure 2.

    Tunisia: Cross-Arrears of State-Owned Enterprises, 2019 and 2020 1/

    (In percent of GDP)

  • <sup><xref ref-type="fig" rid="RA002fig03">Text Figure 3.</xref></sup>
    View in gallery
    Text Figure 3.

    Tunisia: Priority Policy and Reform Area

  • <sup><xref ref-type="fig" rid="RA002fig04">Text Figure 4.</xref></sup>
    View in gallery
    Text Figure 4.

    Tunisia: Comparison of Baseline and Reform Scenarios, 2018–25

  • <sup><xref ref-type="fig" rid="RA002fig05">Text Figure 5.</xref></sup>
    View in gallery
    Text Figure 5.

    Tunisia: CBT Policy Rate and Inflation; Effective Exchange Rates, 2010–21

  • <sup><xref ref-type="fig" rid="RA002fig06">Text Figure 6.</xref></sup>
    View in gallery
    Text Figure 6.

    Use of Digital Payments, 2014–17

  • Figure 4.
    View in gallery
    Figure 4.

    Tunisia: Monetary Sector Developments, 2010–20

  • <sup><xref ref-type="fig" rid="RA002fig11">Figure 1.</xref></sup>
    View in gallery
    Figure 1.

    Net International Investment Position

    (In percent of GDP)

  • <sup><xref ref-type="fig" rid="RA002fig12">Figure 2.</xref></sup>
    View in gallery
    Figure 2.

    Current Account Dynamics, 2010–20

  • <sup><xref ref-type="fig" rid="RA002fig13">Figure 3.</xref></sup>
    View in gallery
    Figure 3.

    Foreign Financing and Reserves Adequacy

  • <sup><xref ref-type="fig" rid="RA002fig14">Figure 4.</xref></sup>
    View in gallery
    Figure 4.

    Saving and Investment, 2010–20

  • <sup><xref ref-type="fig" rid="RA002fig15">Figure 5.</xref></sup>
    View in gallery
    Figure 5.

    Real and Nominal Effective Exchange Rates

    (Jun. 2016=100)

  • <sup><xref ref-type="fig" rid="RA002fig16">Figure 6.</xref></sup>
    View in gallery
    Figure 6.

    Non-Price Competitiveness

  • <sup><xref ref-type="fig" rid="RA002fig17">Figure 1.</xref></sup>
    View in gallery
    Figure 1.

    SOE Debt, by type of lender

    (Stock, in percent of GDP)

  • <sup><xref ref-type="fig" rid="RA002fig18">Figure 2.</xref></sup>
    View in gallery
    Figure 2.

    Stock of SOE Guarantees, by type of lender

    (In percent of GDP)

  • <sup><xref ref-type="fig" rid="RA002fig19">Figure 3.</xref></sup>
    View in gallery
    Figure 3.

    Tunisia: Public DSA Risk Assessment

  • Figure 4.
    View in gallery
    Figure 4.

    Tunisia: Realism of Baseline Assumptions

  • Figure 5.
    View in gallery
    Figure 5.

    Tunisia: Public Sector Debt Sustainability Analysis (DSA) – Baseline Scenario

    (In percent of GDP)

  • Figure 6.
    View in gallery
    Figure 6.

    Tunisia: Composition of Public Debt and Alternative Scenarios

  • Figure 7.
    View in gallery
    Figure 7.

    Tunisia: Public DSA Stress Tests

  • <sup><xref ref-type="fig" rid="RA002fig24">Figure 8.</xref></sup>
    View in gallery
    Figure 8.

    Tunisia: Public Sector Debt Sustainability Analysis (DSA) – REFORM Scenario

    (In percent of GDP)

  • <sup><xref ref-type="fig" rid="RA002fig25">Figure 9.</xref></sup>
    View in gallery
    Figure 9.

    Tunisia: External Debt Sustainability: Bound Tests 1/ 2/

    (In percent of GDP)

  • <sup><xref ref-type="fig" rid="RA002fig26">Figure 1.</xref></sup>
    View in gallery
    Figure 1.

    Central Government Wage Bill in non-Oil Producing Emerging Markets, 2020

    (In percent of GDP)

  • <sup><xref ref-type="fig" rid="RA002fig27">Figure 2.</xref></sup>
    View in gallery
    Figure 2.

    Central Government Wage Bill in non-Oil Producing Emerging Markets, 2020

    (In percent of tax revenues)

  • <sup><xref ref-type="fig" rid="RA002fig28">Figure 3.</xref></sup>
    View in gallery
    Figure 3.

    Composition of Government Spending, 2020

    (In percent of total)

  • <sup><xref ref-type="fig" rid="RA002fig29">Figure 4.</xref></sup>
    View in gallery
    Figure 4.

    Civil Service Wage Bill: Composition

    (Billions of TD, including tax credits)

  • <sup><xref ref-type="fig" rid="RA002fig30">Figure 5.</xref></sup>
    View in gallery
    Figure 5.

    Civil Service Wage Bill Growth: Contributions

    (Percentage points)

  • <sup><xref ref-type="fig" rid="RA002fig31">Figure 6.</xref></sup>
    View in gallery
    Figure 6.

    Average Annual Salaries, 2010–19

    (In thousands of Tunisian Dinars)

  • <sup><xref ref-type="fig" rid="RA002fig32">Figure 1.</xref></sup>
    View in gallery
    Figure 1.

    Tunisia: Financial Indicators of 30 Largest SOEs

  • <sup><xref ref-type="fig" rid="RA002fig33">Figure 2.</xref></sup>
    View in gallery
    Figure 2.

    Tunisia: Cross-Arrears of SOEs, 2019 and 2020 1/

    (In percent of GDP)

  • <sup><xref ref-type="fig" rid="RA002fig34">Figure 3.</xref></sup>
    View in gallery
    Figure 3.

    Tunisia: Government Guarantees by Borrower, 2016–2020:06

    (In millions of dinars)

  • <sup><xref ref-type="fig" rid="RA002fig35">Figure 4.</xref></sup>
    View in gallery
    Figure 4.

    Tunisia: Average Salary: SOEs, Civil Service, and Overall; 2017ala19

    (In thouusands of dinars per year)r)

  • <sup><xref ref-type="fig" rid="RA002fig36">Figure 5.</xref></sup>
    View in gallery
    Figure 5.

    Benchmarking the STEG with Other Electricity SOEs

Text Figure 1.

Tunisia: Covid-19 Related Developments, 2020–21
Figure 1.

Tunisia: Real Sector Developments, 2010–20
Figure 2.

Tunisia: External Sector Developments, 2010–20
Figure 3.

Tunisia: Fiscal Sector Developments, 2010–20
Text Figure 2.

Tunisia: Cross-Arrears of State-Owned Enterprises, 2019 and 2020 1/

(In percent of GDP)
Text Figure 3.

Tunisia: Priority Policy and Reform Area
Text Figure 4.

Tunisia: Comparison of Baseline and Reform Scenarios, 2018–25
Text Figure 5.

Tunisia: CBT Policy Rate and Inflation; Effective Exchange Rates, 2010–21
Text Figure 6.

Use of Digital Payments, 2014–17
Figure 4.

Tunisia: Monetary Sector Developments, 2010–20
Figure 1.

Net International Investment Position

(In percent of GDP)
Figure 2.

Current Account Dynamics, 2010–20
Figure 3.

Foreign Financing and Reserves Adequacy
Figure 4.

Saving and Investment, 2010–20
Figure 5.

Real and Nominal Effective Exchange Rates

(Jun. 2016=100)
Figure 6.

Non-Price Competitiveness
Figure 1.

SOE Debt, by type of lender

(Stock, in percent of GDP)
Figure 2.

Stock of SOE Guarantees, by type of lender

(In percent of GDP)
Figure 3.

Tunisia: Public DSA Risk Assessment
Figure 4.

Tunisia: Realism of Baseline Assumptions
Figure 5.

Tunisia: Public Sector Debt Sustainability Analysis (DSA) – Baseline Scenario

(In percent of GDP)
Figure 6.

Tunisia: Composition of Public Debt and Alternative Scenarios
Figure 7.

Tunisia: Public DSA Stress Tests
Figure 8.

Tunisia: Public Sector Debt Sustainability Analysis (DSA) – REFORM Scenario

(In percent of GDP)
Figure 9.

Tunisia: External Debt Sustainability: Bound Tests 1/ 2/

(In percent of GDP)
Figure 1.

Central Government Wage Bill in non-Oil Producing Emerging Markets, 2020

(In percent of GDP)
Figure 2.

Central Government Wage Bill in non-Oil Producing Emerging Markets, 2020

(In percent of tax revenues)
Figure 3.

Composition of Government Spending, 2020

(In percent of total)
Figure 4.

Civil Service Wage Bill: Composition

(Billions of TD, including tax credits)
Figure 5.

Civil Service Wage Bill Growth: Contributions

(Percentage points)
Figure 6.

Average Annual Salaries, 2010–19

(In thousands of Tunisian Dinars)
Figure 1.

Tunisia: Financial Indicators of 30 Largest SOEs
Figure 2.

Tunisia: Cross-Arrears of SOEs, 2019 and 2020 1/

(In percent of GDP)
Figure 3.

Tunisia: Government Guarantees by Borrower, 2016–2020:06

(In millions of dinars)
Figure 4.

Tunisia: Average Salary: SOEs, Civil Service, and Overall; 2017ala19

(In thouusands of dinars per year)r)
Figure 5.

Benchmarking the STEG with Other Electricity SOEs