Abstract
IMF Country Report No. 14/50
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IMF Country Report No. 14/50
TUNISIA
FIRST AND SECOND REVIEWS UNDER THE STAND-BY ARRANGEMENT, REQUEST FOR WAIVERS OF APPLICABILITY AND NONOBERVANCE OF PERFORMANCE CRITERIA
February 2014
In the context of the first and second reviews under the Stand-By Arrangement, request for waivers of applicability and nonobservance of performance criteria, the following documents have been released and are included in this package:
The Staff Report, prepared by a staff team of the IMF, for the Executive Board’s consideration on January 29, 2014, following discussions that ended on November 27, 2013, with the officials of Tunisia on economic developments and policies underpinning the IMF arrangement under the Stand-By Arrangement. Based on information available at the time of these discussions, the staff report was completed on January 24, 2014.
A Press Release including a statement by the Chair of the Executive Board summarizing the views of the Executive Board.
A Statement by the Executive Director for Tunisia.
The documents listed below have been or will be separately released.
Letter of Intent sent to the IMF by the authorities of Tunisia*
Memorandum of Economic and Financial Policies by the authorities of Tunisia*
Technical Memorandum of Understanding*
*Also included in Staff Report
The publication policy for staff reports and other documents allows for the deletion of market-sensitive information.
Copies of this report are available to the public from
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Title Page
TUNISIA
FIRST AND SECOND REVIEWS UNDER THE STAND-BY ARRANGEMENT, REQUEST FOR WAIVERS OF APPLICABILITY AND NONOBSERVANCE OF PERFORMANCE CRITERIA
January 24, 2014
EXECUTIVE SUMMARY
Background. The political transition is moving forward again following another period of political upheaval and security tensions. However, the protracted political crisis of the past few months has taken a toll on the economy, resulting in a weaker economic recovery than envisaged and further erosion of external and fiscal buffers.
Program performance has been mixed. End-June and end-September NIR and NDA quantitative performance criteria have been met, but are estimated to have been missed by end-December because of lower external financing and the high liquidity needs of the banking sector. A weak budget composition, lower budget commitments, and deferred cash payments to 2014 resulted in an overperformance of the end-December fiscal target for the central government primary balance. The implementation of structural reforms has been progressing, but with some delays linked to building a consensus during the political crisis, and to technical difficulties.
Looking ahead, the program will continue to focus on ensuring short-term macroeconomic stabilization while laying the foundations for sustained reforms that will reduce economic vulnerabilities and generate higher and more inclusive growth. A more growth-oriented budget composition—including revenue reforms and the reform of regressive energy subsidies—and the build-up of a targeted household support program will lay the foundations for higher and more inclusive growth. A prudent monetary policy and greater exchange rate flexibility will continue to underpin macroeconomic stabilization. Structural reforms should be accelerated to enhance private sector development and make a dent in unemployment.
Risks to program implementation are important. Main risks relate to setbacks in the political transition. Commitment to program objectives will be tested by resistance to some necessary but not always popular reforms, which will need to be managed through further consultations and proactive communication with stakeholders.
The completion of the combined first and second reviews will make SDR 329.12 million (about USD 500 million) available.
Approved By
Daniela Gressani and Taline Koranchelian
The team comprised Amine Mati (head), Karsten Junius, Lorraine Ocampos (all MCD); Jean Frederic Noah Ndela Ntsama (SPR), Nolvia Saca Saca (MCM), and Giorgia Albertin (Senior Resident Economist, MCD). The mission was joined by Abdelali Jbili and Moez Ben Hassine (OED). During November 12–27, 2013, staff met with Prime Minister Laarayedh, the Governor of the Central Bank, the Minister in charge of Economic Affairs at the Prime Ministry, the Minister of Finance, the Minister of Development and International Cooperation, the Minister of Industry, the Minister of Social Affairs, other senior officials, and representatives of workers’ unions, the corporate and banking sector, the diplomatic and donor community, political parties, civil society, academia, media, and Parliament (including members of the ruling coalition and the opposition).
Contents
BACKGROUND AND POLITICAL CONTEXT
RECENT ECONOMIC AND FINANCIAL DEVELOPMENTS
PROGRAM REVIEW AND POLICY DISCUSSIONS
A. Program Review and Policy Implementation
B. Outlook and Risks
POLICY DISCUSSIONS
A. Short-term Stabilization Goals
B. Laying the Foundations for Stronger, More Inclusive Growth
C. Protecting the Most Vulnerable
PROGRAM DESIGN AND MODALITIES
STAFF APPRAISAL
BOXES
1. Reform of the Energy Sector
2. Reform of the Lending Rate Cap System
3. Public Enterprises: Contingent Liabilities, Fiscal Risks, and Reform Agenda
FIGURES
1. Recent Economic Developments
2. External and Financial Indicators
TABLES
1. Selected Economic and Financial Indicators, 2010-15
2. Balance of Payments, 2010-15
3. External Financing Needs, 2010-15
4a. Central Government Financial Operations (In Million of Dinars), 2012-15
4b. Central Government Financial Operations (In Percent of GDP), 2012-15
5. Monetary Survey (Financial System), 2010-15
6. Central Bank Balance Sheet, 2010-15
7. Financial Soundness Indicators of the Banking Sector, 2008-13
8. Schedule of Proposed Purchases under the SBA Arrangement, 2013-15
9. Illustrative Medium-Term Growth Scenario, 2010-18
10. Indicators of Fund Credit, 2012-18
ANNEX
Public and External Debt Sustainability Analysis
APPENDIX
Letter of Intent
ATTACHMENTS
I. Memorandum of Economic and Financial Policies
II. Technical Memorandum of Understanding