Abstract
EXECUTIVE SUMMARYContext. On June 7, 2013, the Executive Board approved a 24-month SBA in an amount equivalent to 400 percent of quota (SDR 1.15 billion or about $1.75 billion). To date, SDR 427.92 equivalent to $659 million has been disbursed. The pillars of the program are to: (i) achieve short-term macroeconomic stability; (ii) lay the foundation for stronger and more inclusive growth; and (iii) protect the most vulnerable.Background. The adoption of a new constitution and the formation of a new technocratic government in January 2014 led to greater confidence on political prospects and economic reforms. Growth has been moderate and remains insufficient to bring down unemployment significantly in the short term. At the same time, external and fiscal imbalances remain high, while demands for higher wages and additional jobs are rising.The program is broadly on track. Two out of three 2013 end-December quantitative performance criteria (QPC) targets have been missed, but by a smaller margin than originally envisaged, and all end-March 2014 QPCs are expected to be met. Progress on the structural reform agenda has been slowed by last year’s political crisis and the transition between governments.Program strategy. Containing current expenditures, and pursuing prudent monetary policy and greater exchange rate flexibility are essential to contain high external and fiscal deficits and to build investors’ confidence. Improved banking regulation, a strategic orientation of public banks, and strengthened supervision will help reduce banking sector fragilities, which are currently hampering private sector development. Scaling up public investments, reforming tax policy and revenue administration, accelerating public enterprise reform, and protecting the most vulnerable will help lay the foundations for more inclusive growth and level the playing field for investors.Risks to program implementation are important. Main risks relate to regional and domestic security tensions, set-backs in the political transition, and weaker economic activity in major trading partners. Successful implementation of the Fund-supported program will be contingent on the government’s ability to garner consensus among political parties backing it and on its capacity to push reforms through vested interests.The completion of the third review will make SDR 145.08 million (about$225 million) available.
IMF Executive Board Completes Third Review Under the Stand-By Arrangement for Tunisia and Approves US$225 Million Disbursement
The Executive Board of the International Monetary Fund (IMF) today completed the third review of Tunisia’s economic performance under a 24-month program supported by a Stand-By Arrangement (SBA). The completion of the review enables an immediate disbursement of SDR 145.08 million (about US$225 million), bringing total disbursements to SDR 573 million (about US$888.4 million).
The two-year SBA in the amount of SDR 1.146 billion (about US$1.78 billion, or 400 percent of Tunisia’s quota at the IMF) was approved by the Executive Board on June 7, 2013 (See Press Release No. 13/202).
In completing the third review, the Executive Board approved the authorities’ request for modification of end-June 2014 performance criteria and granted waivers of applicability for the end-March 2014 performance criteria for which data are not yet available and for which there is no evidence they were not observed.
Following the Executive Board discussion on Tunisia, Mr. Min Zhu, Deputy Managing Director and Acting Chair, said:
“The authorities have made progress on their Fund-supported economic program. End-March quantitative performance criteria appear to have been met, but progress on structural reforms has been slowed by last year’s protracted political crisis.
“The adoption of a constitution and the formation of a new government led to greater confidence in political and economic prospects. Nonetheless, growth is moderate, unemployment remains high, and fiscal and external imbalances are elevated.
“Newly identified fiscal measures—coupled with those aimed at containing the high wage bill and reducing regressive energy subsidies—will help restrain the widening fiscal deficit in 2014. Revenue reforms, strengthened public financial management, and reform of public enterprises are necessary to improve the composition of fiscal consolidation. Improved procurement procedures and project execution are needed to reverse the under-execution in investment spending, which is important to promote inclusive growth. Social expenditures should continue to be preserved during fiscal consolidation.
“The current monetary policy stance is appropriate, but would need to be tightened if inflationary or exchange rate pressures arise. The removal of the lending rate cap is essential to strengthen monetary transmission channels and access to finance. Greater exchange rate flexibility would help rebuild external buffers, reduce liquidity injections, and improve competitiveness.
“Improved data reporting, strengthened supervision, and the new strategic vision for public banks are important steps taken to reduce banking sector fragilities. Priorities in the near term are to design bank restructuring plans, establish the asset management company for troubled tourism debt, address weak asset quality, and enhance resolution mechanisms.
“Accelerated implementation of structural reforms is crucial to ensure stronger and more inclusive growth. A well-targeted social safety net needs to accompany the energy subsidy reform so as to protect vulnerable households.”