Statement by Jafar Mojarrad, Executive Director for Tunisia, Mr. Mohammed Daïri, Alternate Executive Director, Mr. Abdelali Jbili, Senior Advisor, and Ms. Monia Saadaoui, Advisor, September 30, 2015

This 2015 Article IV Consultation highlights that Tunisia's economy has been resilient throughout a protracted political transition and a difficult international economic environment. The country has been facing headwinds from security threats and social tensions, which are offsetting the benefits from the successful conclusion of the political transition, lower international oil prices, and a recovering Europe. The banking system remains fragile, with the system's capital adequacy ratio below the minimum regulatory requirement. The medium-term prospects remain favorable, with growth projected to increase to 4.7 percent by 2020.


This 2015 Article IV Consultation highlights that Tunisia's economy has been resilient throughout a protracted political transition and a difficult international economic environment. The country has been facing headwinds from security threats and social tensions, which are offsetting the benefits from the successful conclusion of the political transition, lower international oil prices, and a recovering Europe. The banking system remains fragile, with the system's capital adequacy ratio below the minimum regulatory requirement. The medium-term prospects remain favorable, with growth projected to increase to 4.7 percent by 2020.

On behalf of our Tunisian authorities, we thank staff for the excellent report on the Article IV consultation and the sixth review under the Stand-By Arrangement. Our authorities appreciate the quality of engagement with Fund staff, which has been beneficial throughout the program period, and express their deep appreciation to Fund management and the Executive Board for their continued support during the difficult political transition. Staff analysis and policy recommendations are in line with the authorities’ own assessment and policies.


Tunisia has successfully completed a political transition, which was long, arduous, and fraught with risks. But the outcome is highly positive as democratic institutions have been solidly anchored in dialogue and political consensus. As highlighted during the Managing Director’s visit to Tunisia, resilience in the political, social, and economic fields has been the hallmark of this transition. The Tunisian authorities’ perseverance in holding the line in the economic field are noteworthy, especially when their efforts are seen against the background of the tragic terrorist attacks, social unrest, conflict in a neighboring country, and depressed external demand. Despite these shocks, growth has remained positive, inflation is contained, pressure on the exchange rate has abated, and fiscal and external imbalances remain manageable.

The authorities share staff views about the outlook and potential risks, even though they expect some upside from continued recovery in Europe, low oil prices, and easing of social tensions. They are determined to do the utmost to mitigate these risks that are under their control. The current government, which took office in February 2015 with a five-year mandate, has expressed its determination to improve security and combat terrorism, further strengthen macroeconomic stability, accelerate the implementation of structural reforms to foster growth and employment, and continue to rely on dialogue, good governance, and communication in addressing social issues.

Looking ahead, the authorities are in the process of formulating a new vision for economic and social development, which will lay down the priorities and major strategic orientations through a development plan for the period 2016–2020. A first draft of this strategy was submitted to the Council of Ministers in June 2015 and is expected to be showcased at an international conference in early 2016.

Recent economic developments

The economic recovery has been derailed by the tragic terrorist attacks of the Bardo museum and Sousse, which severely affected tourism activity and investor confidence, with adverse impact on growth and the balance of payments. In addition, a significant increase in the number and duration of strikes in the first half of the year led to the complete cessation of phosphate production for two months and contributed to growth deceleration. Growth projections have now been revised down to 1 percent in 2015, or about half last year’s level. However, inflation remains contained; it fell to 4.2 percent in August 2015 and is expected to reach 4.4 percent in December 2015, reflecting a continuation of the gradual tightening of monetary policy by the central bank of Tunisia (CBT) as well as lower energy and food prices. Unemployment has declined to 15.2 percent in the second quarter of 2015 but remains high, especially for youth and women.

Due to the fall in world oil prices and sluggish economic activity, which contributed to a significant decline of imports, the current account deficit is expected to improve slightly in 2015, but would remain elevated at 8 ½ percent of GDP. The US$1 billion international bond issue in January 2015 and disbursement of multilateral loans are expected to keep gross international reserves at the equivalent of 4 months of imports by the end-2015. Access to the international financial market without third party guarantee at relatively favorable terms attests to continued market confidence in Tunisia.

Program implementation

Program implementation has been adequate in light of Tunisia’s exceptional circumstances and the challenges highlighted above. All quantitative performance criteria for end-December 2014 and end-March 2015 were met, most of them with comfortable margins. The floor on the primary fiscal balance was met with a wide margin, and the indicative ceiling on current expenditure was also met. However, the indicative ceiling on social spending was missed due to persistent difficulties in the delivery mechanism in remote regions. Continued under-execution of capital spending under the budget reflected capacity absorption difficulties in the post-revolution period, as recognized by staff, rather than an intended adjustment measure.

Implementation of the authorities’ structural reform agenda has been more challenging than expected given the unsettled social environment during the political transition and the need to build consensus on major reforms and pieces of legislation. Nonetheless, significant progress has been made in a number of areas, including the adoption of bank restructuring plans.

Based on the performance under the SBA, the Tunisian authorities request completion of the sixth review, agree on the proposed new performance criteria for end-September 2015 and the timetable for structural benchmarks as described in the MEFP, and request a rephasing of disbursements, with the final tranche of SDR 143.25 million to be made available upon completion of the seventh and last review under the SBA.

Macroeconomic policies

Fiscal policy

Fiscal adjustment in 2014 was better than programmed. The central government structural deficit (excluding the effects of the economic cycle and the cost of bank recapitalization) stood at 3.3 percent of GDP at end 2014, against a program target of 4.1 percent of GDP and 5.3 percent in 2012. This has been achieved mainly due to increased revenue mobilization (including VAT and the exceptional contribution on income), leading to an increase in the revenue-to-GDP ratio, and a significant decline in expenditures, including from under-execution of public investment, as mentioned above.

Adverse developments in 2015 and a difficult international economic environment prompted the authorities to moderately ease fiscal policy to support growth and address the new security challenges. A supplementary budget law introduced measures aimed at increasing security expenditure, supporting the tourism sector, and strengthening programs for small and medium enterprises (MEFP ¶8-10). It also provided for a 5 percent general salary increase, including for regularization of past wage agreements, while deferring recruitments and implementation of specific wage increases concluded and not yet implemented. This measure was intended to ease mounting social tensions.

The authorities are firmly committed to take additional measures to attain their fiscal objectives in 2015, including through reduction of non-essential non-wage expenditure. They are committed to fiscal adjustment from 2016 onwards. In this regard, they intend to seize the opportunity of low international oil prices to accelerate the reform of energy subsidies. They will introduce in the 2016 budget an automatic oil price adjustment formula to replace the asymmetrical formula adopted in January 2014. In parallel, they are accelerating the preparation of major tax and public finance management reforms, which would bring about lasting improvements in the fiscal situation, improve equity, and reduce public debt. Plans are also underway to accelerate the execution of public investments through a series of measures to strengthen coordination between the governorates and the central government, implement new procurement procedures, and improve monitoring and execution.

A comprehensive reform of the civil service will be critical to modernize the public administration and contain the growth of the wage bill. To this effect, a strategy will be formulated in consultation with the National Council of Social Dialogue, which will help gradually lower the wage bill to about 11 percent of GDP over the medium-term.

Despite the increase in the overall fiscal deficit since 2011, Tunisia’s public debt remains sustainable and low in comparison with regional peers. Over the medium-term and under stress scenarios developed in the DSA, public debt is expected to remain sustainable. Tunisia has had an impeccable record of meeting its debt obligations.

Monetary and exchange rate policy

The gradual monetary policy tightening and declining international commodity prices has helped contain inflation. The central bank has kept the policy rate unchanged at a level which is considered adequate in view of the weak economic activity and sluggish credit demand. Moreover, with the convergence of the money market rate and the policy rate, the latter has become a more effective signaling tool. The CBT remains vigilant to address possible inflationary pressures from second round effects of wage increases or exchange rate depreciation.

The authorities continue to modernize and strengthen the monetary policy framework. Changes have been introduced to reduce risks to the central bank from refinancing operations, and work is underway in cooperation with the Banque de France to modernize the operational framework of monetary policy, including improving the quality of liquidity forecasts and deepening the interbank market. The draft law on the central bank was presented to the CBT’s Board of Directors in June 2015, and is expected to be submitted for parliamentary approval in October 2015. The draft, which has benefited from Fund technical assistance, aims at granting the CBT greater autonomy and better definition of its mandate by adding financial stability to its goal of price stability while strengthening its governance, transparency, and accountability framework.

Exchange rate policy has appropriately responded to market developments, allowing the dinar to continue to reflect movements in fundamentals. Interventions in the foreign exchange market helped smooth excessive fluctuations following the Bardo attack. The authorities remain committed to further increasing exchange rate flexibility and deepening the foreign exchange market. To this effect, the Board of Directors of the CBT adopted in May 2015 a series of measures, including the introduction of foreign exchange auctions to give more weight to the market in determining the value of the dinar (MEFP19). Implementation of weekly foreign exchange auctions is to start in October 2015 (structural benchmark).

Financial sector stability

Financial sector stability remains a top priority, and progress has been made toward advancing the reform in many areas with a particular focus on: (i) recapitalization and restructuring of public banks, (ii) introduction of a bank resolution scheme, a deposit guarantee scheme, and lender-of-last resort mechanism, and (iii) strengthening of banking supervision.

Following legislative approval in August 2015, the recapitalization of the three public banks for up to 1 billion dinars (1 percent of GDP) is underway, consistent with international practices. Restructuring plans were approved for two banks, subscriptions to capital increases were closed for Banque de l’Habitat (BH), the Société Tunisienne des Banques (STB), and sale of non strategic assets for the Banque Nationale Agricole (BNA) are ongoing. Moreover, the government is committed to ensuring that the updated business plans of the recapitalized banks will be carried out in light of the changed economic environment. The CBT will also strengthen the supervision of public banks to ensure that they fully comply with prudential requirements. Performance contracts will be developed to ensure the convergence of public banks’ performance indicators to those of the private sector, which will be done on a consolidated basis for selected indicators (structural benchmark for end November 2015). The authorities are actively working to address the NPL problem, including through a draft revised law on bankruptcy, which is expected to be approved by parliament in October 2015. In addition, exceptional and urgent measures have been taken to support the tourism sector following the Sousse attack. These measures will be subject to special prudential monitoring as detailed in MEFP ¶25.

In parallel, important steps have been taken to strengthen the governance of public banks and move ahead with their restructuring. New board members representing the government have been appointed, and the functions of chairman and CEO have been separated, while the role of the board, its committees, and senior management will be redefined. Moreover, to bring the necessary expertise in management and risk assessment, a tender will be launched in the last quarter of 2015 for the selection of an investment bank to help with the process of entry of technical/strategic partners in the capital of banks.

Medium-term structural reforms

Over the medium-term, the authorities plan to make decisive progress on wide-ranging structural reforms to improve the business climate, attract private sector investment, and enhance efficiency and competitiveness. A number of key reforms are already at an advanced stage of preparation, including a major overhaul of the tax system and modernization of tax administration, reform of the investment code, and the bankruptcy law. Other reforms, which require further preparatory work and consultations, will be introduced in the 2016-20 development plan, including labor market reform, restructuring of public enterprises, public expenditure management, civil service reform, and pension reform.

The authorities appreciate the analytical work carried out by staff in the Selected Issues Paper on Tunisia’s growth potential and take a positive note of the reforms needed to unleash this potential. They are aware of the impediments to the business environment, many of them are part of the legacy of the pre-revolution regime, and are determined to address them in close collaboration with stake holders and international partners.


Tunisia continues to face daunting challenges, exacerbated by the two terrorist attacks, but has shown resilience and firm determination to implement its reform agenda under the Fund-supported program. The authorities are committed to pursue a medium-term strategy focused on fostering growth and job creation while reducing macroeconomic imbalances. They look forward to continued close collaboration with the Fund and other partners toward achieving their objectives.