Tunisia targeting IMF talks

Bassem Aly , Thursday 8 Apr 2021

The Tunisian government is eyeing talks with the International Monetary Fund following its agreement with the country’s General Labour Union

The Tunisian government and the country’s politically influential General Labour Union (UGTT) finalised a deal concerning economic reforms on Wednesday. While the details of the deal have yet to be announced, it is thought to cover taxation, reforms to seven state-owned firms including the airline Tunisair and the STEG Electricity Company, and policies on subsidies.

The announcement was made by Prime Minister Hichem Mechichi amid the social and economic challenges the country is currently witnessing. “This is a historic agreement on important battles in our country,” Mechichi said. Finance Minister Ali Kooli told Reuters that it was a “very good step that shows that we are the ones who choose our reforms and agree on them without anyone dictating to Tunisia.”

Within the next two weeks, the government would discuss the economic situation in Tunisia with the International Monetary Fund (IMF), Kooli said. It hopes to negotiate a financing programme that, if successfully concluded, will allow it to discuss loans with other international actors.

Meanwhile, UGTT officials will have to explain why they accepted to make a deal with the government. The Union, which won a Nobel Peace Prize in 2015 for successfully mediating the country’s way out of difficulties following the 2011 Revolution and a political crisis that would have hindered its internationally-praised democratic transition, has recently opposed privatising Tunisair.

The airline company, as is the case with many Tunisian public-sector firms, is suffering from heavy debts, in its case amounting to 955 million dinars ($348 million), and is seemingly failing to meet its financial commitments. In early February, a court in Tunisia temporarily froze the company’s bank accounts, citing its inability to make an outstanding payment to a French-Turkish operator.

The IMF issued a report two months ago that reflected the severity of the economic situation in Tunisia. It called on the government to “lower the wage bill and limit energy subsidies while prioritising health and investment expenditure and protecting targeted social spending.”

 The IMF’s “directors noted that Tunisia’s public debt would become unsustainable, unless a strong and credible reform programme were adopted with broad support. They also called on the authorities to make taxation more equitable and growth-friendly and encouraged action to clear the accumulated arrears of the social-security system,” the report said.

The IMF also noted that “broad-ranging reform” of state-owned enterprises was necessary to reduce “contingent liabilities,” encouraging the Tunisian authorities to reduce fiscal and financial risks, strengthen corporate governance and improve reporting and transparency.

It emphasised that Tunisia’s “monetary policy should focus on inflation by steering short-term interest rates, while preserving exchange-rate flexibility. [The IMF directors] urged the authorities to avoid monetary financing of the budget. They advised the authorities to implement the roadmap to inflation-targeting and prepare a gradual and conditions-based plan for capital-account liberalisation, while closely monitoring financial-sector soundness.”

The “directors underscored that promoting private-sector activity is key to increasing potential growth and making it more job-rich and inclusive. Reform efforts should focus on lifting monopolies, removing regulatory hurdles, and improving the business environment. They welcomed the efforts to increase financial inclusion and leverage digital technologies. The directors emphasised that strengthening governance is important and called for effective implementation of anti-corruption regimes. They also emphasised that Covid-related expenditures should be effective and transparent. The directors welcomed the objective to invest in renewable energy to combat climate change,” the report concluded.

These ideas will likely be reflected in any financing agreement between Tunisia and the IMF. The latter’s numbers show that real GDP in Tunisia contracted by 8.2 per cent in 2020, and unemployment jumped to 16.2 per cent by the end of last September, though inflation slowed due to the contraction in domestic demand and lower international fuel prices.

The current account deficit narrowed to 6.8 per cent of GDP, driven by lower import demand and resilient remittances, despite a strong hit on exports and collapsing tourism receipts, the IMF said.

Tunisia’s fiscal deficit has likely reached 11.5 per cent of its GDP amid a decrease in revenues because of a lower tax intake. Of additional hiring, 40 per cent went to the health sector to manage the coronavirus crisis, increasing the public-sector wage bill to 17.6 per cent of GDP. It is believed that government debt has reached almost 87 per cent of GDP.

Mahmoud Al-May, a member of the Constituent Assembly that drafted the country’s new constitution after the 2011 Revolution, told Al-Ahram Weekly in March that “the situation is completely blocked” and that this was impacting the ability of the government to handle economic and health problems.

“For instance, a vaccination programme is still not in place, while other countries have already vaccinated more than a quarter of their populations,” Al-May said.

*A version of this article appears in print in the 8 April, 2021 edition of Al-Ahram Weekly

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