Tunisia called to focus on reducing deficits and inflation while protecting disadvantaged (IMF)

“Near-term policies should continue to focus on reducing fiscal and external deficits, lowering inflation further, and strengthening the social safety net for low-income households”, concluded mainly the International Monetary (IMF) staff team after the end of their mission in Tunisia on July 11-17, 2019.

According to a statement issued by the Fund on Wednesday, at the end of this mission “Tight monetary and fiscal policies during the first half of 2019 have reduced inflation and laid the foundation for the second year of budget deficit reduction.

However, “risks to the economic outlook have increased due to higher oil prices, weaker growth in Tunisia’s trading partners, and an appreciating dinar.”

The IMF mission, led by Bjorn Rother, emphasizes in its statement, “
The strong monetary and fiscal policy implementation during the first half of 2019 has helped reduce inflation to 6.8 per cent in June from a peak of 7.7 per cent a year earlier, lower refinancing as of end-June and laid the foundation for the second year of fiscal deficit reduction.”

For the Fund, “at the same time, risks to the economic outlook for 2019 have increased since the Fifth Review. Growth will likely be limited to at most 2 per cent, reflecting notably the disappointing performance of the industry in recent months. Moreover, the recent appreciation of the dinar, the increase in oil prices, and slower growth in Tunisia’s main trading partners are likely to weigh on the fiscal and external current accounts, despite the more favourable than expected performance of the tourism sector. These trends make it even more critical to stay the course on policy implementation.

“Meeting the budget deficit target of 3.9 per cent of GDP for 2019 is critical to slow down the accumulation of public debt that reached 77 per cent of GDP at the end of 2018,” the same statement reads. “This will require continued strong performance on tax and tax arrears collection as well as additional measures to contain current expenditures, including through continued moderation of the wage bill and energy subsidies, in an environment of higher international oil prices.
According to the IMF staff mission supports the authorities’ ongoing efforts to strengthen social safety nets especially for low-income households. Monetary policy should remain geared towards reducing inflation that erodes the purchasing power of Tunisians, while exchange rate flexibility can support an improvement in the current account and international reserves.”


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