The government of Tunisia has agreed to implement much-delayed economic reforms as it celebrates the 61st anniversary of its independence from France on Monday 20 March.
Following a visit to the country in early February, an IMF team and the Tunisian government agreed that “urgent action” was needed on fiscal policies and economic reforms that had been agreed when a four-year IMF Extended Fund Facility (EFF) was agreed in May 2016, but not yet implemented. Finance Minister Lamia Zribi has revealed that the IMF decided to postpone the payment of the second tranche of the EFF in December, which amounted to $350m, because of the lack of progress on economic reforms and reducing the deficit on government spending.
Further lending by other multilaterals, such as the African Development Bank and World Bank, could come under threat if the IMF is not convinced to release the money. However, short-term financing was ensured by a €850m bond issue in February.
The deficit as a proportion of GDP was 6% in 2016 but the 2017 budget will reduce this only slightly, to 5.6%. The level of public debt has risen since the revolution and now stands at more than 60% of GDP.
The economy grew by just 1.3% in 2016, although the IMF forecasts growth of 2.5% this year. The tourist sector, which provides a lot of employment in relation to its size, has still not recovered from terrorist attacks.
Apart from the IMF’s decision to freeze lending, the government has been hit by another piece of bad news. According to figures from the Foreign Investment Promotion Agency, foreign investment stood at 2.1bn dinars in 2016, 9.4% less than in 2015.
The energy sector attracted the most investment, at 960m dinar. However, Tunis has passed a succession of bills to improve the terms of investment for private sector companies.
Björn Rother, the IMF mission chief to Tunisia, said: “The IMF team and the government agree that urgent action is necessary to protect the health of public finances, increase public investment, and accelerate progress with delayed structural reforms.
“The authorities have outlined their near-term priorities to include mobilising more tax revenue in a fair and efficient way, rationalising the public sector wage bill to create more space for public investment, and implementing the fuel price adjustment mechanism.”
In particular, the IMF is eager to see the modernisation of the civil service, as expenditure on public sector wages is among the highest in the world as a share of GDP. It had promised to reduce the size of the public sector workforce by 10,000 jobs.
It also regards social security spending as too high but wants more support for the most vulnerable groups in society. Achieving both will be a difficult task and reducing social security expenditure could stoke tensions among the population.
The government is also attempting to strengthen state-owned companies, including public banks, so that they operate on a more commercially-minded basis and contribute to state finances rather than act as a drain on them. Three state-owned banks are to be reformed: Société Tunisienne de Banque, Banque Nationale Agricole and Banque de l’Habitat.
Zribi said: “We are studying options, including the fusion of the three into one bank, but this actually does not seem realistic. The other option is to sell stakes to strategic partners.” Companies previously held by former President Zine El Abidine Ben Ali’s family are also to be sold off but it remains to be seen whether the Tunisia 2020 strategy of attracting $60bn in public and private investment over four years will be successful.
There is little doubt that Tunisia has been the most successful of the African countries that experienced regime change in the Arab Spring, with Egypt’s economy being weighed down by rising inflation which reached a record high of 31.7% in February 2017, up from 29.6% in the previous month. Meanwhile, Lybia’s economy has been in the doldrums due to the ongoing civil war and low oil prices. Tunisia has adopted a more democratic system and tensions between secular and Islamist political parties have calmed down to give it a good basis for economic stability.
It is now up to the government of Tunisia to create a more attractive investment environment that will produce more jobs. In addition, it plans to set up an anti-corruption organisation with much stronger powers than existing bodies, in order to counter the culture that built up during the rule of Ben Ali, who was overthrown in 2011.