IMF says Tunisia needs to increase domestic energy prices, correct Dinar overvaluation | Tunisia News Gazette

IMF says Tunisia needs to increase domestic energy prices, correct Dinar overvaluation

Opposite trends continue to characterise the Tunisian economy in early 2018. Economic growth is picking up, led by a good agriculture season, increases in investment and an early recovery in exports. On the other hand, risks to macroeconomic stability have risen: inflation has risen rapidly to 7.6 percent in March, international reserves remain below 90 days of import cover, and public and external debt have reached 71 and 80 percent of GDP, respectively,” said an International Monetary Fund (IMF) staff team in a statement at the end of a visit to Tunisia on April 4-11.

The staff team, led by Bjoern Rother, visited Tunisia to discuss the country’s recent economic developments and the authorities’ policy

plans under Tunisia’s economic reform programme supported by a four-year IMF Extended Fund Facility (EFF) arrangement.

IMF: “It is necessary to reduce unfair energy subsidies through increases in domestic energy prices that follow international oil prices”

Addressing economic imbalances is critical to keep the recovery on-track and strengthen the foundations for fair and equitable economic growth in the future. Containing debt today will help prevent increasing taxes tomorrow. To ensure that the budget deficit will decline in line with the objective of the 2018 Budget Law, it is necessary to reduce unfair energy subsidies through increases in domestic energy prices that follow international oil prices.

The public-sector wage bill is very large and any further wage increase would be very difficult to sustain, unless growth surprises on the upside. Similarly, raising the retirement age and additional parametric reforms on pensions are crucial to contain the deficits in the social security system, the staff team said.

Anchoring inflation expectations through additional increases in the policy interest rate

The IMF team also agrees with the central bank that “anchoring inflation expectations through additional increases in the policy interest rate will be crucial if inflation does not come down quickly. Lowering inflation will protect the poor, maintain the purchasing power

of the Tunisian people, and stabilise the macroeconomic outlook.”

The dinar’s remaining overvaluation can be corrected without an abrupt adjustment

“Regarding Tunisia’s external situation, a more flexible exchange rate will help rebuild international reserves and continue to encourage exports. The dinar’s remaining overvaluation can be corrected without an abrupt adjustment,” the statement further reads.

The Tunisian authorities and the IMF team agreed to continue discussions on the near-term economic reform priorities under the EFF in Washington during the Spring Meetings from April 20�22.

The IMF team met with Prime Minister Youssef Chahed, Finance Minister Ridha Chalghoum, Minister of Investment and International Cooperation Zied LaAdhari, Minister of Major Reforms Taoufik Rajhi and Central Bank Governor Marouane Abassi. It also had discussions with representatives of the Tunisian General Labour Union (French: UGTT), the Tunisian Confederation of Industry, Trade and Handicrafts (French: UTICA) and civil society.

Source: TAP News Agency

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