Tunisia needs to avoid further deterioration in fiscal deficit this year (IMF mission) | Tunisia News Gazette

Tunisia needs to avoid further deterioration in fiscal deficit this year (IMF mission)

“Avoiding any further deterioration in the fiscal deficit this year and preparing a fair and sustainable budget for 2018 are critical,” said an International Monetary Fund (IMF) team following a visit to Tunisia on July 26-August 3 to discuss the economic outlook and the authorities’ policy intentions under Tunisia’s economic reform programme supported by a four-year IMF Extended Fund Facility (EFF) arrangement approved in May 2016.

The outlook for the Tunisian economy is slowly improving, but challenges remain. Growth is on track to reach 2.3 percent in 2017, supported by a pick-up in phosphates, agriculture, and tourism.

But structural obstacles in the economy continue to weigh on exports,” IMF mission chief to Tunisia BjAlrn Rother was quoted as saying in an end-of-mission press release posted on Thursday.

“Strong consumption, fueled by wage increases, is leading to inflation (core inflation moved up to 5.5 percent in June) and is pushing already elevated fiscal and external deficits higher.

These dynamics are putting downward pressure on the dinar. Public and external debt increased to 65 percent and 73 percent of GDP, respectively, in June. Slow job creation and limited economic opportunity continue to affect the Tunisian people,” reads the press release.

The Tunisian authorities have already accelerated their response to the economic pressures. The government increased administered fuel prices in July to reduce inefficient energy subsidies.

The recent escalation in the government’s fight against corruption met wide public support.

Finally, Tunisia’s participation in the G20 Compact with Africa initiative has helped the country demonstrate its significant investment potential.

The Central Bank of Tunisia has moved to greater exchange rate flexibility to help bring the dinar in line with its fundamentals and keep reserves at an adequate level.

At ighter monetary policy, with two increases in the policy rate to 5 percent and new macroprudential limits, has helped ease inflationary pressures and supports the dinar.”

During the visit, the authorities have expressed commitment to build on the recent reform momentum, further reads the press release.

Containing the wage bill

It is also paramount to contain the wage bill, which at 14.1 percent of GDP last year was among the highest in the world.

Major adjustments this year and next are necessary to compensate slippages and bring the wage bill back on track to reach the target of 12 percent of GDP in 2020.

Continued monetary tightening as well as exchange rate flexibility are also essential in reducing persistent macroeconomic imbalances.

The statement of IMF staff team also highlighted that far-reaching structural reforms remain front and centre in Tunisia’s quest for inclusive growth and higher living standards for all.

Modernising the civil service, putting the pension system on a sustainable footing, and enhancing access to credit will boost growth, reduce imbalances, and free up space for priority investments in infrastructure, education, and health.

An effective high anti-corruption authority will improve the arsenal of the government in its fight against corruption and illicit business practices.”

Source: TAP News Agency

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