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Abu Dhabi, UAEWednesday 24 October 2018

IMF approves $249m loan tranche to Tunisia amid economic reforms

The latest tranche brings the total disbursement of the four-year loan to $1.14 billion

Tunisia's central bank raised its benchmark interest rate 100 basis points to 6.75 per cent last month in a bid to tackle inflation. It is the second increase in three months. Photo: Getty Images
Tunisia's central bank raised its benchmark interest rate 100 basis points to 6.75 per cent last month in a bid to tackle inflation. It is the second increase in three months. Photo: Getty Images

The International Monetary Fund has approved the release of a $249 million loan tranche to Tunisia, as part of an economic reform programme, in a capital injection to the struggling economy.

The fourth tranche from Tunisia's four-year programme brings the country's disbursements to $1.14 billion from a total of about $2.9bn, according to a statement by the IMF on Saturday.

"Monetary policy must continue to focus on controlling inflation," the fund said.

Tunisia has struggled to revive its economy since the 2011 revolution that ousted its dictator and sparked protests around the Middle East, marking the beginning of the Arab Spring. Political divisions, sporadic terror attacks and repeated strikes have hit its economy hard. Consecutive governments have struggled to rein in a fiscal deficit and spur economic growth.

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Credit rating agency Moody's, which rates Tunisia B2 with a stable outlook, forecasts that the government debt ratio will rise to 72 per cent of GDP in 2018 and 73 per cent in 2019, from nearly 70 per cent last year.

In June, Tunisia's central bank raised its benchmark interest rate 100 basis points to 6.75 per cent, the second increase in three months, to tackle inflation that hit its highest levels since 1990.

In May the IMF said Tunisia's inflation rate reached 7.7 per cent in April year-on-year, reaching record level since 1991.

"More tightening of monetary conditions is necessary to reduce the gap between interest rates and inflation," it said.

There are some indicators of good news for the Tunisian government. Tourism revenues surged more than 46 per cent in the first half of 2018 to 1.3 billion dinars ($492.3 million) for the period, while foreign direct investment increased, Bloomberg reported.

"The improvement in the security environment since the three terror attacks in 2015, which has led to an increase in tourism revenue, and increased demand from the euro area have laid the foundations for a growth recovery," Moody's said.

Moody's forecasts economic growth of 2.8 per cent this year and 3 per cent in 2019, up from 1.9 per cent in 2017, on expectations a recovery in tourism.