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Abu Dhabi, UAESaturday 23 June 2018

Risks to Tunisia's economic stability requires immediate action, IMF says

The Fund, central bank in agreement on tightening monetary conditions to reduce gap between interest rate and inflation 

Tunisia must take decisive measures to address risks to macroeconomic stability, IMF says. AFP / FETHI BELAID
Tunisia must take decisive measures to address risks to macroeconomic stability, IMF says. AFP / FETHI BELAID

Tunisia must act decisively to address mounting risks to economic stability by reducing its budget deficit and taking measures to protect the poor, according to the International Monetary Fund, amid government deadlock on reform plans.

Tunisian authorities have vowed to act swiftly on urgent reforms to pave the way for a third review by the IMF's executive board, scheduled for July, that would secure a $257 million loan, the fund said in a statement on Thursday.

"Risks to macroeconomic stability have become more pronounced," the fund said.

The fund comments came after a visit to Tunisia on May 13 to May 30 to discuss the government’s policy plans for an economic reform programme supported by a four-year $2.8 billion IMF loan. Tunisia's inflation climbed 7.7 per cent in April to a 27-year peak and its foreign reserves slumped to cover just 76 days of imports. The government has struggled to cut costs for fear of sparking protests in a country that witnessed in 2010 the first signs of unrest that affected the region.

The IMF agrees with the central bank that more tightening of monetary conditions is needed to reduce the gap between interest rates and inflation. Earlier this week the central bank held the benchmark interest rate unchanged at 5.75 per cent.

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To reduce its budget deficit, Tunisia must slash energy subsidies that favour the better-off and contain its public-sector wage bill, which is the highest in the world, the IMF said. It should also adopt a pension reform bill to improve the financial viability of social security.

Reform efforts must also include increased transfers to the most vulnerable families to shield them from the impact of higher prices, the fund said.

Earlier this week, Tunisia's central bank said it would tap the international markets for a bond issuance as it sought to finance its budget and balance of payments deficits.

Tunisia's economy showed signs of recovery in the first quarter of 2018, the highest growth since 2014, supported by agriculture and exports, the IMF said.

The current account deficit improved "somewhat," helped by a more flexible exchange rate and inflows of foreign investment also picked up, it said.