IMF Urges Tunisia Discipline After Flouting of Wages Advice

(Bloomberg) -- Tunisia went against the International Monetary Fund’s advice by granting public wage increases and pausing energy price rises, the lender said, as it stressed a need for “unwavering discipline” from the North African country to meet its fiscal deficit target.

All the same, the IMF said Tunisia’s policy efforts are starting to show results, with a “significant fiscal deficit reduction” and lower inflation, according to a statement marking its fifth review of the country’s extended fund facility. The IMF agreed on a $2.9 billion lifeline for Tunisia in 2016, which is paid in tranches as the government carries out mandated reforms.

The IMF said its review focused on stabilizing the economy ahead of Tunisian elections scheduled for this fall. More ambitious structural reforms -- such as appointing key anti-corruption officials, improving the business climate and increasing access to finance to boost private-sector growth -- will have to wait, it said.

Other comments in the IMF report and statements include:

• Reducing fiscal deficit to 3.9% of GDP in 2019 “will require unwavering disciple”
• Economic growth rose to 2.6% but remained too low to reduce unemployment
• “The authorities’ strategy relies on strong revenue collection, targeted energy subsidy reforms with improved communication, and tight wage bill management,” it said. “The budget allows for maintaining growth-enhancing investment and increasing social spending, but there is no room for relaxing the effort on taxes or current expenditure after the recent increase in civil service wages”
• Monetary policy should focus on price stability; “additional policy rate hikes would be warranted if inflation projections for December 2019 exceed the target”
• “Civil service wage hikes and a pause in energy price hikes constitute departures from the policies agreed at the Fourth Review. The authorities will adjust their policy mix to correct for these slippages and keep the economy on a stabilization path, while maintaining social cohesion”
• Risk to the program’s goals remain very high; include socio-political tensions, deterioration in security, spillovers from regional conflicts, higher oil prices and shift in investor sentiment

--With assistance from Tarek El-Tablawy.

To contact the reporters on this story: Michael Gunn in Nairobi at mgunn14@bloomberg.net;Jihen Laghmari in Tunis at jlaghmari@bloomberg.net

To contact the editors responsible for this story: Alaa Shahine at asalha@bloomberg.net, Michael Gunn, Paul Abelsky

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