Tunisia Expects Deal On IMF Loan in Weeks, Central Bank Governor Says

Tunisia anticipates striking an agreement with the International Monetary Fund on a credit of between US$2 billion and US$4 billion over three years in the following weeks, according to the central bank governor on Sunday.

“The magnitude is still being negotiated, but I believe it will range betweenUS$2 billion and US$4 billion,” Marouan Abbasi told Reuters. “We aim to achieve a staff level agreement in the next weeks.”

Last week, the authorities and the influential UGTT union agreed to raise public sector salaries by 5%, potentially easing social tensions. They did not, however, declare any additional agreement on reforms required for an IMF bailout.

  • Tunisia anticipates striking an agreement with the International Monetary Fund on a credit of between US$2 billion and US$4 billion over three years in the following weeks
  • The pay deal, according to Abbasi, is a critical step in discussions with the IMF and will provide an accurate picture of wages’ weight in GDP going forward
  • The IMF has indicated that it will not proceed with a rescue needed by Tunis unless the regime includes the UGTT

According to Abbasi, the pay agreement is a crucial step toward talks with the IMF. It will provide a clear picture of salaries’ weight in GDP in the coming years.

The pay deal, according to Abbasi, is a critical step in discussions with the IMF and will provide an accurate picture of wages’ weight in GDP going forward. As per Fitch Ratings, Tunisia’s wage accord increases the possibility of an IMF settlement.

As stated by Abbasi, the potential agreement will open the door to bilateral finance, notably with Gulf countries and Japan.”We have progressed bilateral finance talks with Saudi Arabia,” he said.

The IMF has indicated that it will not proceed with a rescue needed by Tunis unless the regime includes the UGTT, which claims to have over a million members and has already closed down the economy in strikes.

Tunisia is battling to resurrect its state finances as discontent increases over roughly 9% inflation and a shortage of numerous food goods in stores due to the country’s incapacity to pay for some imports.

Tunisia is in a difficult economic situation. The state’s budget is consumed by public sector spending (primarily due to pensions, salaries, and government subsidies). According to the World Bank, state debt reached 70% of GDP in 2020; present debt levels could be significantly higher.

Tunisians have long relied on the state as a provider of jobs and subsidised products and services in the lack of a vibrant and well-regulated private sector, resulting in an unsustainable economic imbalance.

Previous governments have been hesitant to handle public sector spending for fear of inciting widespread protests spearheaded by Tunisia’s powerful General Labor Union (UGTT) and disrupting the country’s fragile economy. Despite the country’s increasing financial crisis, the UGTT has historically refused to embrace economic reforms urged by the IMF and World Bank.

Even as the Tunisian economy continues to plummet, a prospective IMF-World Bank package is under discussion. The UGTT began a statewide strike earlier this month to protest spending reductions in government subsidies and public sector spending.

The strikes are Saied’s first direct severe test, as he has encountered minimal domestic opposition to his rule by order. Some have questioned if Saied has a realistic economic plan to preserve the nation from financial ruin.

However, Saied’s administration’s future may depend on obtaining a new IMF-World Bank loan.

Sarah, how are things doing with the government’s talks with the IMF and World Bank? What is Saied’s “plan B” to avoid an economic crisis if an IMF loan does not materialise and Gulf states do not offer assistance?

Yerkes, Sarah: Talks with the IMF appear to be moving forward. The international community is concerned about the possibility of financial collapse in Tunisia. For the time being, it is willing to overlook Saied’s authoritarian consolidation and proceed with support without political conditions. After a recent visit,IMF Middle East and Central Asia Director Jihad Azour hoped that all parties (including the UGTT) would agree to the IMF contract and Saied’s economic reform proposal. However, the IMF appears inclined to proceed with a deal regardless of whether the UGTT signs on.

That doesn’t mean Saied has an easy road ahead. However, it does raise the prospect of an IMF settlement being reached in the coming weeks and months, even if it means further protests and strikes by the UGTT and others.

World Bank: Navigating Tunisia Crisis during Uncertain Times

The World Bank’s Tunisia GDP Monitor “Navigating the Crisis in Uncertain Times” expects 2.7% economic growth in 2022, somewhat lower than earlier World Bank estimates.

The paper explains how the war in Ukraine and increased global commodity prices aggravated Tunisia’s economy’s underlying vulnerabilities in the first months of 2022. The consequences of the war became apparent when the trade imbalance increased by 56% during the first six months of 2022, reaching 8.1% of GDP. Inflation increased from 6.7% in January 2022 to 8.1% in June 2022, and the fiscal deficit is expected to reach 9.1% in 2022, up from 7.4% in 2021.

The report’s second chapter emphasises that replacing subsidised food prices with compensatory cash transfers to disadvantaged households will improve system efficiency, lower fiscal and import costs, and boost food security in the face of future shocks. This reform is a part of the Tunisian government’s declared policy, which includes many economic and social inclusion measures.

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