IMF Loan Aims to Help Tunisia Boost Growth, Protect Poor

Loan aimed at preserving macroeconomic stability, boosting growth, protecting the vulnerable

Program ownership, political and societal buy-in are key to success

Private sector development crucial for sustainable growth and job creation

Speaking to the IMF Survey magazine, IMF Mission Chief for Tunisia Amine Mati explains the underlying reasons for the loan and the main ingredients of the government’s economic reform program.

IMF Survey : Why does Tunisia need financial assistance from the IMF?

Mati: After a severe recession in 2011, real GDP growth picked up to about 3.6 percent in 2012. The main drivers, in addition to base effects, were recovering tourism, foreign direct investment inflows, and remittance receipts.

But at the same time, unemployment remains high while external and fiscal imbalances have been increasing. The current account deficit has deteriorated on account of weaker exports, due to slowdown in Europe, and a rise in imports. A higher wage bill and rising subsidies, in response to increasing social demands, drove government spending, contributing to a wider fiscal deficit in 2012. Higher food and fuel prices – triggered mostly by increases in international prices – pushed overall inflation above 6 percent and contributed to further increase in the fiscal and current account deficits. In addition, critical weaknesses remain in the banking sector, despite recent steps to improve banking supervision and strengthen regulation. Together, these add up to large burden on the economy at a time when the international economic environment remains uncertain.

To ease these pressures and to energize the economy, the authorities have designed an economic program, which aims at restoring fiscal space, rebuilding foreign reserves, reducing banking sector vulnerabilities and fostering more inclusive growth. The IMF’s financial support will help the authorities achieve those goals by restoring investors’ confidence and rebuilding reserve cushions, which will make the economy more resilient to adverse economic developments.

IMF Survey : Can you explain what a Stand-By Arrangement is and why it’s right for Tunisia right now?

Mati: The Stand-By Arrangement (SBA) is the IMF’s workhorse lending instrument for middle-income member countries like Tunisia that have a balance of payments need —that is their foreign currency outflows exceed their inflows. Interest rates on SBA loans are generally lower than what countries would pay to...