The International Monetary Fund’s (IMF) Executive Board, on Friday, May 20, approved a 4 year USD 2.9 billion loan to Tunisia “to support the country’s economic and financial reform program.” Following the Board’s decision about USD 319.5 million was made available for immediate disbursement; the remaining amount will be phased in over the duration of the program in eight additional phases each subject to program reviews.
Eight Billion USD in Two Days
The loan arrangement is under the Extended Fund Facility (EFF) which allowed Tunisia to borrow above its quota, the USD 2.9 billion represents 375 percent of Tunisia’s normal quota with the Bretton Woods organization.
The announcement comes two days after the other Washington D.C. based institution born of Bretton Woods, the World Bank Group’s Board of Executive Directors signed off on a new five-year strategy, the Country Partnership Framework, to fund and support the Tunisian government’s Five-Year year development plan, which will provide another approximately five billion USD over five years.
IMF Loan Contingent on Reforms
In the press release announcing the approval the IMF also noted the Assembly of the Representatives of the People’s (ARP) recent approval of two financial reforms upon which the IMF funds were contingent. The Government of Prime Minister Habib Essid managed to pass both, albeit contentiously including a boycott by the opposition Popular Front, ahead of the IMF’s board meeting.
These included a new Central Bank law which the IMF noted: “Enhanced central bank independence will strengthen the effectiveness of monetary policy, while greater exchange rate flexibility will strengthen reserve buffers and facilitate external adjustment.
As well as a law on banks and financial institutions, of which the IMF said “The adoption of critical banking sector legislation is welcome.” although it added “Further action is needed to restructure public banks and strengthen the banking resolution and supervision frameworks. Developing credit bureaus and relaxing caps on lending rates will increase access to finance.”
Prime Minister Essid had stated his ‘disappointment’ at the governing coalition’s unity and cohesion after the Central Bank law passed by a thin margin, and ARP speaker Mohamed Ennaceur was quoted in Tunis Afrique Presse (TAP) earlier this month as saying “the [ARP] has decided to speed up the discussion of this draft law (law on banks and financial institutions) after the end of the Finance Committee’s works ‘because the country’s interest requires its discussion before May 13, 2016’” The banking law included the creation of a deposit insurance fund that aims to guarantee depositors 95% in the event of a financial institution bankruptcy.
In its World Economic Outlook released in April the IMF said it expected Tunisia to see 2% GDP growth in 2016, a downwards revision from the IMF’s earlier prediction of 3%. According to the IMF’s latest forecast Tunisia could potentially see a 3% growth rate in 2017.
Five Year Development Plan ‘more inclusive’ of interior regions
In a note accompanying the announcement of its Board’s decision the IMF summarized Tunisia’s recent economic developments:
“Tunisia has managed to preserve macroeconomic stability and initiate fiscal and banking reforms in a context marked by a prolonged political transition, spillovers from the crisis in Libya, and numerous exogenous shocks, including terror attacks. However, important challenges remain: economic activity is weak, employment is low, social tensions linger, spending composition has deteriorated, and external imbalances are high.”
“To tackle these challenges, the authorities formulated in 2015 a five-year economic vision, which is being developed into a detailed plan. This vision aims at promoting stronger and more inclusive growth by transforming Tunisia’s growth model through a strategy based on macroeconomic stability and including five pillars: effective public institutions; economic diversification; human development and social inclusion; regional development; and green economic growth.”
Following the Executive Board discussion on Tunisia, Mr. Mitsuhiro Furusawa, the IMF’s Deputy Managing Director, and Acting Chair, referring to Tunisia’s Five Year Development Plan said:
“The authorities have developed a comprehensive and new economic program —to be supported by a four-year Extended Fund Facility—to address remaining vulnerabilities. The program aims at consolidating macroeconomic stability and promoting more inclusive growth. Strong commitment to sound policies, early and decisive action on key structural reforms, and consensus-building and communication efforts, particularly on socially difficult reforms, are crucial to create jobs and yield the largest gains for Tunisia’s population.
“This program aims at promoting stronger and more inclusive growth by consolidating macroeconomic stability, reforming public institutions—including the civil service, facilitating financial intermediation, and improving the business climate.”
When a team from the International Monetary Fund (IMF) conducted a two week visit to Tunisia to negotiate the loan earlier this year, from February 18 to March 3, at the request of the Tunisian government during which it met with senior government and Central Bank officials.
The IMF team also met and held discussions with members of the Assembly of the Representatives of the People (ARP), representatives from the banking and private sectors, political parties, trade unions, donors and civil society after which the IMF called on Tunisia to revise its Five Year Development plan to make it ‘more inclusive’ of interior regions.
A statement issued at the end of the IMF’s visit to Tunis in March quoted Amine Mati, the IMF mission head for Tunisia, who said:
“Moving ahead with economic reform is crucial as the Tunisian economy confronts several significant challenges. Economic growth is held back by investors’ wait-and-see attitude and regional uncertainties, unemployment is high, and the current account deficit remains significant. Promoting private-sector development and modernizing the public sector are important tasks. Additional financing will be needed to rebuild buffers, while at the same time correcting structural inefficiencies that lower Tunisia’s ability to create jobs and future growth potential.”