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Tunisia to Begin New Negotiations for IMF Loan

Tunisia to Begin New Negotiations for IMF Loan

Saturday, 30 January, 2021 - 11:30
A Tunisian protester lifts a flag-clad birdcage during an anti-government demonstration on Habib Bourguiba Avenue in the capital Tunis, on Jan. 19, 2021. (Getty Images)

Tunisian authorities are expected to begin new negotiations with the International Monetary Fund (IMF) for a loan of 6.4 billion Tunisian dinars (about $2.3 billion).

The loan’s installments and the accompanying economic reforms program would most probably be determined by March.

The government is facing unprecedented economic hardship, which prompted the IMF to warn it that its fiscal deficit could exceed 9 percent of GDP from the expected 6.6 percent without serious spending cuts and a refocus on promoting growth.

The IMF said these reforms require urgent control for the state wage bill, which accounts for 28 percent of the state budget and has amounted to 20.1 billion dinars (about $7.3 billion) in 2021, according to the Ministry of Finance’s projections for the current year.

It recommended relevant authorities to review the subsides system, which accounts to about 3.4 billion dinars (about $1.2 billion), noting that most of these funds are allocated for economic and social parties rather than actual recipients.

These reforms also target the financial status of major state institutions following a fiscal deficit that exceeded seven billion dinars (about $2.5 billion).

“It is essential to strictly prioritize spending on health and social protection, while exerting control over the wage bill, ill-targeted energy subsidies and transfers to state-owned enterprises,” the IMF stressed.

A number of Tunisian economic and financial experts said that Prime Minister Hichem Mechichi’s government had pledged to carry on with these reforms.

They said these reforms are the only mean for obtaining financial financing that has become necessary to fill the many gaps in the local economy.

Should the North African country fail to obtain the IMF loan, then other international financing institutions will not risk granting financial loans to the Tunisian authorities, they warned.

In December 2016, the IMF approved a four-year, $2.9 billion loan for Tunisia to support the authorities’ economic agenda aimed at promoting more inclusive growth and job creation, while protecting the most vulnerable households.

The loan was divided into eight installments, yet the Tunisian government failed to pay some on time because it failed to commit to recommendations agreed to by both sides.

“We are open to all reforms,” said leader of Tunisia’s UGTT labor union Noureddine Taboubi earlier this month, adding the union was open to reducing staff levels in some state companies, such as Tunis Air.

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