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Tunisia must rationalise subsidies and control wages to reduce budget deficit, says IMF

March 31, 2022 at 9:39 am

Sign outside the headquarters of the International Monetary Fund (IMF) in Washington, DC, 15 April, 2020 [SAUL LOEB/AFP via Getty Images]

The International Monetary Fund (IMF) said on Wednesday that Tunisia must take a series of measures to reduce the budget deficit and revive the economy, Anadolu has reported, including strict control over the public sector wage bill and better targeted subsidies. An IMF team visited Tunisia last week for talks on the economic reform programme.

“The IMF considers that a conscientious reduction of the fiscal deficit through equitable taxation reform, strict control over the public sector wage bill, better targeted subsidies and deep reforms of state-owned enterprises are necessary to restore macroeconomic stability,” said the Fund, “as well for improving the efficiency of state-owned enterprises and strengthening the competitiveness of the Tunisian economy.”

In 2021, the civil service wage bill amounted to 20.1 billion dinars ($7.45 billion), an increase of 164 per cent since 2010. Government data shows that between 2010 and 2020, the cost of subsidising goods and services increased by 135.3 per cent, from $510 million pa to $1.2 bn.

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The IMF team said that they made further progress in the technical discussions with the Tunisian authorities. They added that the Fund will continue to stand alongside the Tunisian authorities in their efforts to advance economic and social reforms.

“Tunisia is facing major structural challenges that result in deep macroeconomic disequilibria, a weak growth in spite of its strong potential, a high unemployment rate, weak investment and social inequality,” they explained. The impact of the pandemic and the war in Ukraine have further exacerbated these structural challenges.

Tunisia entered into talks with the IMF last May, but the discussions were halted due to political instability in the country, before resuming in November. International agencies have recently downgraded Tunisia’s sovereign rating, reducing its chances of borrowing from global debt markets.