Saturday, 21st May, 2022
Saturday, 21st May, 2022

IMF official urges ‘deep reforms’ to Tunisian economy

Tunisia’s crisis-stricken economy needs
“deep reforms” such as slashing its vast public wage bill, the International
Monetary Fund’s outgoing country chief has said as the government seeks a new
bailout.

Jerome Vacher, speaking in an interview at the end of his three-year term
as the global lender’s envoy to the North African country, said the
coronavirus pandemic had helped create Tunisia’s “worst recession since
independence” in 1956.

“The country had pre-existing problems, in particular budget deficits and
public debt, which have worsened,” he said.

Tunisia’s debts have soared to nearly 100 percent of Gross Domestic
Product.

Its GDP plunged by almost nine percent in 2020, the worst rate in North
Africa, only modestly offset by a three percent bounceback last year.

That is “quite weak and far from enough” to create jobs to counteract an
unemployment rate of 18 percent, Vacher said.

He said young graduates face particular challenges in finding work,
despite the country being able to offer “a qualified workforce and a
favourable geographic location”.

Since dictator Zine El Abidine Ben Ali was toppled by mass protests in
2011, Tunisia’s troubled democratic transition has failed to revive the
economy.

President Kais Saied sacked the government and suspended parliament on
July 25 last year, and the government has since asked the IMF for a bailout
package — the fourth since the revolution.

Tunisian authorities say they are optimistic about reaching a deal by the
end of this quarter.

Vacher said discussions are still at an early stage and that the IMF first
wants “to understand what they’re planning in terms of economic reforms”.

“It’s an economy that needs very deep, structural reforms, especially to
improve the business environment,” the French economist said.

– Hefty public wage bill –

But Vacher added that the government “understands the main challenges and
problems, which is already a good basis”, urging Tunisia to come up with a
“solid and credible” reform plan.

To do that, it must tackle its huge spending on public sector salaries.

“The public wage bill is one of the highest in the world,” Vacher said.

In a country of 12 million people, more than half of public spending goes
to paying the salaries of around 650,000 public servants — a figure that
does not include local authority wages.

Nor does the figure include Tunisia’s hefty public companies, which often
hold monopolistic positions across sectors from telecoms to air transport and
employ at least 150,000 people at the public expense.

All this drains resources that the state could be investing in education,
health and infrastructure, Vacher said.

“There needs to be a big efficiency drive in the public sector (to meet)
public expectations in terms of services,” he said.

The IMF has long called for a restructuring of Tunisia’s system of
subsidies on basic goods such as petrol and staple foods, which essentially
see more state funds doled out to the biggest consumers — a system Vacher
said was unfair.

The lender recommends scrapping subsidies and instead creating a system of
targeted cash payments to needy groups.

The IMF’s recommendations are important as not only could it lend billions
more to Tunisia, but other bodies including the European Union have said they
will condition future aid on the global lender’s green light.

For Vacher, the biggest responsibility lies in the hands of Tunisia’s
decision-makers.

“It’s up to them to act to find solutions, put forward reforms, a vision
and an ambition,” he said.

While many observers have predicted doom for Tunisia’s public finances,
Vacher said the situation is “not optimal, but manageable”.

But “there is an urgent need to make the public finances more
sustainable.”

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