IMF: Tunisian economy is in need of "deep reforms"

As Tunisia seeks a fresh bailout, the country's International Monetary Fund's outgoing leader says the country's crisis-stricken economy requires "serious reforms", such as reducing the country's massive public wage bill.

In an interview at the end of his three-year stint as the World Bank's Ambassador to Tunisia, Jerome Vacher stated the coronavirus epidemic had contributed to the country's "worst recession since independence" in 1956.

"The country had pre-existing problems, in particular budget deficits and public debt, which have worsened," he explained. Tunisia's debts have risen to about 100% of the country's GDP.

Its GDP fell by about 9% in 2020, the worst place in North Africa, only somewhat offset by a 3% rebound last year.

Vacher added that the rebound is "quite weak and far from enough," considering the unemployment rate of 18%.

Despite the country's "favorable geographic location," he said, young graduates struggle to find employment.

Since Zine El Abidine Ben Ali was ousted in protests in 2011, the country has been suffering to resuscitate its economy.

In July of 2021, President Kais Saied took exceptional measures and suspended Parliament, prompting the government to ask the IMF for its fourth bailout.

Vacher stated the IMF wants to "understand what they're planning in terms of economic reforms," while discussions remain at an early stage.

"It's an economy that needs very deep, structural reforms, especially to improve the business environment."

System of subsidies

Vacher articulated that the government of Tunisia has a good basis to move forward and that they understand their main challenges.

He urged them to come up with a "solid and credible" reform plan, tackling its especially heavy public sector salaries.

According to Vacher, the public wage bill is "one of the highest in the world."

The country of 12 million people spends more than half of public spending to pay the salaries of almost 650,000 public officials – a number that excludes local government costs.

The statistic also excludes Tunisia's large state firms, which frequently have monopolistic positions in areas ranging from telecommunications to air transport and employ at least 150,000 people at public cost.

Vacher says all of this drains resources that could be used in other sectors like education, health, and infrastructure.

"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 advocated for a restructure of Tunisia's system of subsidies on basic items, such as gasoline and staple foods, which ultimately sees more public funding flow to the biggest users – a system that Vacher described as unjust.

The lender suggests eliminating subsidies and instead establishing a system of targeted cash distributions to vulnerable populations.

The IMF's proposals are significant because not only may it give billions more to Tunisia, but other organizations, notably the European Union, have stated that future help will be conditional on the global lender's approval.

According to Vacher, Tunisia's decision-makers have the most responsibility to put forward reforms and ambition.

While many analysts feared that Tunisia's governmental finances would fail, Vacher stated that the situation is "not optimal, but manageable." However, "there is an urgent need to make the public finances more sustainable."