Cutting Tunisia’s public sector wage costs ‘paramount’, says IMF

7 Aug 17

Tunisia’s growth is slowly improving, but strong consumption is fuelling inflation and the public sector wage bill is among the world’s highest by proportion of GDP, the International Monetary Fund has warned.

It said the country’s exchange rate flexibility, tighter monetary policy and fuel price increases had started to address the imbalances, and the recent launch of a campaign against corruption had improved confidence.

Reducing the fiscal deficit was still critically important and would require additional adjustment, including to the cost of public wages.

Björn Rother, who led a recent IMF visit, said it would be essential to avoid any further deterioration in the fiscal deficit and “paramount” to contain the public wage bill, which at 14.1% of GDP last year was among the highest in the world.

Major adjustments would be needed to bring the wage bill to the target of 12% in 2020.

“Far-reaching structural reforms remain front and centre in Tunisia’s quest for inclusive growth and higher living standards for all,” Rother said.

“Modernising the civil service, putting the pension system on a sustainable footing, and enhancing access to credit will boost growth, reduce imbalances and free up space for priority investments in infrastructure, education and health.

“An effective, high anti-corruption authority will improve the arsenal of the government in its fight against corruption and illicit business practices.”

Tunisia’s economic outlook was slowly improving, with growth of 2.3% expected this year, supported by more activity in phosphates, agriculture and tourism.

But the IMF warned that structural obstacles in the economy continued to hamper exports.

Strong consumption fuelled by wage increases had led to inflation of 5.5% in June, putting downward pressure on the dinar.

Public and external debt increased to 65% and 73% of GDP respectively, while job creation continue to be slow.

Rother said: “The Tunisian authorities have already accelerated their response to the economic pressures. The government increased administered fuel prices in July to reduce inefficient energy subsidies.

“The recent escalation in the government’s fight against corruption met wide public support. Finally, Tunisia’s participation in the G20 Compact with Africa initiative has ed the country to demonstrate its significant investment potential.”

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