As economy flounders, IMF urges Tunisia to cut wage bill

The IMF said the public service salary bill is about 17.6% of GDP, among the highest in the world.

Saturday 27/02/2021
Tunisia’s Finance Minister Ali Kooli gives an interview in Tunis, Tunisia. (REUTERS)
Tunisia’s Finance Minister Ali Kooli gives an interview in Tunis, Tunisia. (REUTERS)

TUNIS - The International Monetary Fund (IMF) urged Tunisia on Friday to cut its wage bill and limit energy subsidies to reduce a soaring fiscal deficit, putting more pressure on the fragile government amid a severe financial and political crisis.

The IMF said the public service salary bill is about 17.6% of GDP, among the highest in the world.

The government has been discussing means of cutting the workforce without adding to unemployment, which already affects more than 17% of the population. The powerful trade unions have expressed willingness to discuss the downsizing of the workforce but not the privatisation of state-owned companies.

Tunisia’s finance minister Ali Kooli said his government is considering a “targeted subsidy system” that will specifically help needy segments of the population.

With the coronavirus pandemic, political infighting and protests since last month over social and regional inequality, it is a time of unprecedented economic hardship in the North Africa country that ran a fiscal deficit of 11.5% of GDP in 2020.

The IMF said in statement that monetary policy should focus on inflation by steering short term interest rates, while preserving exchange rate flexibility.

Tunisia’s 2021 budget forecasts borrowing needs $7.2 billion including about $5 billion in foreign loans. It puts debt repayments due this year at 16 billion dinars, up from 11 billion dinars in 2020.

In January 2021, following a team’s mission on site, the IMF predicted an 8.2% decline in GDP in 2020 which would lead to “increased poverty and unemployment”.

“The current account deficit is expected to have narrowed as a result of a sharp drop in demand for imports and transfers from Tunisians living abroad who remain dynamic, despite the shock to exports and the sharp drop in tourism receipts. The budget deficit is expected to be 11.5 percent of GDP, mainly due to lower tax revenues, a higher wage bill, and additional transfers to public enterprises,” the IMF said in its report.

Kooli told Bloomberg Television this week he’s fully committed to taking unpopular steps to salvage the economy before resuming loan talks with the International Monetary Fund.

“Things will get better in Tunisia because this government has decided to take action,” Ali Kooli told Bloomberg Television.

“Some of those actions aren’t easy to take” but would eventually change the economy “deeply,” he said without elaborating. “We will see the fruits in very few weeks.”

Hindering government action, however,  is a political impasse preventing the swearing-in of 11 cabinet members because of a struggle over prerogatives between the president and the prime minister.

On February 23, Moody’s Investors Service (“Moody’s”) downgraded Tunisia’s long-term foreign-currency and local-currency issuer ratings to B3 from B2 and maintained the negative outlook.

Moody’s subsequently downgraded the long-term bank deposit ratings of five Tunisian banks.