Financial Crime World

Tunisia Seeks IMF Backing to Stabilize Economy in Wake of COVID-19 Shock

Tunisia is seeking emergency financial assistance from the International Monetary Fund (IMF) to help stabilize its economy, which has been severely impacted by the COVID-19 pandemic.

Economic Challenges

The country’s external environment and growth outlook have sharply deteriorated due to the crisis. The government plans to use the funds to finance emergency response measures aimed at:

  • Increasing health spending
  • Strengthening the safety net for low-income families and the unemployed
  • Providing assistance to firms affected by the pandemic
  • Preventing a decline in international reserves to critically low levels

Additional Measures

To reduce risks to macroeconomic stability and debt sustainability, the authorities have committed to taking additional measures, including:

  • Reviewing the need for fiscal emergency measures on a monthly basis to prevent them from becoming permanent
  • Addressing structural challenges such as reducing subsidies for electricity and natural gas
  • Achieving additional savings on the civil service wage bill

Monetary Policy

The Central Bank of Tunisia (CBT) has pledged to tighten monetary policy in case of a buildup of depreciation expectations or risks of disorderly exchange rate adjustment. The CBT will:

  • Refrain from large-scale foreign exchange interventions
  • Consult with IMF staff in the event of strong pressures on the FX market

External Support

The authorities intend to mobilize further external donor support and make progress with safeguards. They are seeking additional concessional financing and grants from other international financial institutions (IFIs) and bilateral partners to minimize pressure on the budget and international reserves.

Risks and Mitigation

Tunisia’s debt sustainability risks have increased substantially due to the pandemic, according to an IMF staff report. The country’s debt stocks are expected to rise significantly in the coming years, posing a risk to its ability to service its debt obligations.

To mitigate these risks, the authorities have committed to implementing fiscal discipline measures, including:

  • Reducing subsidies
  • Achieving additional savings on the civil service wage bill
  • Conducting an audit of the civil service to detect and reduce absenteeism and ghost workers

IMF Support

The IMF has agreed to provide Tunisia with a Rapid Financing Instrument (RFI) worth $89 million to help stabilize its economy in the short term. The funds will be disbursed directly to the budget, and the authorities have committed to implementing the necessary policy reforms to ensure debt sustainability over the medium term.