Former Finance Minister Ali Kooli recently said that "things will improve in Tunisia because this government has decided to act," and that "some of these actions are not easy to take" but will eventually change the economy in depth." Without providing any details, he claimed "We will see the fruits in a few weeks."¹ It is unclear if these proposed actions differ substantially from those promised and undertaken by previous governments, summarized by Former Prime Minister Hichem Mechichi as: a reduction in the Tunisian government’s spending on subsidies, privatization of some "non-essential" public companies and provision of additional financing to young Tunisian entrepreneurs. These are all conditions currently required by the IMF for the negotiation of a loan intended to fill the budget deficit in the Finance Act of 2021.
The ongoing negotiations with the IMF revolve around the signing of the country’s third agreement with the international financial institution since the Tunisian revolution. Indeed, in 2012, the then Finance Minister Elyes Fakhfakh responded favorably to the conditionalities set by the IMF for financial assistance, which was granted on June 7, 2013, in the form of a stand-by arrangement. In 2016, the government of the time requested a second financial assistance package from the IMF, which was granted on May 20 of the same year in the form of an extended credit facility. This financing was for an amount equivalent to 2.9 billion dollars. In return, Tunisia was expected to undertake an "economic and financial reform program", namely a structural adjustment plan. The government had begun implementing the painful conditionalities requested, including the adoption by Parliament of the Central Bank Independence Law, the Banking Law and the Bankruptcy Law in April 2016.
These were all prerequisite as prior actions required by the IMF before negotiations on the agreement could begin. The IMF then proceeded to condition tranche disbursements on the implementation of additional reforms, including the three key areas of “reform”: "business climate", exchange rate policy, and food subsidies.
The "economic and financial reform program" that has been presented by the government of the time is reminiscent of some of the conditionalities mandated by the IMF under the 2016 agreement. Reluctance on the part of the Tunisian authorities led to a suspension or delay in implementation of that agreement.
In this briefing paper we will present an assessment of one of these reforms initiated since 2016, namely the devaluation of the Tunisian dinar, which has had a significant and negative impact on foreign exchange reserves, trade deficit, debt service, inflation as well as on public enterprises.
