IMF Reaches Service Level Agreement with Tunisia for Lending Program

  • Deal paves way for bilateral loans
  • Year-end target for finalizing $1.9 billion package
  • Deal comes amid warnings of ‘social explosion’

TUNIS, Oct 15 (Reuters) – Tunisia has reached a preliminary deal with the International Monetary Fund (IMF) for a $1.9 billion bailout package that could be finalized in December, the fund said on Saturday.

Tunisia has urgently needed international assistance for months as it grapples with a public finance crisis that has raised fears of a debt default and contributed to food and fuel shortages, according to government critics.

The deal is also seen as key to unlocking bilateral aid from donor countries who wanted assurances from an IMF program that Tunisia would carry out reforms to put its finances on a more sustainable footing.

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Diplomats say many donors have felt “burned out” by previous loan deals in which Tunisia took billions of dollars without delivering on promised reforms.

“The agreement is an important step for Tunisia’s public finances and will allow Tunisia to borrow from certain bilateral sources,” a senior Tunisian official said on condition of anonymity. This month, the central bank governor told Reuters that bilateral funding talks were progressing with Saudi Arabia.

Opposition politicians and Tunisia’s powerful UGTT union have warned of a possible “social explosion” if the needs of the population are not met, with a petrol shortage causing long queues this week in gas stations.

The staff-level agreement is for a $1.9 billion package over 48 months through the IMF’s Extended Financing Facility to restore macroeconomic stability, strengthen social safety nets and tax fairness, and provide reforms to foster growth and create jobs.

It is subject to approval by the IMF’s board, which is due to discuss Tunisia’s program request in December, the fund said.

GROWTH TO SLOW

Political uncertainty and militant attacks had hit vital tourism revenue even before the challenges of the COVID-19 pandemic and global pressure on wartime commodities in Ukraine.

A growing number of Tunisians have joined a wave of illegal migration across the Mediterranean to Italy this year, with dozens dead since January in shipwrecks.

The IMF warned that in the short term, growth is likely to slow with more pressure on inflation and external and fiscal balances.

The government negotiated for months with the IMF and also had to sign an agreement with the UGTT to limit public sector wage increases over the next three years.

The union, which says it has more than a million members, has always been able to thwart economic reforms with strike threats, and it remains opposed to other parts of the package Tunisia has offered to the IMF.

The fund noted the government’s moves to phase out “widespread unnecessary price subsidies” as gasoline and electricity prices have risen several times this year.

He said the agreed program would include changes to broaden the tax base and broaden the coverage of the social safety net to help the poorest people cope with rising prices, as well as a law governing the reform of public enterprises.

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Reporting by Tarek Amara in Tunis, Andrea Shalal in Washington and Moataz Mohamed in Cairo; written by Angus McDowall; edited by Philippa Fletcher

Our standards: The Thomson Reuters Trust Principles.

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