Tunisia’s government to slash budget deficit and revise currency restrictions

Tunisia’s government is looking to double economic growth, slash its budget deficit and revise some currency restrictions in an effort to revive its struggling economy.

Prime Minister Yousef El-Shahed told parliament the government seeks to raise economic growth to 5 percent in 2020 compared with an expected rate of 2.5 percent this year, and would work to halve the budget deficit to 3 percent of gross domestic product by that year from 6 percent forecast for 2017.

The announcement comes less than a week after a broad cabinet reshuffle that included the appointment of a new finance minister in the birthplace of the Arab Spring. Late Monday, lawmakers gave their vote of confidence to the new government.

The north African nation is under growing pressure to undertake fiscal and economic reforms linked to its $2.9 billion International Monetary Fund loan. The government’s challenge is to enact these measures without stoking unrest in a nation where unemployment, particularly among young people, was a catalyst for the uprising that ousted President Zine El Abidine Ben Ali in 2011.

El-Shahed said the government planned to submit a draft law to parliament by month’s end that would let Tunisians open foreign currency accounts and grant amnesty to black market operators. The measures are aimed at helping boost foreign currency reserves and control a slide in the dinar’s exchange rate.

Wage Bill

Other targets set for 2020 include cutting the wage bill to around 12.5 percent of GDP from 15 percent and lowering the debt-to-GDP ratio starting in 2019, while not allowing it to pass 70 percent, El-Shahed said.

The government’s difficulty with implementing the IMF-backed reforms has taken its toll on the economy. Moody’s Investors Service last month cut Tunisia’s long-term issuer rating and the central bank’s foreign currency debt rating to B1 from Ba3, citing delays in carrying out the changes.

The IMF has called on authorities to tighten monetary policy to fight inflation and has encouraged grater exchange-rate flexibility in a bid to narrow the trade deficit. While the new legislation would help address that by curbing black market activity, El-Shahed has said that talk about floating the dinar, in the way that Egypt addressed currency reforms, was “premature.”