Consumption is fuelling inflation in Tunisia, which increased to 5.5 per cent in June, amid sluggish job growth, the International Monetary Fund (IMF) said on Thursday.
The Washington-based lender reviewed Tunisia’s economic reform programme, which is supported by a four-year IMF extended fund facility (EFF) The loan is provided to countries that face serious medium-term balance of payments as a result of structural weakness which Tunisia has faced since its revolution at the end of 2010 which kicked off the Arab Spring.
Björn Rother, IMF economist, said that the outlook for the North African country was slowly progressing thanks to a pick-up in phosphates, agriculture and tourism. However, challenges remain as the economy continues to put pressure on exports.
Tunisia has made strides to advance its political transition, but economic dividends have taken longer than expected with negligible growth to impact unemployment rates. A national unity government, composed of the main political parties and civil society groups, was formed in September; however, five months later there was a cabinet reshuffle.
Mr Rother said that strong consumption, fuelled by wage increases, is leading to inflation and is pushing already elevated fiscal and external deficits higher. This puts downward pressure on the local currency. “Public and external debt increased to 65 per cent and 73 per cent of GDP, respectively, in June,” he said.
The Central Bank of Tunisia has made moves to stem a decline in the dinar by increasing benchmark interest rates to keep reserves at an adequate level. “A tighter monetary policy, with two increases in the policy rate to 5 per cent and new macroprudential limits, has helped ease inflationary pressures and supports the dinar,” Mr Rother said, adding that continued monetary tightening as well as exchange rate flexibility were essential in reducing macroeconomic imbalances.
Yet slow movement to create jobs as well as limited business opportunities are weighing on Tunisians, which was the catalyst to the revolution in 2010. The unemployment rate 15.3 per cent from 16.7 per cent in 2011, though still better than pre-revolution level of 13 per cent.
The government is trying to combat these pressures, increasing fuel prices in July to reduce energy subsidies. But Mr Rother said that it was paramount to contain the wage bill, which was 14.1 per cent of GDP last year - the highest in the world. He said: “Major adjustments this year and next are necessary to compensate slippages and bring the wage bill back on track to reach the target of 12 per cent of GDP in 2020.”