RESTRICTED
WORLD TRADE WT/BOP/R/14
8July1996
ORGANIZATION(96-2653)
Committee onBalance-of-Payments Restrictions
REPORT ONTHE 1996 CONSULTATION WITH TUNISIA
1. TheWTO Committee onBalance-of-Payments Restrictions consulted withTunisia on10and
11June1996. Theconsultations were heldunder theChairmanship ofMr.P.Witt(Germany) and
inaccordance withtheterms ofreference, pursuant toArticle XVIII:12(b) ofGATT 1994 andthe
Understanding ontheBalance-of-Payments Provisions ofGATT 1994. TheInternational Monetary
Fund wasinvited toparticipate intheconsultation inaccordance withArticle XV:2 ofGATT 1994.
2. TheCommittee hadthefollowing documents before it:
Basic Document supplied byTunisia WT/BOP/11 andWT/BOP/11/Add.1
Background Paper bytheSecretariat WT/BOP/W/13
IMF, Tunisia: Recent Economic Developments, 8February 1996
Opening Statement bytheRepresentative ofTunisia
3. Theopening statement oftherepresentative ofTunisia isattached asAnnex I.
Statement made bytheRepresentative oftheInternational Monetary Fund
4. TheStatement made bytherepresentative oftheInternational Monetary Fund isattached as
Annex II.
Discussion intheCommittee
(i) Balance ofpayments position andprospects; alternative measures torestore equilibrium
5. Members noted therespectable rateofeconomic growth overthepastseveral years, inspite
oftwoconsecutive droughts since thelastconsultations in1994which hadaffected thetrade balance.
Nevertheless, indicators remained quite positive, exemplified byapparently continued growth inthe
tradables sector, astabilization ofthedebt/GDP ratioandalowlevelofinflation. Most Members
wereinagreement thatwhile thebalance-of-payments situation wasfragile, therewasnoserious threat
ofadecline inmonetary reserves andthatcontinued prudent macroeconomic policies along withfurther
tradeandinvestment liberalization would beamoreeffective waytosafeguard thebalance-of-payments.
Some Members considered that,given thatreserves hadfallen totwomonths ofimports attheend
ofApril, therewaspressure onthebalance ofpayments andrecourse toArticle XVIII:B wasjustified.WT/BOP/R/14
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(ii) System, methods andeffects ofimport restrictions
6. While commending theTunisian Government foritstradereforms, including thedismantling
ofquantitative restrictions inother areas, Members believed thatthose remaining onselected motor
vehicles werenotconsistent withthebalance-of-payments provisions astheywereneither price-based
norapplied tocontrol thegeneral levelofimports. While some members suggested thatprice-based
measures could fuelinflation, others noted thattherehadbeennoadverse effects fromtherecent removal
ofquantitative restrictions. Some members saidthatreferences inthebasic document (WT/BOP/11)
tothecontinuing restriction ofmotor vehicles aimed atthedevelopment ofthemechanical industry
were atoddswiththebalance-of-payments justification; sectoral specificity, inorder toavoid any
incidental protective effects, wastobeavoided. Itwassuggested thattheexact coverage bytariff line
ofproducts subject torestrictions forbalance-of-payments purposes bemade available totheCommittee
andthatanexplanation regarding theadministration oftheimport licensing would bedesirable. The
majority ofMembers didnotperceive thatthere wasaneedforadelay offiveyears prior tothe
elimination oftheremaining measures. They encouraged Tunisia toconsider their progressive
dismantling andamore rapid timeframe fortheirelimination.
(iii) Replies byTunisia
7. Therepresentative ofTunisia considered thatthere hadbeenadeterioration inthemacro-
economic indicators, thatthelevelofreserves wasunsatisfactory andthattherefore themeasures in
place werejustified. Hestated thatrestrictions onmotor vehicles, which wereofaresidual nature,
werenotserving protective purposes asTunisia hadopted nottodevelop alocalautomotive industry,
butthatafiveyearperiod wasnecessary toensure appropriate management oftheexternal accounts.
With reference totemporary compensatory duties, currently under waiver, some hadalready been
removed andallwould beabolished bythetimethewaiver expired on1January 1997 (L/7380).
Conclusions
8. TheCommittee commended Tunisia fortheeconomic progress made sincethelastconsultation
in1994, despite negative effects ofdroughts andstagnant energy exports. TheCommittee welcomed
thestructuralreformsandtradeliberalizationpoliciespursuedbyTunisia,notingespeciallythecontinuing
eliminationortarifficationofquantitativerestrictions,andtheauthorities'cleardeterminationtocontinue
along thispath.
9. TheCommittee recognized thatthebalance-of-payments situation wasfragile; following an
improvement in1994, thetrade balance haddeteriorated andthecurrent account deficit hadwidened
to4.5percentofGDPattheendof1995, withreserves declining tojusttwomonths ofimport coverage
atend-April 1996. Opinions differed astowhether thisbalance-of-payments situation constituted a
threat ofaserious decline inTunisia 'smonetary reserves.
10. TheCommittee noted Tunisia 'sclarification oftheonlyremaining restrictions forwhich it
claimed balance-of-payments justification andtheagreement ofTunisia toprovide anotification of
these restrictions totheWTO within onemonth. TheCommittee discussed whether these restrictions
could bejustified forbalance-of-payments purposes. Some members, considering thatthese residual
measures represented thefinalstage inphasing outquantitative restrictions, stated thatTunisia needed
thefiveyears envisaged initsPlan tocomplete thisprocess. Others recalled that, under the
Understanding onBalance-of-Payments Provisions oftheGATT 1994, the1979Declaration onTradeWT/BOP/R/14
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Measures Taken forBalance-of-Payments Purposes andGATT Article XVIII:9, preference should be
given toprice-based measures, andthatmeasures should beapplied tocontrol thegeneral level of
imports, without sector-specificity; onthese grounds, theyrequested Tunisia toliftthequantitative
restrictions promptly.
11. Bearing inmindallthesefactors, theCommittee agreed toresume theconsultations withTunisia
inJune1997 onthebasis ofanewmacroeconomic analysis bytheIMF.WT/BOP/R/14
Page4
ANNEX I
Statement bytheRepresentative ofTunisia
Ishould liketobegin bysaying howhappy mydelegation istoseeyouchairing thisconsultation
meeting. Iampleased tonotethatyourceaseless journeying toandfrobetween Bonn andGeneva
hasinnowaycurbed yourenthusiasm oryourdedication tothisCommittee which youhavealways
chaired soskilfully.
Ialsotakepleasure ingreeting themembers ofthisCommittee andextending mywarm thanks
totheSecretariat foritswork andforthequality ofthereport submitted.
Ishallnowintroduce toyouthemembers oftheTunisian delegation, beginning with:
- Mr.Hosni Toumi andMrs. Khediga Chahloul, respectively Director-General and
Director intheMinistry ofTrade;
- Mrs. Jamila Hamza, Director intheCentral Bank;
- Messrs. Mondher Borgol, Deputy-Director, Ministry ofFinance, andChiheb M'ghirbi,
Deputy-Director, Ministry ofIndustry; and
- Messrs. Baati andSnoussi, members oftheTunisian Mission.
Tunisia isresolved todischarge itsinternational obligations andcommitments properly and
therefore attaches special interest tothese consultations.
Sinceourlastconsultations,wehavefulfilledtheundertakingswegavehere.Thelistofproducts
subject torestrictions wascommunicated totheSecretariat. Thequantitative restrictions inparticular
ontextiles andagricultural products havebeeneliminated. Nevertheless, despite theimprovements
achieved andtheefforts deployed, ourbalance ofpayments continues tosuffer fromastructural deficit
andtobesubject tochronic pressures.
Tunisia 'schoice ofeconomic openness andintegration iscertainly irreversible. Thepriority
goalistoarticulate thedevelopment process around twomajor objectives: thatoflaying thestructural
foundations forsustained andsteady growth, andthatoftying oureconomy intotheworld economic
system forgood. Tunisia 'saccession toGATT in1990 while theUruguay Round negotiations were
infullswing waspartofthisnewrestructuring strategy.
Theambitious planoflegislative andinstitutional reform setinplace, combined withafirm
determination toestablish aculture ofparticipation atalllevels, ledtoanupturn inactivity andaclear
improvement ineconomic indicators relating togrowth andforeign trade, despite thenegative impact
ofsome short-term factors suchastheunrelieved drought fortwoconsecutive years in1994and1995.
Thefar-reaching programme ofeconomic reorganization introduced yearsagohastoday entered
anewstage marked bythestrengthening anddeepening ofstructural reforms invarious areas. The
years 1995and1996havealsobeendevoted topursuing theimplementation oftheWTO Agreements
andpreparing fortheapplication oftheAssociation Agreement withtheEuropean Union.WT/BOP/R/14
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AsIsaidatthebeginning ofmystatement, since thelastsimplified consultation inJune1994,
anumber ofmajor achievements havebeenwonorreinforced inthefields ofeconomic performance
andstructural reform. Nevertheless, theexternal payments situation remains worrying andisoneof
themain areas ofpriority concern.
Inrecent years, despite afavourable trend inexports, various factors havecombined toexert
astrong andunrelenting pressure onthebalance ofpayments. These factors include thedecline in
agriculture andenergy production, thedownturn inthetourism sector, theslowdown inoliveoilexports,
andinparticular theimpact ofthedrought anddwindling world stocks onthepaceoffoodimports,
especially ofcereals.
Inaddition, thechronic fooddeficit, representing 1.8percentofGDPin1995, ledtoTunisia
torequest theCommittee onAgriculture toinclude itinthelistofnet-food-importing developing
countries thatbenefit fromthemeasures provided forintheMinisterial Decision adopted onthissubject
atMarrakesh.
Inparallel withthesituation oftheenergy balance, where thetrend reversal isbecoming more
andmore definite, thetrade balance shows astructural deficit with39partners. Despite market
diversification efforts, Tunisia 'sforeign trade remains marked byapronounced geographical
concentration.
Itisessentially these structural factors, combined withtheworsening oftheterms oftrade,
thataccount fortheworse-than-expected current-account deficit, withanannual average representing
4.0percentofGDP compared withtheforecast 2.5percent.
Thedebtservice burden, withitscorollary ofareverse transfer offinancial resources, steps
upthepressure onthecountry 'soverall balances andincreases itsfinancing requirements, given the
balance-of-paymentscurrent-accountdeficitandtheneedtodevoteexchangereservesfortheliberalization
offoreign trade. Nevertheless, thanks tosound management Tunisia hasbeenabletobring debt
indicators under control.
Tunisia iscontinuing topursue itscautious butdeliberate policy ofliberalization andintegration
ofitseconomy methodically, progressively, andwithout undue haste. Itisallthemore necessary to
overhaul thecountry 'sexternal payments situation astheTunisian economy becomes increasingly open
withtheimplementation ofourcommitments under theWTO, thesigning oftheAssociation Agreement
withtheEuropean Union andthereform andrestructuring strategy thathasbeenlaunched.
Inorder toachieve thisgoal,andbesides theintroduction ofvarious programmes foreconomic
diversification, penetration ofnewmarkets, export promotion, modernization oftrade intervention
mechanisms, strengthening ofreforms andmeasures tocurbthebudget deficit anddebtindicators,
asof1996Tunisia hasembarked onafar-reaching programme toupgrade itseconomy, thefirststage
ofwhich willbecompleted intheyear2000. Thegoalofthisprogramme istomodernize Tunisian
enterprises andadapt them tothepresent competitive context. Tunisian enterprises nowhavetobe
competitive ontraditional aswellasnewforeign markets andbeabletoviewithforeign competitors
onthedomestic market. Tunisia ispatiently andmethodically striving tomeetthischallenge.
Theimport liberalization programme which isbeing phased-in hasalready reached avery
advanced stage ofimplementation. Following theliberalization ofmade-up textile products in
November 1995, thelevel ofliberalization, interms ofproduction, wasintheorder of92percentWT/BOP/R/14
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attheendof1995 compared with48percentin1992 and60percentin1993. What adistance we
havecovered inthespace offouryears! Liberalization hasproceeded atasteady andregular pace,
bearing witness toTunisia 'sirreversible political determination toembody themarket economy and
become fullyintegrated intotheworld economy.
Thus, apartfromtheproducts covered bythegeneral exceptions ofArticle XXofGATT 1994,
onlytransport equipment (passenger vehicles) remains subject toimport restrictions.
Itshould alsobepointed outthatthese restrictions aremaintained onaprovisional basis for
atransitional period required prior tocomplete liberalization ofimports.
Inviewoftheforegoing, myGovernment could envisage disinvoking GATT Article XVIII
ifthetransport equipment sector could continue tobecovered byspecific restrictions forafive-year
period.
Thefive-year period wearerequesting hasbeendetermined onthebasisofanobjective analysis
ofthesituation thatmaybesummarized intwopoints.
Firstly, theprogramme ofupgrading industry thatIreferred topreviously isnotonlyanessential
aspect ofourpolicy toimprove thebalance ofpayments butalsocallsforamajor financing effort.
Thisprocess isbynature bothinduced andinducing, andtherefore closely linked withthetrend in
thebalance ofpayments. Besides, thisfive-year period coincides withthecompletion ofthefirstphase
oftheupgrading programme.
Secondly, intheevent ofasudden andcomplete liberalization ofthissector, theensuing
deterioration inthebalance ofpayments would bedifficult tomanage, whence ourdesire tocontrol
imports ofthese products.
Since theselastquantitative restrictions essentially concern onlyonesector, suitable flexibility
during thistransitional five-year period isallthemore necessary forTunisia gradually toeliminate
them.
Thiswillenable Tunisia toundertake tocease toavailitselfofArticle XVIII(b) andofficially
notify thiscommitment.
Finally, Icannot conclude without expressing appreciation fortheconstant support oftheWTO
Members andinternational agencies, inparticular theInternational Monetary FundandtheWorld Bank,
andreiterating thatitisTunisia 'sresolve topursue theliberalization process andintegration efforts
withbothconviction andrealism, taking account ofitsexternal andinternal overall balances.
Thank youforyourattention.WT/BOP/R/14
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ANNEX II
Statement bytheIMFRepresentative
Tunisia hasbeenengaged inamacroeconomic adjustment andstructural reform program for
anumber ofyears, supported byarrangements fromtheFund during 1986-92. Inthecontext ofthe
Fund'ssurveillance, Fund staffcontinued towork closely withtheauthorities during 1992-96 in
discussing economic andfinancial policies andproviding technical assistance.
During 1986-93, Tunisia pursued prudent macroeconomic policies andimplemented
comprehensive structural reforms. Theoverall fiscal deficit, excluding grants, wasreduced froman
average ofabout 5percent ofGDP in1986-91 to3percent during 1992-93, andprudent credit and
exchange ratepolicy continued. Structural reforms included agradual reduction ofnontariff trade
barriers, liberalization ofdomestic prices andoftheincentive system, elimination ofrestrictions on
current account transactions, andfinancial sector reforms. Inearly 1993, thegovernment accepted
theobligations under Article VIII, Sections 2,3,and4oftheIMF'sArticles ofAgreement and,with
theexceptionofamultiplecurrencypracticerelatedtoadefunctexchangerateguaranteescheme,Tunisia
doesnotmaintain anyexchange restrictions subject toFund approval.
These policies contributed toachieving arespectable rateofgrowth, averaging 3.8percent
peryearduring 1986-93, driven mainly byrising exports ofmanufactured goods andtourism, while
theinflation ratewasreduced to4percent by1993. Thecurrent account deficit, excluding grants,
wascontained toabout 4.5percent ofGDPonaverage during 1986-93. Higher external current account
deficitsin1992-93reflectedlargeforeign-financedinvestmentprojectsintheenergysector--agaspipeline
toItaly(Gazoduc) andthedevelopment ofamajor offshore gasfield(Miskar).
During 1994-95, theTunisian authorities steadfastly pursued economic reforms against the
background oftwoconsecutive drought years affecting thecereal cropandoliveproduction. Despite
thecontraction intheagricultural sector, realGDP grew by3.4percent in1994 andanestimated 2.8
percent in1995, reflecting continued strong growth inmanufacturing industries, mining, andservices.
Although theoutcome fellshortoftheobjectives under thecurrent Eighth Development Plan(1992-96),
itconfirmstheincreaseddiversificationoftheTunisianeconomyandgreaterresiliencetoadverseweather
conditions.
Thedrought andlower thanexpected economic growth have made theenvisaged fiscal
consolidation moredifficult. Thebudget outcome inbothyears fellshortoftheauthorities 'fiscal deficit
targets of2.0and1.5percent ofGDP in1994 and1995, respectively. According toofficial data,
theoverall fiscal deficit, excluding foreign grants, remained ataround 3percent ofGDP in1994,
butroseto4.2percent ofGDP in1995, mainly onaccount ofweakening taxcollection. Taking
intoaccount unrecorded domestic payment arrears totwopublic marketing boards forfood subsidies
itisestimated thatthebudget deficit for1995 reached 5.3percent ofGDP. Thisweakening ofthe
budget andthedrought 'simpact onfoodprices contributed topressures ontheexternal accounts and
apick-up ininflation to6.3percent in1995.
In1994, thecurrent account deficit, excluding grants, narrowed totheequivalent of2.9percent
ofGDP, from 7.7percent in1993. Thisreflected astrong growth ofnon-energy exports, and
exceptional factors including large shipments ofolive oilstocks andunexpected delays inimports of
investment goods. For1995, preliminary estimates point toawidening ofthecurrent account deficit
to4.5percent ofGDP. Thegrowth ofmanufacturing exports remained strong (7.6percent involume
terms), butoliveoilexports declined andenergy exports stagnated. Higher growth oftotalmerchandiseWT/BOP/R/14
Page8
imports (6.4percent involume) wasmainly driven byhigher foodandconsumer goods imports.
Netexternal borrowing rosesignificantly during 1994-95, reflecting inparticular public borrowing
intheJapanese bond market (yen85billion), while foreign direct investment fellwiththewinding
down oftheGazoduc andMiskar projects. Theoverall balance ofpayments recorded asurplus of
US$320 million (2percent ofGDP) in1994 andadeficit ofUS$45 million (0.3percent ofGDP)
in1995. Gross official reserves atend-1995 declined totheequivalent of2.6months ofimports,
andareestimated attheequivalent of2months ofimports atend-April 1996, inthemain reflecting
thecontinued impact ofthedrought oncereal imports, delays inthereceipt fromtourism andlower
thanexpected external borrowing.
Anambitious agenda forTunisia 'sfurther integration intotheworld economy wassetwith
theconclusion inmid-1995 ofanAssociation Agreement withtheEU,involving inter aliathe
establishment offreetrade inindustrial goods overaperiod of12years andenhanced cooperation
invarious areas. Important progress continued tobemade toliberalize further theeconomy. The
share ofdomestic production protected byquantitative import restrictions wasreduced byabout 9
percentage points to8percent. Asinthepast,Tunisia introduced atemporary import surcharge of
upto30percent oncertain liberalized items; these surcharges aretobephased outcompletely by
1998. Thepaceofprivatization anddivestiture accelerated withthesaleof20public enterprises,
mainly inthetransport andmanufacturing sectors. Equity shares intwoenterprises (including Tunis
Air)were soldonthestock market. Some nonviable enterprises were liquidated, andperformance
contracts made mandatory forallstateenterprises. Capital account regulations werefurther liberalized
in1995 byallowing foreign investors tobuywithout official authorization upto10percent ofthe
equity inTunisian enterprises quoted onthestock exchange, andupto30percent forother enterprises.
Asafurther stepintheliberalization ofdomestic trade, in1995 distribution margins werelifted on
products accounting forabout 11percent ofdomestic absorption bringing theshare offully liberalized
retail prices toabout 81percent. Anewcompetition lawaiming ateliminating monopolistic practices
wasadopted inApril 1995, andrevisions tothelabour lawareunder discussion. Anumber ofsteps
havebeentaken since 1994 toreinforce thesocial security regimes, including through increases in
contributions, astricter control onpensions, andthegranting ofmore autonomy tothesocial security
funds intheirmanagement andinvestment decisions. Inthebanking sector, considerable progress
hasbeenmade instrengthening prudential ratios, insome cases ahead ofthetimetable setbythe
monetary authorities. Implementation ofthenewstock market legislation wascompleted in1995,
withtheeffective transformation ofthebourse intoaprivate organization managed bytheassociation
ofstockbrokers andtheestablishment ofanindependent supervisory commission toregulate theactivity
ofthemarket. Adoption ofamodern electronic clearing andsettlement system forthebourse is
underway.
Intheperiod ahead, theauthorities intend tomove toahigher sustainable growth pathwith
aview toreducing unemployment. They view thetrade liberalization andtheoverhaul and
modernization oftheregulatory framework implied bytheAssociation Agreement asakeyingredient
andcatalyst fortheirmedium-term strategy. Higher growth would require higher andmore productive
investmentinphysicalandhumancapital,aswellashighersavingsinordertosafeguardmacroeconomic
balances.Structuralreformswouldfocusonfacilitatingthetransitiontoaprivatesectordriveneconomy
andthe"mise àniveau" oftheindustrial sector, tosupport therequired drastic adjustment inthe
industrial sector totheremoval ofprotection.
Savings aretobeincreased mainly through agradual reduction intheoverall fiscal deficit,
therestructuring andprivatization ofpublic enterprises, areform ofsavings institutions andsocialWT/BOP/R/14
Page9
security funds, andtheavailability ofabroader menu offinancial instruments. Further fiscal adjustment
would require considerable efforts, given theneedtoredress thefiscal slippage of1995 andtooffset
thelossintradetaxesfromthedismantling ofimport tariffs under theAssociation Agreement, estimated
toreach cumulatively about 2.6percent ofGDP by2008. Additional revenues would havetobe
mobilized through astrengthening oftheVAT system andimprovement intaxadministration, while
expenditure measures, including areduction inthegrowth rateofthewage bill,savings ontransfers
andsubsidies, andimproved monitoring ofother current expenditure, would beessential. TheFund
hasprovided technical assistance intheareas ofdirect andindirect taxation, taxadministration, and
tariff reforms withaviewtoprepare measures offsetting thelossofcustom duties arising from the
Association Agreement.
Thestrengtheningofthefinancialpositionofthepublicsectorwillallowthemonetaryauthorities
toredirect credit insupport ofprivate sector growth, while maintaining aprudent monetary stance.
Appropriate macro-economic policies willhelppreserve Tunisia 'sexternal competitiveness, while
maintaining broad exchange ratestability.
Intheareaofstructural reforms, theauthorities intend toaccelerate privatization andcontinue
toliberalize theregulatory framework. Regarding trade liberalization, theyplantofurther reduce
remaining quantitative restrictions withtheentry intoeffect oftheAssociation Agreement. Finally,
someimport duties maybeeliminated ahead oftheschedule under theAssociation Agreement, including
from non-EU sources, toavoid excessive increases ineffective protection.
Through prudent macroeconomic policies rather thanrecourse totradeorexchange restrictions,
Tunisiaintendstocontainthepressuresontheexternalcurrentaccountresultingfromtradeliberalization
andincreased imports ofequipment andintermediate goods inconnection withtheupgrading ofthe
domestic industry. Atthesame time, theauthorities expect strong gains inexport market share to
beachieved through (i)thereallocation ofresources towards areas ofcomparative advantage astrade
isfurther liberalized; (ii)rapid productivity gains inthetradables sector, asaresult ofstepped up
structural reforms; (iii)better market penetration inEurope through theharmonization ofnorms and
standards, thestrengthening oftransport andcommunications links, andbetter access forcertain
agricultural exports under theAssociation Agreement; and(iv)afaster absorption ofbestpractices
from abroad through expected higher inflows offoreign direct investment. Providing thatefforts
atfiscal consolidation aresignificantly strengthened tocontain thefiscal target for1996to2-3percent
ofGDP, andthatTunisia continues withprudent monetary andexchange ratepolicies, prospects for
1996arerelatively favourable. Growth should accelerate to7percent; theinflation rateshould decline
to5percent, andthedeficit oftheexternal current account should decline to4percent ofGDP.
Inconclusion, theFund commends theauthorities forthesustained implementation ofsound
demand management policies andstructural reforms. Thestaffagrees withtheauthorities 'approach
toaimathigher growth overthemedium termbyfostering amarket- based, open, andprivate sector
driven economy, while consolidating macroeconomic stability. Theauthorities inparticular needto
beready totakeappropriate action tomeetthefiscal target for1996, inorder tocontain thebalance
ofpayments pressures thathaveemerged, andtoachieve theirexternal targets. Thisstrategy should
contribute totherapid development ofthecountry, thestrengthening oftheexternal position, andthe
further integration ofTunisia 'sgoods, services, andfinancial markets intotheworld economy. The
Fund encourages theauthorities topromptly eliminate allremaining trade restrictions maintained for
balance ofpayments purposes.unrecorded domestic payment arrears totwopublic marketing boards
forfoodsubsidies itisestimated thatthebudget deficit for1995 reached 5.3percent ofGDP. ThisWT/BOP/R/14
Page10
weakening ofthebudget andthedrought 'simpact onfoodprices contributed topressures ontheexternal
accounts andapick-up ininflation to6.3percent in1995.
In1994, thecurrent account deficit, excluding grants, narrowed totheequivalent of2.9percent
ofGDP, from 7.7percent in1993. Thisreflected astrong growth ofnon-energy exports, and
exceptional factors including large shipments ofolive oilstocks andunexpected delays inimports of
investment goods. For1995, preliminary estimates point toawidening ofthecurrent account deficit
to3.7percent ofGDP. Thegrowth ofmanufacturing exports remained strong (9.5percent involume
terms), butoliveoilexports declined andenergy exports stagnated. Higher growth oftotalmerchandise
imports (6.3percent involume) wasmainly driven byhigher foodandconsumer goods imports.
Netexternal borrowing rosesignificantly during 1994-95, reflecting inparticular public borrowing
intheJapanese bond market (yen85billion), while foreign direct investment fellwiththewinding
down oftheGazoduc andMiskar projects. Theoverall balance ofpayments, aftertaking intoaccount
changes inthenetforeign assets ofthedeposit money banks, recorded asurplus ofabout US$500
million (3percent ofGDP) in1994 andasurplus ofabout US$130 million in1995 (0.7 percent of
GDP) in1995. Gross official reserves atend-1995 declined totheequivalent of2.7months ofimports,
andareestimated attheequivalent of2.1months ofimports atend-April 1996, inthemainreflecting
thecontinuedimpactofthedroughtoncerealimports,delaysintourismreceiptsandlowerthanexpected
external borrowing.
Anambitious agenda forTunisia 'sfurther integration intotheworld economy wassetwith
theconclusion inmid-1995 ofanAssociation Agreement withtheEU, involving inter aliathe
establishment offreetrade inindustrial goods overaperiod of12years andenhanced cooperation
invarious areas. Important progress continued tobemade toliberalize further theeconomy. The
share ofdomestic production protected byquantitative import restrictions wasreduced byabout 9
percentage points to8percent. Asinthepast, Tunisia introduced atemporary import surcharge
ofupto30percent oncertain liberalized items; these surcharges aretobephased outcompletely
by1998. Thepaceofprivatization anddivestiture accelerated withthesaleof20public enterprises,
mainly inthetransport andmanufacturing sectors. Equity shares intwoenterprises (including Tunis
Air)weresoldonthestock market. Some nonviable enterprises wereliquidated, andperformance
contracts made mandatory forallstateenterprises. Capital account regulations werefurther liberalized
in1995 byallowing foreign investors tobuywithout official authorization upto10percent ofthe
equity inTunisian enterprises quoted onthestock exchange, andupto30percent forotherenterprises.
Asafurther stepintheliberalization ofdomestic trade, in1995 distribution margins were
lifted onproducts accounting forabout 11percent ofdomestic absorption bringing theshare offully
liberalized retail prices toabout 81percent. Anewcompetition lawaiming ateliminating 11. In
theareaofstructural reforms, theauthorities intend toaccelerate privatization andcontinue toliberalize
theregulatory framework. Regarding trade liberalization, theyplantofurther reduce remaining
quantitative restrictions withtheentry intoeffect oftheAssociation Agreement. Finally, some import
duties maybeeliminated ahead oftheschedule under theAssociation Agreement, including from
non-EU sources, toavoid excessive increases ineffective protection.
Throughprudentmacroeconomicpoliciesratherthanrecoursetotradeorexchangerestrictions,
Tunisia intends tocontain thepressures ontheexternal current account resulting from trade
liberalization andincreased imports ofequipment andintermediate goods inconnection withthe
upgrading ofthedomestic industry. Atthesame time, theauthorities expect strong gains inexport
market share tobeachieved through (i)thereallocation ofresources towards areas ofcomparative
advantage astradeisfurther liberalized; (ii)rapid productivity gains inthetradables sector, asaresultWT/BOP/R/14
Page11
ofstepped upstructural reforms; (iii)better market penetration inEurope through theharmonization
ofnorms andstandards, thestrengthening oftransport andcommunications links, andbetter access
forcertain agricultural exports under theAssociation Agreement; and(iv)afaster absorption ofbest
practices from abroad through expected higher inflows offoreign direct investment.
Providing thatefforts atfiscal consolidation aresignificantly strengthened tocontain thefiscal deficit
for1996 to2-3percent ofGDP, andthatTunisia continues withprudent monetary andexchange
ratepolicies, prospects for1996 arerelatively favourable. Growth should accelerate to7percent;
theinflation rateshould decline to5percent, andthedeficit oftheexternal current account should
decline to4percent ofGDP.
Inconclusion, theFund commends theauthorities forthesustained implementation ofsound
demand management policies andstructural reforms. Thestaffagrees withtheauthorities 'approach
toaimathigher growth overthemedium term byfostering amarket- based, open, andprivate sector
driven economy, while consolidating macroeconomic stability. Theauthorities inparticular need
tobeready totakeappropriate action tomeetthefiscal target for1996, inorder tocontain thebalance
ofpayments pressures thathaveemerged, andtoachieve theirexternal targets. Thisstrategy should
contribute totherapid development ofthecountry, thestrengthening oftheexternal position, and
thefurther integration ofTunisia 'sgoods, services, andfinancial markets intotheworld economy.
TheFund encourages theauthorities topromptly eliminate allremaining traderestrictions maintained
forbalance ofpayments purposes.