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Tunisia, IMF Disagree Over Automatic Fuel Adjustment

Tunisia, IMF Disagree Over Automatic Fuel Adjustment

Saturday, 10 August, 2019 - 08:00
Tunisian motorists line up at a gas station in Tunis, Tunisia (File Photo: AFP)
Tunis- Al Mongi Al Saidani
Tunisia’s Reform Minister Tawfiq al-Rajhi revealed that the government and International Monetary Fund (IMF) have disagreed over automatic fuel adjustment every three months.

It seems that the stability of oil prices, for most of the past period, at around $75 a barrel is behind the position of the Tunisian authorities. It is also evident that this decision supports the electoral goals of most political parties who fear people will be angered, especially after the repeated increases in fuel prices.

Recently, the government violated IMF recommendations and agreed to raise public sector wages as a result of pressure from local trade unions.

During this period, the government has also been working to overcome the automatic adjustment in fuel prices.

IMF mission will visit Tunisia in September for a sixth review, where they will discuss with authorities several controversies, including promises to increase salaries and wages reaching more than 14 percent of the GDP.

This could affect the approval of IMF and other international funding institutions to grant Tunisia a range of loans to finance the country's budget and implement urgent government projects.

The government and IMF agree that economic growth in the current year will not exceed 1.9 percent, however, this rate will create several problems during the negotiation sessions on the remaining installments of the $2.9 billion financial loan from 2016 to 2020.

The IMF insists on the need to apply automatic price adjustment every three months to reduce the budget deficit and increase the annual economic growth, while the Tunisian government believes that the situation is not suitable for such a move.

The Fund expects the price of a barrel this year to be around $70, while the Tunisian authorities believe it will be lower.

It is likely that the Tunisian government’s proactive assumption of $75 per barrel hampered the implementation of this agreement.

It is noteworthy that the Tunisian government built the price hypothesis in 2018 on the base of $54 a barrel, which complicated its economic situation. The government was forced to adopt a supplementary financial law as a result of the gap between the hypothesis and the actual prices in the international market.

In its recent mission statement, IMF noted that strong monetary and fiscal policy implementation during the first half of 2019 helped “reduce inflation to 6.8 percent in June from a peak of 7.7 percent a year earlier, lower refinancing as of end-June and laid the foundation for a second year of fiscal deficit reduction.”

The report also noted that meeting the budget deficit target of 3.9 percent of GDP for 2019 is “critical to slow down the accumulation of public debt that reached 77 percent of GDP at the end of 2018.”

It is noteworthy that the Tunisian Ministry of Industry and Small and Medium Enterprises revealed it will cover 48 percent of the domestic production of Tunisia's energy needs only.

This exacerbated the energy deficit between 2017 and 2018, and doubled the amount of financial support directed to this vital sector, and thus increase the deficit.

Last year, domestic oil production not exceed the rate of 40,000 barrels per day, compared with 85,000 in 2010, which exacerbated the energy deficit to an estimated 7 percent compared with 2017.

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