Major “exogenous and endogenous shocks” have posed significant challenges to Tunisia's economy amid protracted political transition and security turmoil that have dented confidence and thus economic growth, the IMF said in statement following a visit to Tunisia.  The visit came at the request of the Tunisian authorities in the context of the first and second reviews of Tunisia’s economic and reform program supported by the IMF’s USD 1.78bn 24-month stand-by arrangement.

The IMF warned that Tunisia’s instability has led to slower GDP growth, delayed reform implementation, and investors’ prolonged wait-and-see attitude.

In 2013, Tunisia’s economic recovery was lower-than-expected with a real full-year growth rate now estimated at 2.7% driven by public and private services, the IMF said. The CPI inflation will ease to 5.5% at end-2013 on lower food prices and a cautious monetary policy, the IMF forecasts. But the current account deficit continues to rise and will reach around 8.2% of GDP in 2013, reflecting the low level of tourism income coupled with weak external demand for Tunisian goods.

The budget deficit (on a cash basis, excluding grants and privatization proceeds) will likely widen to 8.8% of GDP in 2013, the IMF said. The budget parameters were constrained by higher subsidies, higher-than-projected arrears payments, as well as additional spending corresponding to the 2012 budget but paid for in 2013 during the complementary period, the IMF noted.

“Short-term risks to the outlook are important and to the downside. To address the main challenges facing Tunisia, immediate and urgent efforts are required to control budget and external deficits, reduce banking sector vulnerabilities, and generate more rapid and inclusive growth that can absorb unemployment while reducing social and economic disparities,” the IMF underscored.

In order to preserve macroeconomic stability, Tunisia should shift toward greater fiscal consolidation—while keeping priority social spending and growth-generating public investment—in addition to the pursuit of a more “restrictive monetary policy and a more flexible exchange rate policy,” the IMF said

The government should also speed up the implementation of the reform program to generate more a rapid and inclusive growth. The program includes the reform of the banking sector, the introduction of new procurement procedures, the new investment code, and a household support program for the underprivileged, the IMF noted.

The IMF also underscored its full commitment to support Tunisia through financing, economic and financial policy advice, and technical assistance.