World Economy

$2.8b IMF Bailout for Tunisia

$2.8b IMF Bailout for Tunisia$2.8b IMF Bailout for Tunisia

Tunisia sealed a $2.8 billion bailout from the International Monetary Fund, the emergency financing institution said late Friday, contingent on the North African nation speeding up promised economic overhauls.

The bailout, which still needs an official green light from the IMF executive board next month, will help the country fill a yawning budget gap and help reassure investors waiting for more economic stability and policy certainty from the Tunisian government, NewsNow reported.

A series of terror attacks and continuing political conflict has exacerbated economic struggles in Tunisia as it labors to be the new model of Arab democracy.

“We will stand with Tunisia to help Tunisia deal with its difficulties, difficulties related to its security, the development of growth and the increased unemployment,” IMF Managing Director Christine Lagarde said Thursday ahead of the deal.

Although the economy is expected to rebound from a 0.8% expansion last year, the IMF downgraded the outlook for 2016 and expects at least a 4% budget deficit.

“The fund-supported program focuses on boosting public investment, making the tax system more equitable and fair, and improving access to finance for small businesses,” Amine Mati, the IMF’s mission chief for Tunisia said.

“Near-term priorities include the approval of draft legislation aimed at strengthening central bank independence and banking sector stability” and completion of the restructuring of the three public sector banks, Mati said.

Tunisia’s revolution in 2011 ignited similar uprising across the region and spurred western hopes the small North African country would be a prototype for troubled nations in the region to follow. US and European nations poured aid into the country to buttress the economy, fearing instability and a weak economy could send the wrong message to other countries in the region.

With a first $1.7 billion IMF loan, the government in Tunis announced a series of economic overhauls meant to reduce government spending, tackle double-digit unemployment and pave the way for a more competitive economy that would attract international investment.

But political pressures and vested interests have made rolling out those programs difficult for the government. Strikes in 2014 hit the country’s phosphate sector, a major export, highlighting the challenges facing the fragile four-party government coalition.

The souring economic outlook is adding to the government’s political difficulties, making the next steps the IMF says are necessary to revive growth, such as broadening the tax base and reducing government pensions and wages, more difficult.