Tunisia visiting IMF to propose wage and subsidy cuts

Documents lay out the proposal to slash the public sector wage bill and replace subsidies with direct cash support

Tunisian Prime Minister Hichem Mechichi speaks during an interview with Reuters in Tunis, Tunisia April 30, 2021. Reuters

Tunisia will cut its public sector wage bill and replace subsidies with direct support for the needy, according to a government reform proposal written to support talks with the International Monetary Fund and seen by Reuters.

The proposal, shown to Reuters by a government source, envisages eliminating all general subsidies by 2024 and cutting the wage bill to 15 per cent of GDP by 2022 from 17.4 per cent last year, partly through early retirement and reductions in working hours.

A Tunisian government delegation led by the finance minister is starting talks with the IMF this week and will seek $4 billion in loans, Prime Minister Hichem Mechichi told Reuters last week.

The IMF has previously called on Tunisia to enact economic reforms to reduce chronic fiscal deficits and a large public sector debt, including by cutting its wage bill, subsidies and transfers to state-owned companies.

Tunisia's anti-government demonstrations – in pictures 

Spending cuts are highly sensitive in the young democracy, where growing frustration over the economy and poor public services fuelled protests in January, and where powerful labour unions seek to protect workers' pay.

The reform proposal says the government aims to implement the changes in order to restore "economic equilibrium" and adds that it seeks to do so "without social costs".

The reforms are broadly in line with ideas laid out by Finance Minister Ali Kooli in an interview with Reuters in January.

The proposals to cut the wage bill specify encouraging voluntary redundancy on 25 per cent pay, early retirement packages and offering staff part-time work at 50 per cent of full pay.

The plan says it is "essential to rethink the pay system in consultation with social partners", a reference to the labour unions, particularly by establishing rules for salary increases and bonuses that reflect both inflation and performance.

Last week the biggest union, UGTT, which has more than a million members, called for new negotiations on public sector pay.

It signed a general agreement with the government last month on economic reform that was seen as a necessary precursor to talks with the IMF, which are expected to last several weeks.

The proposal to cut subsidies would involve first phasing out food subsidies and then gradually ending subsidies for electricity and petrol, the document showed.