Tunisia to increase austerity measures as it seeks to qualify for IMF support

Inflation is expected to reach 10.5 per cent in 2023

Workers at a bakery in the Tunisian capital, Tunis. The war between Russia and Ukraine, both wheat suppliers for Maghreb countries, has sent prices of flour and semolina soaring. All Photos: AFP

A staff member arranges baked goods at the bakery, which is not subsidised by the Tunisian state.

Flour prices have also risen as people stock up for the Muslim fasting month of Ramadan in April.

Tunisia imports almost half of the soft wheat used to make bread from Ukraine.

Authorities say the North African country has enough supplies to last three months.

Food prices were on the rise in North Africa even before Russia invaded Ukraine more than two weeks ago.

To keep prices affordable and avoid a repeat of bread riots that erupted in the 1980s, Tunisia subsidises staples like sugar, semolina and pasta.

For the past decade, Tunisia has set the price of a baguette loaf of bread at six US cents.

Some in the region fear the Russian invasion could lead to hunger and unrest, with memories of how rising food prices played a role in several Arab uprisings in the last decade.

The price of sugar, which is also important in the baking industry, has also surged in Tunisia.

A staff member serves customers at the bakery. Libya, Morocco and Algeria are also facing wheat price increases.

Tunisia has no alternative but to reach an agreement with the IMF to get out of its economic predicament, its Minister of Economy said on Monday.

The country faces a difficult year, with an inflation rate expected to reach 10.5 per cent, said Samir Saied.

“We are the ones running after the International Monetary Fund, not the other way around, and we need the reforms contained in the new Finance Law,” he said.

An agreement with the IMF would open the doors for Tunisia to obtain external loans to finance the 2023 budget.

The country’s budget does not contain any financial surplus that would help fill the void in case a crisis similar to that of Ukraine were to take place in the coming year, said Mr Saied.

“The only Plan B we have at the moment, instead of the IMF, is the private sector, as it is the only remaining locomotive that can create wealth [in Tunisia] at this point,” he said.

In October, Tunisia reached a staff-level agreement with the IMF for a new 48-month Extended Fund Facility worth about $1.9 billion to support the government's economic reform programme. The agreement will require approval from the IMF Executive Board.

Subsidies will not be lifted

Tunisia is undergoing a deep financial crisis that has resulted in a shortage of many essential goods in recent weeks, pushing the government to seek further austerity measures and controversial cuts in subsidies in order to qualify for the international lender’s support.

Minister of Commerce Fadhila Rabhi said subsidies on basic goods would not be lifted in 2023, but would be preserved, with direct financial transfers to those in greatest need.

Ms Rabhi said the revision of the country’s subsidies system would take place gradually over four years.

Tunisia is also seeking to find ways to support citizens’ reduced purchasing power through its new 2023 Finance Law, said Minister of Finance Sihem Boughdiri Nemsia.

Ms Boughdiri Nemsia said the new law laid out measures aimed at supporting the foundations of national solidarity among Tunisians by improving people's purchasing power and “reducing their tax burden” for 2023 to 2025.

A reduction in citizens' social and solidarity contribution, from 1 per cent to 0.5 per cent, will be applied to the net annual income subject to tax, Ms Boughdiri Nemsia said.

Those whose net annual income does not exceed 5,000 Tunisian dinars ($1594.64) will continue to benefit from an amnesty from social solidarity participation taxes.

Ms Boughdiri Nemsia said it would not be easy to prepare the Finance Law for the year 2023 as the government faced constraints to maintain the state’s financial obligations.

“The law seeks to maintain balances, especially since the state has to meet its internal commitments of providing all the requirements for the citizen, wages and public investment,” she said.