IMF dampens hopes of Tunisia: recovery revised down slightly

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“In Tunisia, the projected near-term recovery has been revised down slightly, as a result of continued uncertainty and weak tourism.” This is what emerges from a new report published by the International Monetary Fund (IMF).

The IMF report entitled: “Regional Outlook Reflecting Global Developments” IMF also points out that the activity of the various importing countries in the region varies considerably.

Growth will be particularly strong in Djibouti, where it will be mainly driven by externally financed infrastructure spending, and in Pakistan, where the establishment of the China-Pakistan economic corridor will boost investment.

In Jordan and Lebanon, on the other hand, growth will remain relatively moderate, as regional conflicts continue to have an impact on tourism, confidence and investment.

According to the same report, regional growth should be raised from 3.7% in 2016 to 4% in 2017 and 4.4% in 2018.

This recovery is partly due to the dissipation of idiosyncratic shocks in 2016 (drought in Morocco, poor cotton harvest in Pakistan).

More generally, this improvement is the result of past reforms, which reduced budget deficits and improved the business climate (in Morocco and Pakistan), and was fostered by increased public investment (Pakistan).

In addition, growth will be sustained by the global recovery, which is expected to boost demand in the region’s main export markets.

The IMF said it will be difficult to maintain the pace of fiscal consolidation.

In 2016, revenues were lower than expected in October 2016 due to lower tax collection (Morocco, Tunisia), delayed reforms (Tunisia) and weak growth (Jordan, Morocco, Tunisia).

“In addition, although the savings from low oil prices and reduced subsidies have allowed for increased spending on infrastructure, health care, education, and social services (Egypt, Morocco, Pakistan, Tunisia), it will be increasingly difficult to maintain this spending now that oil prices are expected to be higher.

There is, therefore, a need to push subsidy reforms through to completion (Egypt, Sudan, Tunisia) and to contain losses from state-owned enterprises—including through automatic tariff mechanisms for energy companies (Jordan, Lebanon, Tunisia).

More generally, a key priority for oil-importing countries is to generate higher revenues by broadening the existing tax base.

This will require measures to rationalize multiple value-added tax rates (Morocco, Tunisia), while simplifying the tax rate structure and eliminating exemptions (Djibouti, Egypt, Jordan, Lebanon, Morocco, Pakistan, Sudan, Tunisia). It will also require renewed efforts to strengthen tax administration (Afghanistan, Mauritania, Morocco, Pakistan, Somalia, Sudan, and Tunisia).

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