RESTRICTED
WORLD TRADE WT/BOP/S/2
30May1997
ORGANIZATION(97-2272)
Committee onBalance-of-Payments Restrictions
1997 RESUMED CONSULTATION WITH TUNISIA
Background Paper bytheSecretariat1
I. Recent changes intrade policy
1. Since theconsultations on10and11June1996, theGovernment ofTunisia hassubmitted the
listofproducts subject torestrictions forbalance-of-payments reasons (WT/BOP/N/10). Thislistcovers
motor vehicles which areapparently theonlyproducts stillsubject toquantitative restrictions; imports
ofmotor vehicles havenearly doubled between 1991 and1995. Provisional complementary duties
arebeing reduced to10percentwithaviewtoelimination bytheendof1997. Inaddition, foreign
investment hasbeenfurther liberalized allowing for49percentforeign equity inTunisian companies
without prior approval.
II. Macroeconomic developments
2. Since June1996, Tunisia 'sbalance ofpayments position hasimproved significantly, andofficial
reserves havereached amore healthy level. Themacroeconomic climate hasbeenstable withsolid
growth andmoderate inflation, despite fiscal andmonetary policies being somewhat moreexpansionary
thanenvisaged. Gradual butcontinued progress instructural reform including tradeliberalization has
helped toopentheeconomy andboost theprivate sector.
1. Output andprices
3. Output growth accelerated considerably in1996, marking theendofanextended period of
drought (Chart 1).After average annual growth oflessthan3percentinthe1993-95 period, real
growth ofGDP reached almost 7percentin1996. Most oftheacceleration ingrowth wasdueto
animproved agricultural situation, withagricultural output expanding byabout 30percentwhereas
themanufacturing sector onlygrew by3percent. Ontheexpenditure side, growth wasdriven by
investment and,toalesser extent, byconsumption; fixed capital formation increased by8percent
inrealterms.
4. Inflationary pressures were alsoreduced in1996. Thelargely drought-related acceleration
inconsumer prices from4toover6percentbetween 1993and1995wasreversed in1996. Following
agoodharvest, cutsinimport tariffs, andarelatively small increase inimport prices, therateofinflation
dropped tolessthan4percentin1996 (Chart 2).
1Thispaper updates WT/BOP/W/13 (20March 1996) prepared fortheconsultations on10and11June 1996.WT/BOP/S/2
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2. External sector developments
5. Tunisia ’sbalance ofpayments andreserve positions haveimproved markedly overthepast
year. Thecurrent account deficit declined between 1995 and1996 from 4.6to3.0percentofGDP
withboththetradebalance andtheservice balance improving (Table 1andChart 3).Netcapital inflows
remained stable, compared to1995; asmall decline innetloans andforeign direct investment was
compensated byanincrease inother (short term) capital inflows. Consequently, theoverall balance
alsoimproved, andofficial reserves increased from 2.7months ofimports in1995 to3.2months in
1996 (Chart 4).
Table 1
Tunisia -Balance ofPayments, 1992-1996
(SDRs million)
1992 1993 1994 1995Prel.
1996
Trade balance -1466 -1440 -1094 -1311 -1243
Exports 2850 2683 3243 3605 3801
Imports -4316 -4123 -4337 -4916 -5044
Netservices andtransfers 613 521 638 764 845
ofwhich:
Tourism 759 795 910 922 994
Workers remittances 410 428 480 496 551
Current account balance -854 -919 -457 -547 -398
Foreign direct investment (net) 404 390 308 194 163
Medium andlong-term loans (net) 98 239 404 363 324
Othera439 281 106 77 175
Capital account balance 941 910 818 635 662
OVERALL BALANCE 87 -8 361 88 264
Memorandum items
Export volume
(in%change overprevious year)-1.6 4.0 18.3 3.0 -2.4
Import volume
(in%change overprevious year)13.1 6.7 -1.1 6.3 -1.8
Terms oftrade
(in%change overprevious year)0.2 0.2 -3.0 1.2 3.4
Current account balance
(in%ofGDP)-7.9 -8.8 -4.2 -4.6 -3.0
Official reserves
(inmonths ofimports)1.8 1.9 2.8 2.7 3.2
External public debt
(in%ofGDP, endofperiod)51.9 55.0 55.5 55.0 52.0
Debt service (in%ofcurrent foreign exchange
receipts)20.2 20.4 18.6 18.4 18.9
a Includes capital grants, short-term capital changes inthenetforeign assets ofcommercial banks, anderrors andomissions.
Source: IMF.WT/BOP/S/2
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6. Tunisia ’sforeign debtsituation hasalsoimproved. Total debtdecreased from 55percent
ofGDPin1995to52.5percentin1996, mainly asaresult ofrapid economic growth. Thedebtservice
ratioisabout 19percentofcurrent foreign exchange receipts, slightly below theleveloftheearly
1990s.
3. Savings andinvestment
7. Since thesavings andinvestment balance isthemirror image ofthecurrent account balance,
changes insavings andinvestment provide animportant cluetounderstanding thechanges inthebalance
ofpayments. Since 1994, totalinvestment hasbeenstable atabout 25percentofGDP, withonefifth
ofthisshare coming fromtheCentral Government andfourfifths fromtheprivate sector andpublic
enterprises (Chart 5).In1996, theoverall savings andinvestment gapdeclined inparallel withthe
current account deficit asprivate savings posted astrong increase. Thisgaininprivate savings has
more thancompensated adecline inpublic savings inthepasttwoyears.
4. Trade developments
8. Trade growth slowed down markedly in1996, andexport andimport volumes evendeclined
by2.4and1.8percent, respectively (Table 1).Weak demand intheEuropean Union, asharp
contraction ofexports toAlgeria, andthedelayed impact ofthedrought onagricultural exports (olives)
explains therelatively weak export performance. Declining foodimports afterthegood agricultural
season andlower input demand intheexporting industries depressed import volumes. Nevertheless,
thetrade deficit declined in1996compared to1995because improvements intheterms oftrade moreWT/BOP/S/2
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thanoffset thedisparity between export andimport volume growth. Solid growth intourism receipts
andworker remittances, at8and11percentrespectively, raised thesurplus intheservices account
in1996 ascompared to1995.
9. Thedevelopments inthetrade composition show amarked trend towards theexport of
manufactured products inthefirsthalfofthe1990s. In1995, textiles andleather accounted forover
onehalfoftheexport value, andtheshare ofexports fromthemechanical andelectrical industry has
alsobeenincreasing steadily (Table 2).Theimpact ofthedrought anddeclining oilreserves explain
theshrinking export share ofagricultural products andenergy in1995. Ontheimport side,progress
intradeliberalization hasslowly raised theshare ofconsumer goods, andthelatter accounted formore
thanonethirdoftotalimports in1995. Thedrought-related increase infoodimports in1994and1995
wasreversed in1996 when agricultural output rebounded.
Table 2
Tunisia -Commodity composition ofmerchandise exports andimports
Memorandum item (Percent oftotal merchandise
exports andimports)
1992 1993 1994 1995 1996
(preliminary)
Exports, f.o.b.
Textiles andleather 43.2 47.2 47.6 50.3 51.1
Mechanical andelectrical industry 12.0 11.7 13.3 13.8 12.5
Phosphates andderivatives 13.9 12.5 12.7 13.0 14.2
Agricultural
(including agro-processing)10.4 11.6 13.0 9.9 7.5
Energy products 15.2 12.1 9.4 8.5 10.5
Other goods 5.5 4.9 4.0 4.9 4.2
Total 100 100 100 100 100
Imports, c.i.f.
Non-food consumer goods 29.5 30.6 34.4 33.2 34.6
Rawmaterials andsemi-finished goods 32.3 29.4 28.6 29.4 28.8
Equipment 24.5 25.3 21.8 19.6 20.2
Food 6.7 6.7 8.2 11.9 8.1
Energy products 7.0 7.3 7.1 6.8 8.3
Total 100 100 100 100 100
Source: IMF.
10. Thegeographical composition oftradehaschanged onlymarginally inrecent years. In1995,
about fourfifths ofexports weresoldintheEuropean Union, which makes itbyfarthemostimportant
trading partner ofTunisia (Chart 6).Over two-thirds ofimports alsocame from European Union
countries. Members oftheArab Maghreb Union bought about 7percentofTunisia ’sexports and
supplied about 5percentofTunisia 'simports. Asimilar share ofimports wasprovided byCanada
andtheUnited States buttheirimports from Tunisia were negligible.
5. TheUnderlying Policy StanceWT/BOP/S/2
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11. When looking forexplanatory factors, theimproved performance ofTunisia ’seconomy largely
reflectsthegovernment’sprudentmacroeconomicmanagementandasteadyprogressinstructuralreform
inrecent years. Prudent fiscal andmonetary policies, together withexchange ratepolicies oriented
atmaintaining astable realeffective exchange rate,havesecured astable macroeconomic environment.
Intheareaofstructural policies, trade andfinancial sector liberalization aswellasprivatization have
strengthened theroleofthemarket intheeconomy, andboosted private sector productivity. The
relatively highoverall savings andinvestment rates withaggregate savings ontherisereflect the
favourable policy developments.
12. According tothemostrecent information fromtheIMF, themonetary andfiscal policy stance
in1996 wassomewhat more relaxed thanenvisaged:
- In1996, thefiscal deficit wasstable atslightly lessthan5percentofGDP(Table 3).However,
thedelayed adjustment ofcereal prices andselected VAT ratesandthefailure toraiseenergy
taxesandprices boosted thedeficit byover2percentovertheoriginal budget target for1996,
andalsoreduced public savings. Furthermore, thegrowing reliance ondomestic non-bank
financingfromsocialsecuritysurplusesmaskssomewhatthefiscalpressureonmonetarypolicies
asdomestic bankfinancing remained negative andforeign financing declined.
- Monetary policies werealsosomewhat more expansionary thanpredicted asthecentral bank
assumed credit ofparastatal agencies fromthebanking sector tocover government arrears on
extra-budgetary food subsidies. Theselective relaxation ofreserve requirements further
contributed tomonetary expansion. Thecurrent inflation ratemayunderstate theunderlyingWT/BOP/S/2
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pressure onprices, asfaster money growth andadministrative price increases havenotyet
fullyaffected theoverall prices level.
Table 3
Tunisia -Summary ofCentral Government Budget, 1992-1996
(Percent ofGDP)
1992 1993 1994 1995 Prel.
1996
Revenue, excluding grants 29.5 30.3 31.4 30.1 29.9
Expenditure andnetlending 33.3 34.5 33.8 34.5 34.5
Current expenditure 25.9 26.8 26.6 27.3 27.5
Capital expenditure (excluding netlending) 6.6 6.9 6.2 6.5 6.7
Overall deficit (excluding grants) -3.9 -4.2 -2.4 -4.4 -4.7
Grants 0.5 0.4 0.4 0.3 0.3
Foreign financing 1.0 1.2 1.4 2.9 2.3
Domestic financing 2.4 2.6 0.6 1.2 2.1
Bank financing -1.2 -0.3 -0.5 -0.5 -0.5
Non-bank financing 3.6 3.0 1.1 1.7 2.6
Source: IMF.
13. Itremains tobeseenwhether these slippages willadversely affect themacroeconomy once
theirfulleffect isfelt.Itisalsonotyetclearwhether investors respond asexpected torecent structural
reforms; thedelayed implementation ofsome structural reforms in1996 haskeptprivate investment
below expected levels, particularly inmanufacturing.