The IMF said it completed the first and second reviews of Tunisia's economic performance under the USD 1.74bn 24-month Stand-By Arrangement (SBA) with the country. The completion of the review enables an immediate disbursement of USD 506.7mn , bringing total disbursements up to USD 658.8mn . The IMF reckoned that Tunisia is going through a protracted political transition and is facing a challenging domestic and regional environment. The economy, however, has continued to grow, albeit at a moderate pace, inflationary pressures are contained, and the external position has stabilised, the IMF underscored. The recent approval of a new constitution and the appointment of a new government to oversee the upcoming elections "are important steps forward," the IMF said. Performance under the Fund-supported SBA programme has been mixed though. Lower external financing weighed on FX reserve targets and high liquidity needs led to a monetary target being missed, according to the IMF. The end-December primary deficit was lower than planned, "mostly because of under execution of the budget and deferred cash payments." Structural reforms have also been progressing, but at a slow pace, the IMF noted. "Fiscal consolidation for 2014 has been postponed to allow space for pro-growth spending, but remains essential to reduce vulnerabilities," the IMF underscored. The increase in electricity tariffs, coupled with measures to protect poor households, is a welcome note, the IMF said. Further cuts in energy subsidies and tight control of the wage bill will reportedly improve the fiscal position and strengthen budget composition. Revenue and public financial management reforms will also help in that regard, the IMF added. Additional efforts should be made to avoid under-spending on public investment and social programmes, which are crucial to promote growth. Monetary policy could be tightened further in case the inflation outlook and pressures on the exchange rate worsen, the IMF advised. The policy transmission mechanism will be enhanced by removing caps on bank lending rates. Greater exchange rate flexibility is also important to strengthen reserve buffers. The banking system vulnerabilities should be tackled decisively, the IMF said. Recent measures to improve financial reporting, strengthen banking supervision, and reform the governance of public banks are welcome, according to the IMF. A strategic vision for public banks, an asset management company, and a new bank resolution framework are also key priorities. The IMF's decision to transfer the much-needed cash will help shore up the central bank's FX reserves. The latter retreated to TND 11.6bn in 2013, covering 106 days of imports, compared to TND 12.6bn in 2012, covering 119 days of imports. As of January 28 , FX reserves fell to TND 11.23bn covering 102 days of imports, the central bank said earlier this week.
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