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Tunisia Interim Country Strategy Paper 2014 - 2015

This strategy interim was prepared between June and September 2013. The interim strategy was approved by the Board of the African Development Bank Group on March 5, 2014.

Tu n i s i a : I n t e r i m C o u n t r y S t r a t e g y P a p e r - 2 0 1 4 - 2 0 1 5

Country Strategy Paper Drafting Team

Design Team:

K. LUMBILA, Senior Economist, OSGE1

V. CASTEL, Chief Country Economist, ORNA

L. BOURKANE, Economist, OSHD.2

K. ABDERRAHIM-BEN SALAH, Economist, ORNA

L. DADE, Regional Financial Management Coordinator,

P. TRAPE, Principal Country Economist, ORNA

ORPF.2

M. CHAUVIN, Economist, ORNA

L. LANNES, Principal Health Economist, OSHD3 M.DAMAK, Principal Credit Risk Officer, FFMA2

Team Members:

M. GUEYE, Principal Education Economist, OSHD.2

A. B. DIALLO, Chief Energy Engineer, ONEC1

M. OULD TOLBA, Chief Agronomist, OSAN1

A. KESSAB, Governance Expert, OSGE1

S. DAH, Procurement Expert, ORPF1

A. YAHIAOUI, Chief ICT Expert, ICT4D

S. OMAR ELMI, ICT Expert, ICT4D

A. CHOUCHANE, Chief Research Economist, EDRE1

T. MOURGUES, Consultant, OPSM0

B. BEN SASSI, Principal Water and Sanitation Officer,

W. DAKPO, Regional Procurement Coordinator, ORPF1

OWAS C. AMBERT, Senior Strategy Officer, OPSM.0

Regional Director:

C. MOLLINEDO-TRUJILLO, Chief Strategist, STRG

Jacob KOLSTER, Director, ORNA

F. BOUGAIRE, Principal Water and Sanitation Engineer, AWF

Peer Review:

H. CHAHBANI, Principal Infrastructure Expert, ONRI1

K. MHIRSI, Chief Investment Officer, Mauritius Country

I. HAFSA, Assistant Statistician, ESTA

Office

J. BANDIAKY, Senior Macro-economist, OSGE1

M. NDONG NTAH, Chief Country Economist, ORNB

J. MURARA, Chief Socio-economist, OSHD1

H. SAMER, Division Manager, OPEV2

K. HASSAMAL, Strategy Analyst, STRG

S. LARBI, Senior Investment Officer, OPSM3

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Table of Contents 11

Introduction

Country Context and Prospects 2.1

Context A. B. C. D.

2.2

Political Situation Economic Context Social Situation Environment and Climate Change

Strategic Options A. Country Strategic Framework B. Challenges and Weaknesses C. Strengths and Opportunities

2.3

AID Coordination/Harmonization and AfDB Positioning in the Country

III

3.1 3.2 3.3 3.4 3.5

34 40 41 43 44 45 45 45

Bank Group Strategy

Rationale for Bank Groupâ&#x20AC;&#x2122;s Involvement Expected Outcomes and Targets Risks and Mitigative Measures Implementation Arrangements Country Dialogue Issues

Conclusions and Recommendation 4.1 4.2

Conclusions Recommendation

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List of Annexes 1.

Endnotes

Results-Based Logical Framework – Tunisia’s CSP 2014-2015

I-CSP 2012-2013 Completion Report and Portfolio Performance Review (2013)

Tunisia’s Portfolio (UA) (September 2013)

Trends in Tunisia’s Sovereign Ratings

IMF: USD 1.74 Billion Standby Arrangement

Simulation in Terms of Loans

Poverty and Unemployment in the Regions

List of Economic and Sector Studies on Tunisia Carried out Since 2011

10.

Status of Implementation of AfDB Budget Support Measures in 2011 and 2012

11.

Civil Society Involvement in Strategy Preparation

12.

Public Finance and Procurement Management Systems: Bank’s Risks and Fiduciary Strategy

12.

Medium- and Long-Term Debt Sustainability Analysis

List of Figures 1.

Contribution to the Growth of Key Sectors of the Economy

Macro-Economic Indicators

Distribution of FDI Flows by Sector (2012)

Governance Index 2012 – Tunisia’s Scores Compared to Africa

Freedom of Expression and Accountability and Corruption Perceptions Indices

Business Environment: Comparative Ranking with 183 Countries

Business Climate: Competitiveness Survey 2012 Results

Overall Factor Productivity Growth

GCI 2011-2012 Ranking

10.

Tunisia’s Main Trading Partners

11.

Main Destinations of Tunisian Exports and Complementarities

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12.

Poverty, Inequality and Polarization in 2005 and 2010

13.

Trends in the Overall Unemployment Rate Among University Graduates and Women

14.

Trends in the Sophistication Index of Exports of Tunisia and Some ASIAN Countries

15.

Indices of Regional Disparities in Terms of Wealth, Health and Education

16.

Per Capita Investment in TND for the 1987-2010 Period

17.

Rate of Youth Unemployment (Aged 18-30 years) by Type of Certificate (2010)

18.

Share of Textile, Mechanical and Electronic Products in the Export Basket

List of Tables 1.

key Partnersâ&#x20AC;&#x2122; Active Portfolios by Sector (2013 - in USD Million)

Alignment with CSP-1 Analysis, Intervention Pillars and the Strategic Framework

Loan Scenarios

List of Boxes 1.

Innovations in the Approach Adopted

Choice of the I-CSP Tool

Currency Equivalents - January 2014 CURRENCY UNIT = DINAR (TND) UA 1 = TND 2.55 UA 1 = USD 1.54 UA 1 = EUR 1.12 FISCAL YEAR 1 JANUARY - 31 DECEMBER

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Acronyms and Abbreviations

AFD

French Development Agency

AfDB

African Development Bank

AMU

Arab Maghreb Union

ANC

National Constituent Assembly

AWF

African Water Facility

Billion

BCT

Central Bank of Tunisia

CEDAW

Convention on the Elimination of All Forms of Discrimination Against Women

CPR

Congress for the Republic

CSP

Country Strategy Paper

I-CSP

Interim Country Strategy Paper

DAC

Development Assistance Committee

EBRD

European Bank for Reconstruction and Development

EIB

European Investment Bank

European Union

EUD

European Union Delegation

FDI

Foreign Direct Investment

FIPA

Foreign Investment Promotion Agency

GAFTZ

Greater Arab Free Trade Zone

GDP

Gross Domestic Product

HDI

Human Development Index

ICTs

Information and Communication Technologies

IFI

International Financial Institution

IMF

International Monetary Fund

INS

National Institute of Statistics

ITCEQ

Tunisian Institute for Competitiveness and Quantitative Studies

JBIC

Japan Bank for International Cooperation

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KfW

Kreditanstaltf端rWiederaufbau

KTOE

Kiloton Oil Equivalent

MDCI

Ministry of Development and International Cooperation

MENA

Middle East and North Africa

MIC

Middle-Income Country

MIC-TAF

Middle Income Countries Technical Assistance Fund

NPLs

Non-Performing Loans

OECD

Organization for Economic Cooperation and Development

OFID

OPEC Fund for International Development

OPSCOM

Operations Committee

PDAI

Integrated Agricultural Development Programme

PISA

Programme for International Student Assessment

PISEAU

Water Sector Investment Project

PPP

Public-Private Partnership

SME

Small- and Medium-size Enterprise

TND

Tunisian Dinar

TNDB

Billion Tunisian Dinars

TNDM

Million Tunisian Dinars

Bank Group Unit of Account

UAB

Billion Units of Account

UAM

Million Units of Account

UNCTAD

United Nations Conference on Trade and Development

USD

United States Dollar

WAEMU

West African Economic and Monetary Union

World Bank

WEF

World Economic Forum

WGI

World Governance Indicators

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Executive Summary

The previous Interim Country Strategy

stable in the sub-region and the forthcoming

Paper (I-CSP) was approved by the Bank’s

elections scheduled for end of 2014 could

Board of Directors on 27 February 2012.

establish a renewed virtuous circle.

In view of political, economic and social uncertainties in the wake of the Revolution,

the Bank opted for a two-year (2012-2013)

the Tunisian economy has been affected by

I-CSP. Two priority focus areas for the Bank

social movements, political developments

were adopted in agreement with Tunisian

and the fragile global economic context.

authorities after broad consultations with civil

However, the relative resilience of the economy

society and the private sector, namely: (i)

to the two shocks of the 2011 Revolution and

Growth and Economic Transformation and

the Euro zone crisis tends to prove that despite

(ii) Inclusion and Reduction of Regional

economic uncertainties, Tunisia’s economic

Disparities.

fundamentals are still good. After a GDP

Economic Context: After the Revolution,

contraction of 1.9% in 2011, the Tunisian 2.

Political Context: In January 2014 the

economy recorded a 3.3% growth rate in

adoption of the new constitution ended the

2012. This rate is estimated to 2.6% in 2013

Tunisian political crisis that lasted more than

(BCT estimate).

6 months. Indeed the national consensus signed by the main political parties in October

2013 to end the political crisis resulted in

of transition, the authorities have opted for a

the appointment of new Prime Minister in

flexible strategy aimed at appeasing social

December, and the announcement of his

and economic demands while preparing

government in January 2014, following the

necessary structural reforms. The I-CSP is

adoption of the new Constitution. These two

based on Government’s guidelines which

major political events have ended the lack of

were presented in March 2013. This vision

political visibility affecting donors’ intervention

provides for a series of medium- and long-

and impeding economic recovery. The transition

term structural reforms and investments

process in Tunisia remains one of the most

aimed at creating conditions for accelerated

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growth and job creation to ensure regional

period on two pillars, namely “governance”

balance and inclusive development.

and “infrastructure” - in line with the Bank’s Ten-Year Strategy. Furthermore, in a context

Identification of Bank Group Operations:

of transition, support within the framework of

the operations were identified on the basis

the pillars will be provided with a dual temporal

of the recommendations contained in the

objective of carrying out (i) short-term actions

I-CSP 2012-2013 completion report and the

to ensure rapid achievements and (ii) medium-

discussions held with the Government and

/long-term actions to lay the foundations for a

development partners during missions fielded

new more inclusive and higher value-added

in June and September 2013. Besides bilateral

development model.

meetings, a workshop was organized with civil society in September 2013 to examine

the Government’s strategy. The document was

challenges on the Bank’s financing, special

discussed with the new authorities in 2014.

emphasis will be laid on technical assistance.

Instruments and Risks: in view of

Trends in risk assessment at the regional 6.

Intervention Pillars: the I-CSP prioritizes

and national levels will influence the level

the principles of alignment with Government’s

and type of Bank operation (technical

priorities, particularly the creation of (higher

assistance, investment projects or budget

value added) jobs and the reduction of regional

support). In this respect, three scenarios

disparities and to that end, it seeks to support

have been developed to introduce various

actions to develop an inclusive private sector.

possible levels of commitment. Furthermore,

The CSP is a continuation of the previous

in terms of loans, priority will be given to

I-CSP 2012-2013; however, it seeks to refocus

the “infrastructure” pillar in the “low” and

the Bank’s operation for the 2014-2015

“average” scenarios.

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Introduction

1.1 Tunisia is a founding member of the

1.4 Social movements, particularly in

Bank and its second historic beneficiary.

disadvantaged regions, have continued,

The Bank’s portfolio in Tunisia, which is the

bringing to the fore issues related to (qualitative

institution’s second largest portfolio, comprises

and quantitative) employment, the situation

16 operations and 24 technical assistance

of youths, regional disparities and poverty.

operations amounting to UA 1.3 billion.

In addition, the crises in Europe and Libya

Furthermore, the Bank contributed UA 659

profoundly affected economic recovery,

million to the State budget in 2011 and 2012.

already weakened by the Revolution.

1.2 The previous Interim Country Strategy

1.5 The lack of political visibility during

Paper (I-CSP) was approved by the

the period 2012-2013 also contributed to

Bank’s Board of Directors on 27 February

slowing down economic recovery. Besides

2012. In view of political, economic and

the unrest that took place between February

social uncertainties following the Revolution,

and July 2013, political uncertainty stemmed

the Bank opted for a two-year (2012-2013)

from delays in drafting the new Constitution

I-CSP. Two priority areas for Bank intervention

and holding new elections.

were adopted in agreement with Tunisian authorities after broad consultations with civil

1.6 Nevertheless, the authorities have

society and the private sector, namely: (i)

maintained, at the same time, a dialogue

Growth and Economic Transformation and (ii)

with key development partners on reforms

Inclusion and Reduction of Regional Disparities.

and investments, even without a 5 years development plan.

1.3 Since the approval of the 2012-2013 I-CSP, Tunisia’s transition has been cha-

1.7 The authorities are striving to remove

racterized by a decline in political visibility

such uncertainties and the adoption of the

and growing economic uncertainty.

Constitution in January 2014 is a major

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step in this regard. In fact, all partners and observers think that the transition in Tunisia remains one of the most advanced and most promising in the region. 1.8 In this context, the authorities requested the Bank to formulate a new interim strategy for the 2014-2015 period. The aspects of this strategy were identified through consultation with the authorities, development partners, civil society and the private sector. 1.9

The period covered by this I-CSP will

be aligned with the national agenda. During this period, political events will be

Box 1: Innovations in the Approach Adopted 1. A commitment level that can be adjusted in the light of risks in order to mobilize maximum resources. 2. Strong portfolio implementation support through the establishment of an internal coordination entity (Baobab) and the provision of technical support to accelerate procurement. 3. Strong mobilization of technical assistance resources and advisory capacities to support transition and develop the future portfolio. 4. Refocusing activities on (i) support to enhance the business climate and (ii) improvement of public service delivery and access to employment in disadvantaged regions.

organized and a new development plan 5. Strong mobilization of partners and the private sector in all operations for leverage effect.

designed. 1.10 Though the I-CSP is a continuation of the previous interim strategy, it takes

6. Support in designing the new development plan, where appropriate.

into account lessons learned by the Bank regarding its commitment during the transition period initiated in 2011 and the findings of many studies carried out.

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7. The logical framework of designed projects should include indicators for monitoring the achievement of the Bankâ&#x20AC;&#x2122;s 2013-2022 Strategy objectives.

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II.

Country Context and Prospects

2.1 Political, economic and social context

formed a government in December 2011 headed by the Secretary-General of Ennahda. The office of President of the Republic is held

A. Political Situation

by the CPR Chairman and the Chairman of Ettakatol is the ANC President.

2.1.1 After exercising power for over 23 years, President Ben Ali went into exile on

2.1.4 However, the unrest that occurred

14 January 2011 following one month of

between end-2012 and November 20131

protests. Pressure exerted by demonstrators

influenced the political process in 2012-

and civil society led to the setting up of three

2013. In March 2013, tensions led to the

successive transitional governments (from

formation of a new government. Independent

January to December 2011) to manage the

personalities were appointed at the helm of

countryâ&#x20AC;&#x2122;s economy and prepare free and

four key ministries2 to meet the expectations

transparent Constituent Assembly elections.

of opposition parties. Security has become a central issue and many actions have been

2.1.2 The October 2011 Constituent

carried out to restore confidence.

Assembly elections, though delayed, were conducted in accordance with the electoral

2.1.5 In January 2014, the adoption of the

process in place. To form a stable majority,

new constitution and the announcement

the Islamic Party, Ennahdha, which obtained

of a new government ended the Tunisian

41.7% of the vote, formed a coalition with

political crisis that lasted more than 6 months.

the centre-left Party, CPR, and the Social

Indeed, the national consensus signed by the

Democratic Party, Ettakatol. The initial aim

main political parties in October 2013 resulted

was to draft a new Constitution in one year.

in the appointment of a new Prime Minister in December, and the announcement of his

2.1.3 The Troika, which won 63.6% of

government in January 2014, the day following

seats in the National Constituent Assembly,

the adoption of the new Constitution.

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2.1.6 These two political events have

objectives of the reforms included in the

considerably lessened uncertainty and

9th (1997-2001), 10th (2002-2006) and 11th

lack of political visibility which had affected

(2007-2011) Plans were to increase growth

donorsâ&#x20AC;&#x2122; intervention, and impeded economic

from 4.8% to 6.1% and to reduce the unem-

recovery. Following the vote of confidence

ployment rate from 14.2% to 13.4% by 2011.

for the new government, the Tunisian Stock

During this period, the country experienced

Exchange closed on a positive note, the dinar

moderate, but steady, growth of 4.9% annually,

appreciated against the Euro and the U.S.

raising GDP (PPA) per capita to a little over

Dollar, and the IMF announced a disbursement

USD 4 200, despite the shock of the 2008

of $ 500 million of its support program.

financial crisis. This growth contributed to reducing poverty in rural and urban areas4

2.1.7 In addition, the transition process in

and improving health and education indicators.

Tunisia remains one of the most stable in

Despite the global economic crisis, downswing

the region. The announcement of a new

effects and the Recovery Plan helped to

government of technocrats and independents

implement a counter-cyclical policy without

as well as the holding of the forthcoming

worsening the budget deficit (less than 3% in

elections scheduled for October 2014 could

2009). However, despite the good perfor-

husher a new positive impetus.

mance recorded, the set objectives in terms of employment, social equality and regional

B. Economic Context

development were not achieved.

2.1.8 Tunisia has for long been considered

Macro-economic Developments

as an economic success story in the region. Since independence, the Tunisian economy

2.1.10 After the Revolution, the Tunisian

has undergone profound restructuring.

economy has been affected by social

Its domestic production, which was initially

movements, political developments and

dominated by agriculture and raw materials

the fragile global economic context.

(phosphate, oil and gas), is directed towards

However, the economy was resilient to the

services and, to a lesser extent, the manu-

two shocks of the 2011 Revolution and the

facturing industry.

Euro zone crisis, indicating that Tunisiaâ&#x20AC;&#x2122;s economic fundamentals are still good, despite

2.1.9 The decade preceding the Revolution

economic uncertainties. The impact of

was a period of transition for the Tunisian

the European crisis on the key sectors of

economy plagued by many challenges. The

manufacturing and textile industries (-8%) and

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Figure 2: Macro economics (AfDB)

mechanical and electrical industries (-2%) was offset by a strong rebound in refining (+142.8%), chemical (+15.9%), agricultural (+5.7%) and hotel and catering (12%) activities (Fig. 1). FDIs which increased by almost 80% compared to 2011 (thanks particularly to the privatization of two seized assets), the vitality of domestic demand and tradable (transport and hotel and catering) services were the main drivers of growth in 2012.

Figure 1: Contribution to the Growth of Key Sectors of the Economy (MDCI)

2.1.13 The increase in public consumption expenditure was relatively significant, thus accelerating the deterioration of the

20.0

budget deficit. In particular, grants expenditure 10.0

increased sharply due to rising food and

0.0 2008

2009

2010

2011

2012

-10.0

the dinar6. Furthermore, the increase in civil

Chemical Hotel and catering

-20.0

servantsâ&#x20AC;&#x2122; salaries and the recruitment of new

Transportation -30.0

oil prices, coupled with the depreciation of

workers raised the public wage bill significantly

Textile, clothing and leather Mechanical and electrical

in 2013 (+40% compared to 2010). However,

-40.0

this expenditure which has stimulated overall demand partly explains the rapid cushioning 2.1.11 In fact, after recording a negative

of the shock caused by the January 2011

growth (-1.9%) in 2011, the Tunisian economy

Revolution. It should be noted that interest on

experienced an upswing in 2012 with a

debt rose by 6.9% in 2012 and 4.9% in 2013.

3.3% growth rate which is expected to be between 2.6% 3% in 2013 (Fig.2).

2.2.1.14 Regarding investments, budget execution in 2012 and 2013 was less

2.1.12 The budget deficit rose from 3.4%

expansionary than envisaged. Development

of GDP in 2011 to 4.9% in 2012 and is

expenditure included in the Supplementary

expected to stand at 6.5% in 2013. Tax and

Finance Law increased by 18.7% in 2012.

non-tax revenues increased moderately in

However, constraints on implementation

2012.

capacity at the regional level and on procu-

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rement led to a budget execution rate of

2.1.17 The Central Bank of Tunisia (BCT)

74.4% in 2012.

has continued to implement a flexible monetary policy to support the revival

2.1.15 In 2014, debt will remain sustainable7,

policy. The structural liquidity deficit which

provided the budget deficit is reduced and

characterized the cash position of banks in

growth is revived (Annex 13). According to

2011 continued in 2012, necessitating greater

the standards of rating agencies and interna-

BCT intervention on the money market

tional institutions, the debt/GDP ratio of mid-

through the injection of about TND 5 billion

dle-income countries like Tunisia must not

during the first 10 months of 2012. Total

exceed 50%. The country’s public debt/GDP

deposits decrease by 7.8 in 2013 compared

ratio dropped from 44.6% in 2011 to 43.8%

to 10.7% in 2012 (5.1% in 2011), while

in 2012 and is expected to stand at 46.8% in

lending to the economy increased by only

2013. Sixty-three percent of public debt is

8.7%, as against 13.4% in 2011.

held abroad for a seven-year average repayment period and a low average annual cost of

2.1.18 Increasing inflationary pressures

about 3.5%, excluding the repayment of the

prompted the BCT to gradually tighten its

principal before 2017. The budget deficit is

monetary policy and implement a neutral

expected to fall to 4.3% in 2015.

intervention strategy in line with changes in autonomous bank liquidity factors. In fact, on

2.1.16

However, the State’s financing

average, inflation stood at 6.4% in 2013 as

needs are huge and estimated at USD

against 5.4% in 2012 and 3.5 % in 2011 due

3.9 billion in 2013 (8.5% of GDP) and USD

mainly to8 : (a) rising world market prices of

4.3 billion in 2014. Following development

some imported products; (b) the depreciation

partners’ interventions of, Tunisia has mana-

of the dinar (from 0.52 dinars for TDN

ged to bridge the financing gap in 2013.

1.90/EUR 1 on 1/12/10) to TDN 2.22/EUR 1

Negotiations with the IMF on a precautionary

on 10/10/13); (c) increase in the wage bill; (d)

standby arrangement led to the approval –

weakening price control, dysfunction of

on 7 June 2013 - by the IMF Executive Board

distribution networks and the smuggling of

of a USD 1.7 billion programme for the 2013-

some products into neighbouring countries

2015 period at a 1.07% interest rate (Annex

(Libya).

6) which is subject to the implementation of reforms to restore macro-economic

2.1.19 The current account deficit rose

stability.

from 7.3% of GDP in 2011 to about 8.2%

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Figure 3: Distribution of FDI Flows by Sector, 2012 (IFAP)

in 2012 and 8.3% in 2013, despite an increase in revenue accruing from tourism and remittances from Tunisian workers of the exchange rate (12% against the Euro

Miscellaneous industries

1% 1% 5%

abroad (34% and 22%) and the depreciation

8% 40%

Agro-food 4% 2%

in 20139 and 16% since 2010).

Building materials Mechanical-Electrical-Electronic Chemical, Rubber and Plastic Textile, Clothing, Leather and Footwear

2.1.20 Hence, foreign exchange reserves,

Energy 36%

though substantial, declined in 2013. The

Tourism and Real Estate Services and others

agreement for the deposit of USD 500 million into the BCT by the National Bank of Qatar at end-December 2013 helped to stabilize the reserves at USD 7.1 billion,

Gouvernance

representing 107 import days. Likewise, foreign exchange reserves attained their

2.1.22 Before the Revolution, poor public

2010 level in 2012 (USD 8.5 billion) following

and private sector governance impeded

an increase in FDIs (Fig. 3) sustained parti-

civil society participation in the running of

cularly by the sale of ill-gotten property,

the country and also hampered private

bilateral and multilateral loans and access to

sector development11. It is said that poor

financial markets (with the U.S. Treasury and

governance cost the Tunisian economy two

JBIC guarantee).

growth points. In 2012, however, governance indicators continued to portray Tunisia as the

2.1.21 Tunisia’s sovereign rating was revised

most advanced country in Africa in terms of

downwards in this context marked by the

HDI and sustainable economic development.

relative deterioration of macro-economic

In contrasts, regarding the rule of law, Tunisia’s

balances. Since 2011, Standard & Poor’s

score remained very close to the average of

has progressively reduced Tunisia’s sovereign

African countries in 2012 (Fig. 4). Supplementary

rating by six notches from BBB to B in August

and sustained efforts should be made to restore

2013 (Annex 5). This has reduced Tunisia’s

the confidence of entrepreneurs and investors,

sources of financing and increased their cost

particularly in the judicial system.

at a time of growing needs. However, Tunisia has never defaulted on its financial commitments

2.1.23 During the post-Revolution period,

to the Bank or other donors and such scenario

the

is unlikely in the short- and medium-term

initiatives to improve transparency and

(Annex 13).

good governance. This resulted in the

i c a n

D e v e l o p

authorities

m e n

implemented

a n

several

Tu n i s i a : I n t e r i m C o u n t r y S t r a t e g y P a p e r - 2 0 1 4 - 2 0 1 5

creation of a Ministry in charge of Gover-

ensures greater efficiency in resource mana-

nance in 2012. An action plan was prepared

gement. These achievements, whose impact

following the conduct of a governance

is still to be assessed, should be strengthened

evaluation and a diagnosis of the extent of

by putting in place a robust legal framework.

corruption in Tunisia. This led to (i) the lifting of reservations allowing the entry into force of

2.1.25 Measures have also been taken to

the United Nations Convention against

improve Governmentâ&#x20AC;&#x2122;s accountability to

Corruption, 2003 and (ii) the revitalization of

control institutions13. The Audit Office also

the Independent National Anti-corruption

plans to reform its internal structures in order

Authority in April 2012. In 2013, the Government

to adapt the organization of its services,

also carried out the OECD integrity scan

particularly the pole centred around the

which constitutes an important milestone.

General Secretariat, and its operation to good governance requirements. This structural reform

Figure 4: Governance Index 2012: Tunisiaâ&#x20AC;&#x2122;s Score, Compared to Africa (AfDB)

will therefore include the modernization of tools placed at the disposal of magistrates through the development of computerized auditing and the use of computerized audit

47.3

Sustainable economic development

68.6

techniques on the one hand, and the esta-

53.3

Security and Rule of Law

blishment of an information system adapted to

54.1

the needs of the Audit Office on the otherhand.

56.7

Human Development Index (HDI)

81.7 51.2

Governance Index (Mo Ibrahim Index)

62.7 Africa

Tunisia

10 20 30 40 50 60 70 80 90

2.1.26 Corruption remains the centre of attention. According to Transparency International, Tunisiaâ&#x20AC;&#x2122;s corruption perceptions index declined in 2011 and 2012 compared

2.1.24 Tunisia has also made substantial progress

in establishing a legal and

to 2010 and 2011 (Fig. 5). However, despite the establishment of the National Corruption

institutional framework for public trans-

and Embezzlement Investigation Commission

parency. The analysis of the Tunisian control

and the National Committee on the Recovery

and audit system in 2013 underscored the

of Ill-gotten Property Abroad, anti-corruption

need to reform auditing as the basis for

measures are inadequate. Furthermore, the

corruption control. The reform of the financial

report on the self-assessment of the national

system is underway with the application of

procurement system conducted in 2012

objectives-based budget management which

highlighted a major weakness in the integrity

i c a n

D e v e l o p

m e n

a n

Tu n i s i a : I n t e r i m C o u n t r y S t r a t e g y P a p e r - 2 0 1 4 - 2 0 1 5

and transparency of the Tunisian public

procurement system.

Business Environment and Competitiveness

Figure 5: Trends in Freedom of Expression and Accountability and Corruption Perception Indices (IMG and Transparency International)

2.1.28 Tunisia has become less attractive to investors since the Revolution. It has thus slipped 5 places in the Doing Business 2013 ranking (from 45th to 50th), declining in

42.65 35.68

all indicator rankings (Fig. 6). According to the latest Global Competitiveness Report,

9.95 4.3

3.8

2010

2011

Freedom of Expression and Accountability

2012

4.1

Corruption Perceptions Index

bureaucracy is the most problematic business climate factor. Tunisia fell from the 23rd rank in 2010 to 41st rank in 2011 in terms of the quality of public institutions. According to foreign investors, there are major disparities among sectors, whether these sectors are

Since Revolution, major efforts

open or not to foreign investment, and

have been made to promote access to

requests for prior authorization, particularly

information, civil society development and

in the service sector, are limiting factors.

greater citizen control14 (Fig. 5). These

Tunisia has become less attractive to investors

include, for example, the enactment of the

since the Revolution. It has thus slipped 5

2011 law on associations. The Tunisian

places in the Doing Business 2013 ranking

Government enacted a law on access to

(from 45th to 50th), declining in all indicator

information in May 2011 and also started

rankings (Fig. 6). According to the latest Global

disseminating key statistical and financial

Competitiveness Report, bureaucracy is the

data such as budget implementation reports,

most problematic business climate factor.

complete Audit Office reports, as well as

Tunisia fell from the 23rd rank in 2010 to

household and labour force surveys. This

41st rank in 2011 in terms of the quality of

is facilitated by the Bankâ&#x20AC;&#x2122;s support to

public institutions. According to foreign

e-Government.

investors, there are major disparities among

2.1.27

i c a n

D e v e l o p

m e n

a n

Tu n i s i a : I n t e r i m C o u n t r y S t r a t e g y P a p e r - 2 0 1 4 - 2 0 1 5

sectors, whether these sectors are open or

2.1.30 Total factor productivity remains

not to foreign investment, and requests for

low compared to those recorded in other

prior authorization, particularly in the service

middle-income countries such as Morocco

sector, are limiting factors.

and Romania, Tunisia’s main competitors (Fig. 8). Although the country’s annual growth

Figure 6: Business Environment: Comparative Ranking with 183 Countries (Doing Business)

rate rose from 1.2% (2000-2005) to 1.5% (2006-2010), this performance is said to be due only to a drop in the real effective exchange

38 39

Closing a business

31 30

International trade Taxation

Obtaining credit Acquisition of property

64 70

Obtaining building permit 54

Starting a business Ease of doing business

45 50 0

worsening terms of trade15.

60 62

46 49

Investor protection

rate owing to greater trade openness and

77 78

Contact compliance

104

2.1.31 A more knotty issue is that Tunisia

87 93

lost 43 places and was ranked 83rd in the

World Economic Forum’s Global Competi-

100

2012

150

2013

tiveness Report in August 201316 (Fig. 9). Nevertheless, it has continued to honour its commitment regarding the implementation of

2.1.29 ITCEQ’s Competitiveness Survey

reforms to improve the business environment

2012 revealed that the business envi-

(new investment code, simplification of

ronment is one of the main challenges

administrative formalities and implementation

for corporate development, particularly

of administrative reforms). According to its

regarding

main partners, however, there is need to

corruption

and

insecurity

accelerate the implementation of reforms.

(Fig. 7). Figure 7: Business Climate: Competitiveness Survey 2012 Results (ITCEQ)

Insecurity

5.5%

0.493

Corruption

0.547

Social security contributions

0.568

Bank financing

0.587

Contracting parties

0.61

Administrative procedures and system…

1.2%

1.5%

1.4%

0.713

Human resources Infrastructure

0.2

0.4

i c a n

0.6

2000-2005 -

0.8

Tunisia

D e v e l o p

1.4%

1.1% 0.4%

0.719

0.733

2.7%

0.657

Macro-economic uncertainties

Figure 8: Overall Factor Productivity Growth for the 2000-2005 and 2006-2010 Periods (AfDB)

m e n

2006-2010 Morocco

Turkey

a n

Romania

Tu n i s i a : I n t e r i m C o u n t r y S t r a t e g y P a p e r - 2 0 1 4 - 2 0 1 5

Figure 9: GCI 2012-2013 Ranking (WEF)

20% if rescheduled debts (in line with the June 2011 BCT circular) are taken into account18. Furthermore, the banking system

Innovation Technological maturity

does not support SME and micro-enterprise

Contracting effectiveness

development.

Higher education and training Health and primary education Macro-economic environment

2.1.33 The banking sector is at the core

Infrastructure

of the reforms included in the IMF programme.

Institutions

According to the recent assessment of financial

Global Competitiveness Index 2011-…

0 Turkey

50 Brazil

100

150

Tunisia

system soundness, the cost of restructuring the public banking sector could reach 2.6% of GDP over the next two years. The reforms

Financial Sector

supported by the IMF include the improvement of banking information, bank recapitalization,

2.1.32 The already fragile financial sector

the management of non- performing loans

has been affected by the transition17. Before

(especially those related to tourism), improved

the Revolution, it was already plagued by

management of public banks, better banking

structural vulnerabilities such as undercapita-

supervision and the establishment of a crisis

lization, poor asset quality, fragmentation,

management system.

poor banking supervision or underdeveloped stock markets. The banking sector has been

Trade and Regional Integration

affected by the Revolution owing to its exposure to risks related to sensitive sectors

2.1.34 The Partnership Agreement between

such as tourism as well as companies owned

the EU and Tunisia has enabled the country

by the former President’s family. Bad debts

to reach important milestones regarding

have been maintained artificially at their

liberalization and integration. However, this

pre-Revolution levels and profits do not

has been achieved at the expense of heavy

reflect the low level of banks’ provisions and

dependence on the European economy

equity. State banks are the most vulnerable

which was the destination of 73% of Tunisian

because they were used as economic policy

exports in 2012. The top ten destinations

instruments. According to the BCT, the rate

include Libya, Algeria, Morocco and the United

of non-performing loans of State banks was

States which absorb 16.4% of Tunisian

17.8% at end-2012 and would be more than

exports (Fig. 10).

i c a n

D e v e l o p

m e n

a n

Tu n i s i a : I n t e r i m C o u n t r y S t r a t e g y P a p e r - 2 0 1 4 - 2 0 1 5

Figure 10: Tunisiaâ&#x20AC;&#x2122;s Main Trading Partners (% share of total exports) (INS)

designed a roadmap in conjunction with the private sector and market research consulting firms to ease access to African markets. Tunisia

26% 37%

France

is also negotiating free trade agreements with

Italy

WAEMU and the establishment of free trade

Germany

zones with Libya and Algeria.

Libya 16%

Spain Rest of the World

4% 8%

C. Social Situation

2.1.36 Transition is taking place in a social environment marked by labour unrest. In the first quarter of 2013 alone, the country Figure 11: Main Destinations of Tunisian Exports and Complementarities (UNCTAD)

witnessed 23 strikes, of which only 11 were legal (affecting 21 enterprises, 4 of them public) that caused the loss of 4 000 working

30.00

20.00

0.433

15.00 10.00 5.00 0.00

% Share of Total Export Complementarity

0.470 0.460 0.450 0.440 0.430 0.430 0.419 0.420 0,410 0.405 0.410 0.401 9.39 0.400 0.390 2.99 0.15 0.06 0.11 0.380 0.370

26.28

0.457

25.00

0.14

days. Labour unrest has sometimes led to acts of violence. u

Poverty, Inequality and Polarization

2.1.37 Wide socio-economic disparities remain one of the main social challenges faced by Tunisia, despite the alleviation of poverty over the last decade (from 32.4% in 2.1.35 However, integration in the sub-

2000 to 15.5% in 2010)19. Global inequalities

region and with sub-Saharan Africa is a

have reduced, with a decline in the Gini Index

source of significant, but untapped,

from 0.37 in 2000 to 0.35 in 2010 (Figure 12

potential growth. Tunisia exports much more

â&#x20AC;&#x201C; Annex 8). Despite the decrease in inequalities

to France (26.3%) than to Cameroon (0.14%)

at the national level, regional disparities have

(Figure 11). Nevertheless, the merchandise

continued to increase, further polarizing the

trade complementarity index shows that its

society.

exports are more complementary with Cameroonian (0.457) than French (0.433) exports

2.1.38 The authorities are concerned

(Fig. 13). Thus, the Tunisian Government has

about the poor performance of social

i c a n

D e v e l o p

m e n

a n

Tu n i s i a : I n t e r i m C o u n t r y S t r a t e g y P a p e r - 2 0 1 4 - 2 0 1 5

transfers20. In fact, to alleviate poverty and

unemployment rate and the unemployment

preserve food security, Tunisia has implemented

rate of graduates rose to 15.7% and 33.5%

social policies based on direct and indirect

respectively (Fig. 13). The effect of the recession

transfers (food and energy subsidies) since

coupled with the massive influx of Tunisians

independence so as to promote inclusive

repatriated from Libya21 explain these rates

growth-driven development. However, analyses

which remain high despite a slight decrease

of the efficacy of food subsidies have shown

compared with the previous year (particularly,

that despite their significant redistributional

following recruitments in the public sector).

effects (without subsidies, the poverty rate

This structural unemployment, is a result

would have reached 19.1% in 2010), the uni-

of a quantitative (between higher education

versal nature of these subsidies undermines

and private sector needs) and qualitative

the efficacy of this tool as a mechanism

(graduates lacking the required skills to enter

for reducing inequalities and poverty. Poor

the labour market) mismatch. The distribution

households which represented 15.5% of the

of unemployment is also an important indicator

total population in 2010 receive only 12% of

of regional and social disparities. The authorities

food subsidies.

are also concerned about the informal sector (36.8% of employment in 2007).

Figure 12: Poverty, Inequality and Polarization in 2005 and 2010 (INS)

61.9

34.8

Figure 13: Trends in the Overall Unemployment Rate among University Graduates and Women 2006-2012, in % (INS)

62.5

23.3

15.5

Poverty rate

Global inequality 2005

Polarization

. . .

. .

. . .

2010

Unemployment and Education u

2.1.39

. 32.7

Gender Issues

Despite the growth rebound in

2012, employment remains the major

2.1.40

preoccupation of Tunisian policy-makers.

diagnosis in 2012-2013. As regards gender

During the third quarter of 2013, the average

equity, the 1956 Personal Status Code

i c a n

D e v e l o p

The Bank conducted a gender

m e n

a n

Tu n i s i a : I n t e r i m C o u n t r y S t r a t e g y P a p e r - 2 0 1 4 - 2 0 1 5

places Tunisia at the vanguard of the Arab

positions in decision-making bodies. The

world with respect to the status of women in

adoption of the gender equality principle

society. Nevertheless, there are still reservations

during the first ANC elections resulted in the

at the CEDAW concerning the law of succession,

election of 49 women out of 217 seats and

the Nationality Code and the concept of

the Vice-President of the ANC is a woman.

patriarchy. During the transition period, there

Although this representation seems is low in

were a lot of tensions during which achieve-

absolute terms, it is remarkable in the sub-

ments were sometimes threatened.

region.

2.1.41

Concerning

human

capital,

D. Environment and Climate Change

Governmentsâ&#x20AC;&#x2122; efforts have borne fruit, although some disparities remain. There

2.1.44 During

the

post-revolutionary

is a higher female enrolment in universities

period, the management of environmental

with a 62.3% rate in 2013. However, in basic

issues has deteriorated. This degradation

education, the illiteracy rate in 2010 was

is related to the difficulties encountered

26.4% for girls as against 11.5% for boys. In

by the government in applying the law22.

rural areas, women sometimes lack access 2.1.45 However, the renewed involvement

to specific health (gynaecological) care.

of civil society, which is clamouring for Regarding economic inclusion,

better natural resource and environmental

womenâ&#x20AC;&#x2122;s labour market participation is

management, is visible. The demands concern

irregular and declines from the age of 30

improvement of the quality of life and natural

years. Women represent less than a quarter

resource management, reduction of public

of an active population of 3.2 million and their

health disparities between regions and also

unemployment rate is higher than that of

within towns through equitable access to

men. Sectors characterized by job insecurity,

drinking water and sanitation and improved

underemployment and major differences in

waste management.

2.1.42

remuneration are dominated by women. A better women labour market positioning

2.1.46 Like in most North African countries,

would increase GDP by 0.7 percentage

water is a precious commodity in Tunisia.

points.

More than half of available water is surface water and about 44% is derived from water

2.1.43 Womenâ&#x20AC;&#x2122;s participation in the three

tables. Although all available water reserves

branches of government has improved

have not been harnessed, the excessive

significantly.

consumption of groundwater is increasingly

Women

hold

i c a n

22.6%

D e v e l o p

m e n

a n

Tu n i s i a : I n t e r i m C o u n t r y S t r a t e g y P a p e r - 2 0 1 4 - 2 0 1 5

disquieting. On average, water reserves are 23

extracted at 146% of their recharge rate .

while preparing necessary structural reforms. The I-CSP is based on Governmentâ&#x20AC;&#x2122;s guidelines which were presented in March

2.1.47 Tunisia is implementing an aggressive

2013 and on (i) the September 2011 Jasmin

policy in the area of energy conservation

Plan and (ii) the October 2012 Letter of

and new and renewable energy (wind,

Development Policy. These guidelines provide

solar, sludge from sewage treatment plants)

for a series of structural reforms and investments

which should be encouraged. Energy intensity,

aimed at creating conditions for accelerated

which is 0.08 ktoe per USD 1 000 of GDP,

growth and job creation to ensure regional

is less than the world average of 0.13 as

balance and inclusive development. They

well as the average of 0.18 in the MENA

build on five pillars, namely: (i) economic

region.

reforms; (ii) infrastructure modernization; (iii) strengthening of the social sectors of education

2.1.48 In addition, climate change may

and employment; (iv) regional balance; and

have a significant impact in Tunisia. Tunisia

(v) promotion of sustainable development.

is expected to experience a warmer and

There is, however, no detailed plan for its

more variable climate by 2030. These expected

operationalization.

changes will have considerable impacts on water resources, agriculture and natural

2.2.2 The authorities intend to formulate

resources. In 2050, the impact is expected to

a development plan in 2014. In this

represent about 0.3% of GDP.

connection, the I-CSP proposed by the Bank would cover the period of the formulation of

2.2 Strategic Options

this new plan.

A. Country Strategic Framework

2.2.1 Soon after the Revolution, Tunisia

stopped the preparation of five-year

Challenges and Weaknesses

Delays in the political agenda and the sub-regional context

development plans implemented since the sixties. In a context of transition, the authorities

2.2.3 The relative slow pace of the political

have opted for a flexible strategy aimed at

transition process impedes the return to

appeasing social and economic demands

a sustainable growth model. Economic

i c a n

D e v e l o p

m e n

a n

Tu n i s i a : I n t e r i m C o u n t r y S t r a t e g y P a p e r - 2 0 1 4 - 2 0 1 5

actors are awaiting the implementation of a

it uncompetitive and vulnerable25. The

clear political agenda, far-reaching structural

sophistication of Tunisian exports has not

reforms and a coherent public investment

improved since 1960 (Fig. 14). The structural

programme.

transformation of the economy should build on: (i) the substantial contribution of exports

2.2.4 Geopolitical uncertainties in the sub-

to growth; (ii) the greater contribution of

region also weigh heavily on stability. The

the service sector to growth26 (health27, air

Libyan crisis has had a direct impact on the

transport or telecommunication28) and (iii)

Tunisian economy resulting, inter alia, in the

the orientation of production towards

return of workers, and heightened insecurity,

sectors with higher value added by moving

particularly in border regions24. The crisis in

from a subcontracting to a co-contracting

Europe, Tunisiaâ&#x20AC;&#x2122;s main trading partner, has

economy29.

also affected the Tunisian economy. u

Need for more resources

Figure 14: Evolution Index sophistication of exports (EXP) for Tunisia and some Asian countries

2.2.5 The implementation of a recovery policy and creation of conditions conducive to democratic transition entail more financing which calls for the mobilization of more resources. However, the use of these resources should not jeopardize macroeconomic stability. Besides the international communityâ&#x20AC;&#x2122;s role in providing such financing, technical support should be intensified to carry on the structural reforms presented

2.2.7 Furthermore and as indicated above

below.

(2.1.30), the business climate should be significantly improved. Micro-economic

Accelerating the structural

policies and inefficient institutions hinder

transformation of the economy

investment, particularly foreign investment, which offers a huge potential for bridging the

2.2.6 The persistent dependence of the

technological gap as well as enabling Tunisian

economy on low-cost production and

businesses to become competitive by supplying

export sectors with low value added make

export enterprises or exporting directly. Thus,

i c a n

D e v e l o p

m e n

a n

Tu n i s i a : I n t e r i m C o u n t r y S t r a t e g y P a p e r - 2 0 1 4 - 2 0 1 5

additional efforts should be made to improve

services33,34. As regards primary education,

the business climate and strengthen the

tests conducted worldwide have shown that

competitiveness of businesses by simplifying

schools in small towns are unable to give

procedures. In this regard, regional consultations

their pupils the same level of skills acquired

on the Investment Code, which were initiated

by pupils of schools in big towns. In the same

on 25 May 2013, will be conducted before it

vein, the knowledge index developed by the

is tabled before the ANC for approval.

authorities shows that the level of knowledge is 30 times higher in Tunis than in Kasserine,

2.2.8 It is also necessary to continue

thus limiting the regionâ&#x20AC;&#x2122;s participation in the

to develop infrastructure for economic

countryâ&#x20AC;&#x2122;s economic transformation. Likewise,

transformation30. The level of infrastructure

the quality of health services is six times better

is relatively satisfactory. Good economic

in Tunis than in Kairouan and eleven times

performance was achieved over the last

better than in Sidi Bouzid35. Citizensâ&#x20AC;&#x2122; access

decade thanks to investments in, and regular

to water and sanitation, roads and energy in

upgrading of, new infrastructure. However,

disadvantaged regions is sometimes difficult

Tunisia faces the challenge of maintaining,

(Fig. 15).

during the transition period, an ambitious public investment level to support economic transformation (developing and improving the

Figure 15: Indices of Regional Disparities in Terms of Wealth, Health and Education (MDCI)

management of trade infrastructure, particularly ports31- or developing green energy).

0.70

0.68

0.41

2.2.9 It is necessary to redefine relation-

0.39

0.33

ships between the public and private

0.20

sectors. Although the outlines of publicprivate partnerships (PPPs) are being defined,

Wealth and employment Health and population

it is obvious that the structural transformation

Coastal Governorates

Knowledge

Inland Governorates

of the economy can only be achieved by increasingly using them32. 2.2.11 These disparities are also reflected u

Reducing Regional Disparities

in economic attractiveness36. Low levels of private investment reflect imbalanced

2.2.10

Regional disparities in Tunisia

development in terms of employment oppor-

primarily affect the quality of public

tunities, underscoring the need to improve

i c a n

D e v e l o p

m e n

a n

Tu n i s i a : I n t e r i m C o u n t r y S t r a t e g y P a p e r - 2 0 1 4 - 2 0 1 5

the business climate in regions with regard to

need for Tunisia to implement urgent reforms

the quality of public services provided to

to make centralized State procedures more

enterprises (Fig. 16).

flexible and upgrade institutions pending the implementation of the necessary structural

Figure 16: Per Capita Investment in TND for the 1987 â&#x20AC;&#x201C; 2010 Period (MDCI)

reforms. In this regard, it is necessary to strengthen the decentralization of the State in regions and improve the implementation

12000

of investment budgets in the short term.

10619

10000 8552 8000

7396

development plans rapidly and to transfer

6000 4000

powers to councils, divisions and regions.

4358

4194

Secondly, it is essential to formulate regional

3323

2000

0 Public

Private

Coastal Governorates

Total

Improving training-employment dynamics in an inclusive manner

Inland Governorates

2.2.14

The reduction of unemployment

2.2.12 There is need to continue to build

entails more efficient training-employment

infrastructure to support regional integration.

dynamics38. Tunisia is suffering from major

Ambitious public investment will help to

structural unemployment, hence the need to

reduce regional disparities by linking under-

initiate the structural reform of the educational

served regions, thereby inducing a ripple

and training system. Concerning basic

effect on the private sector so as to stimulate

education, the aim should not only be to

growth while enhancing its inclusiveness.

undertake pedagogical reforms, but also to

Thus, besides providing support to techno-

ensure that these reforms have an impact on

logical hubs, special attention should be paid

learning. With regard to vocational training,

to all basic infrastructure assets, be they

there is a threefold objective: (i) to build the

transport (including rural roads), logistics,

capacity of the vocational training system; (ii)

telecommunications, education or social

to improve its quality and adaptation to

services.

the economic fabric; and (iii) to improve its governance through increased private sector

2.2.13 However, these two components

involvement. Concerning higher education,

can be achieved only by carrying on with

there is need to give a boost to the sub-

the reorganization of the State . There is

i c a n

sectorâ&#x20AC;&#x2122;s reform by focusing the reform

D e v e l o p

m e n

a n

Tu n i s i a : I n t e r i m C o u n t r y S t r a t e g y P a p e r - 2 0 1 4 - 2 0 1 5

strategy on excellence, quality assurance and

These may be overcome only through the –

managerial accountability of schools through

ongoing–renegotiation of the social contract40.

partnership with the private sector in terms of research and innovation to meet economic

Strengths and Opportunities

Strong central administration

needs. 2.2.15 Lastly, it is necessary to ensure coordination between training actors and

2.2.17 Thanks to its strong central admi-

sectors so as to adopt a common human

nistration, Tunisia still has the capacity

capital development vision. New entrants

to formulate economic policies in the

are trained and encouraged to join the public

context of transition. The authorities are

sector, which is the main source of employment.

carrying on dialogue with key development

Thus, there is a mismatch between the skills

partners. Similarly, the central administration

available on the labour market and corporate

continues to design investment projects in all

needs (Fig. 17). Nevertheless, the quality of

sectors.

training is put into question (OECD PISA 2.2.18 However, the transition has slightly

tests).

affected the capacity of the central adminisFigure 17: Rate of Youth Unemployment (Aged 18 – 30 Years)by Type of Certificate (2010) (INS)

tration. There are some slippages in the implementation of projects. The effective implementation of reforms, particularly within

Other certificate Doctorate Master’s Degree or equivalent certificate Medicine or Pharmacy Certificate in Engineering Other certificate

Senior Technician Baccalauréat

operations, is sometimes considered to be

13.9

timid (Annex 10)41. Delays are due to relative

5.7 10.5

political instability, occasional conflicting

27.4

Master’s degree in hard sciences Master’s degree in hard sciences Master’s degree in Letters and Social Sces

Certificate before the Baccalauréat

the framework of multi-donor budget support

15.9 6.3

25.4 26.1

visions of policy-makers (belonging to different

26 32.4 12.4

political parties) and schooling in participatory decision-making.

9.6

Diversified economy

2.2.16 Furthermore, the growth diagnosic39 highlights the rigidities of the Labour

2.2.19 Tunisia has a relatively diversified

Code which do not facilitate transition from

economy. In 2011, agriculture accounted

training to formal employment and job creation.

for 8.8% of GDP, manufacturing industries

i c a n

D e v e l o p

m e n

a n

Tu n i s i a : I n t e r i m C o u n t r y S t r a t e g y P a p e r - 2 0 1 4 - 2 0 1 5

17.6%, non-manufacturing industries 12.9%,

transformation.

tradable services 42.5% (tourism 6.3%) and non-tradable services 18.2% (public adminis-

Sound international integration

trative services 17.8%). Though Tunisia was mainly an agricultural and mineral product

2.2.21 Tunisia strengthened its integration

exporting country in the 1970s, textiles, elec-

in the international economy in the late

tronics and chemicals now occupy the

1990s. Its openness to the external world has

largest share of its export basket. Since the

made foreign trade and foreign investment the

dismantling of the Multifibre Agreement, the

engines of its growth. Its proximity to and

share of textiles in total exports has declined

agreements concluded with the European

over the past five years, while that of mecha-

market are an asset for sustainable growth,

nical and electronic products rose from

despite the tumultuous European economic

23.1% in 2005 to 36.6% in 2012 ( Fig. 18).

situation.

Figure 18: Share of Textile, Mechanical and Electronic Products in the export Basket % (INS)

2.2.22 At the same time, Tunisia has succeeded in exploiting export opportunities in North Africa â&#x20AC;&#x201C; although the Maghreb is one of the worldâ&#x20AC;&#x2122;s least economically integrated

46.6 37.7

regions43. Tunisia also benefits from numerous

36.6 23.1

bilateral trade agreements signed in 1999

22.3

16.5

and agreements concluded with GAFTZ and AMU countries. It collaborates with sub-

2000

2005

Textiles, clothing and leather

2012

Saharan African countries and develops

Mechanical and electronic industries

investments projects in the industrial and service sectors (see 2.1.26). 2.2.20 Tunisia has a number of sector 42

2.2.23 However, Tunisia must find new

with huge potential (tourism, agriculture ,

markets to reduce its heavy trade dependence

manufacturing industries and services)

on a limited number of countries (France -

to support growth and employment. In this

26.6% and Italy - 16.1% of total exports).

regard, the current structure of the economy

Greater integration with Africa and Asia could

provides a solid base for initiating economic

create new sources of growth.

i c a n

D e v e l o p

m e n

a n

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2.3. Aid Coordination/Harmonization and AfDB Positioning in the Country

without much success to date. These include in particular an “employment and regional development” group steered initially by the

2.3.1

Tunisia signed up to the Paris

Swiss Cooperation. However, coordination is

Declaration on Aid Effectiveness which

rather carried out on an ad-hoc basis, in the

advocates, in particular, the conduct of a

form of information sharing and consultations

survey on the monitoring of related indi-

among the partners involved in similar

cators. It did not participate in the global

areas/operations. In this respect, the Bank

surveys carried out by the OECD, but the

has prepared a series of distribution lists to

internal survey conducted by the Bank in

facilitate discussions among actors and

2012 shows that the aid provided is aligned

improve its dialogue with civil society.

with national priorities. Concerning the harmonization of procedures, projects financed

2.3.4 Collaboration and coordination

by the Bank and key partners in Tunisia are

with other donors are well-developed for

implemented mainly by ministries and public

programmes co-financed in accordance

institutions, thus helping to limit the establish-

with the Paris Declaration. The partners: (i)

ment of parallel entities.

conducted joint budget support missions giving rise to joint matrices of measures and

2.3.2 In 2012, the Government initiated,

aide-memoires negotiated in a coordinated

with Bank and World Bank support, an

manner; (ii) shared analytical works before

auto-evaluation of its national procurement

their publication; (iii) co-finance technical

system by a national committee (open to

assistance and investment programmes44.

all public procurement stakeholders). This auto-evaluation gave rise to an evaluation

2.3.5 Tunisia’s traditional donors’ speciali-

report and an action plan which were validated

zation is based on their comparative

by the Government in August 2012. This

advantages and possible synergies and

is the first step towards the use of country

complementarities. The IMF is supporting a series of structural reforms helping particularly

systems by the Bank (Annex 12).

to strengthen the financial sector and is coor2.3.3 Given its adequate management

dinating international support to stabilize the

capacity, the Tunisian Government takes

macro-economic framework. The support of

responsibility for planning and coordinating

AFD, JICA and KfW is focused on the private

donor operations. Some attempts to formalize

sector, sanitation, local and agricultural develop-

the coordination framework have been made

ment and transport. For their part, multilateral

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a n

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donors provide multi-sector budget support45.

itself in sectors where its comparative advan-

The WB and EIB give priority to the private and

tage is recognized in Tunisia (improvement of

transport sectors, while the EU is interested in

basic infrastructure in the regions or vectors

education and justice. Methods of intervention

of innovation and sophistication, the education

have evolved and increased recourse to

sector, governance support for private

technical cooperation is discernible. In this

sector development) or in sectors where it is

respect, the Bank has continued to position

developing expertise such as PPP (Table 1).

Table 1: Key Partners’ Active Portfolio by Sector (2013 - in USD million)46 Agr. Human Transp. Ener. Dev. /Env. AfDB

EIB

815

214

696

905

AFD

117

EU AFESD

115 11

151

216

KfW

Loc. Dev.

176 332

277

Reforms

Fin.

Total

1013

138

2524

26,3

100

2109

22,0

1492

15,6

197

1059

140

185

197

246

993

10,4

545

990

10,3

709

7,4

651

6,8

118

1,2 100,0

USAID Total

Reg. Private Water & Int. San.

565

286

440

1799

1600

696

1201

366

2865

292

9585

100

2.3.6 In addition, the Bank is coordinating

The Bank’s portfolio (the institution’s second

its activities together with other IFIs within

largest) comprises 16 projects (of which four

the framework of the Deauville Partnership.

non-sovereign) and 24 technical assistance

In this connection, it hosted its secretariat in

operations financed with grants to the tune

2012. This partnership has helped to mobilize

of UA 1.36 billion. Furthermore, in 2011 and

additional resources in the form of grants,

2012 UA 659.9 million was allocated for two

share knowledge and coordinate operations.

budget support operations. The road sector represents 36% of the portfolio (in value),

2.3.7 The Bank has for long been a

followed by the multi-sector (26%) and the

preferred development partner of Tunisia.

private sector (16%) (Annex 4).

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2.3.8 The 2013 portfolio review showed

2.3.9 The main recommendations of the

that the portfolio in Tunisia remains

2013 portfolio review concerned audits,

efficient with a score of 2.6 (out of 3) and

disbursement

a public portfolio financial performance of

procurement procedures (Annex 3). The Bank

71.8% in 2013. However, delays in loan

is continuing dialogue to enable the Audit Office

implementation have increased since the

to implement projects with external financing. To

Revolution and the good performance is

strengthen portfolio-related services, the Bank

attributable to the presence of two aged projects

has transferred three procurement experts to

and the disbursement in a single tranche of

the MDIC for an 18-month period to help speed

the budget support approved in November

up disbursement for operations. Furthermore,

2012. The level of grant disbursement, in

the Bank is supporting the public procurement

particular, remains modest with a rate of

system reform which is a prerequisite for the use

40.1% (Annex 4).

of the country system47 (Annex 12).

i c a n

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m e n

timeframes

a n

and

public

Tu n i s i a : I n t e r i m C o u n t r y S t r a t e g y P a p e r - 2 0 1 4 - 2 0 1 5

III. Bank Group Strategy

3.1 Rationale Involvement

for

Bank

Group

addition to bilateral meetings with the private sector, a workshop was organized with civil society in September 2013 to discuss the

3.3.1 The Tunisian authorities have

strategy (Annex 11). External peer reviewers

requested the preparation of a two-year

(including development partners) were also

(2014-2015) I-CSP which is flexible and

involved. The document was also discussed

adaptable to the changing political, eco-

with the new authorities in 2014.

nomic and social situation. This approach will enable the organization of major political events on the one hand and the preparation of the new development plan on the other. 3.1.2 The operations will be a continuation of previous operations, but will be welltargeted to enhance their effectiveness (Annexes 2 and 7). A flexible approach based on a permanent dialogue with the authorities and on the regular review of strategic thrusts will be given priority. 3.1.3 The operations were identified following discussions with the Government and development partners during the June and September 2013 missions. Since

Box 2: Choice of the I-CSP Tool 1. The existence of sustained dialogue with the authorities promotes the formulation of a new strategy whereas the lack of visibility underpins its interim nature. 2. The lessons learned from achievements in 2012-2013 encourage the refocusing of activities, necessitating the reformulation of the content of the two pillars. 3. Existing constraints on the level and type of AfDB operation necessitated the establishment of sustained dialogue during conduct of the I-CSP preparation mission. 4. The authorities requested the design of a I-CSP that gives a clearer signal to other partners and eases resource mobilization.

2011, the Bank has organized monthly meetings to exchange ideas with civil society,

3.1.4 Furthermore, the Bankâ&#x20AC;&#x2122;s strategic

private operators and the administration on

positioning has been enhanced by the

challenges of the country and the region. In

growth diagnosis conducted with Tunisian

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authorities and U.S. agencies . This diagnostic

3.1.7 The budget support mobilized 87%

underscores the importance of removing

of resources allocated during I-CSP 2012-

micro-economic constraints to stimulate

2013 implementation. This was justified (and

growth driven by the private sector.

could be justified in the future) by the need to support actions to revive demand while

Despite a great deal of work to

preserving investment in order to guarantee

improve knowledge done by the Bank

social peace and facilitate the transition

during the previous I-CSP (Annex 9),

process. The budget support has enabled

huge knowledge gaps remain concerning

achievements in local governance, support

particularly the design of strategic frameworks

to civil society, employment and public

and reforms to support the transition process.

finance whose scope may seem to be limited

These gaps relate to the need to define condi-

but which, in the current context of transition,

tions for economic transformation (development

should be considered as quite significant

of an industrial strategy, agricultural sector

(Annex 10). However, the examination of

support, the selection of a deep-sea port and

public accounts during the 2011-2013 period

the involvement of the private sector in educa-

showed that constraints on financing led to

tion) or conditions for the decentralization of

trade-offs in favour of recurrent expenditure,

the State.

to the detriment of public investment. To

3.1.5

avoid the loss of competitiveness related, u

Lessons learned from the previous

inter alia, to under-investment and strategic

I-CSP

infrastructure maintenance, special attention should be paid to ensuring an optimal blend

3.1.6 The recommendations of the I-CSP

between budget support operations and

2012-2013 completion report are as follows:

investment projects during the implementation

(i) Limit the Bankâ&#x20AC;&#x2122;s scope of intervention; (ii)

of the I-CSP.

Strengthen the alignment of analytical works with the I-CSP; (iii) Intensify the search for

3.1.8 To take these recommendations

co-financing; (iv) Improve the monitoring and

into account, it was resolved that: (i) the

evaluation capacity of the I-CSP by identifying

Bankâ&#x20AC;&#x2122;s operation should be refocused on

simple and verifiable result indicators; and (v)

governance and infrastructure; (ii) technical

Combine budget support operations and

assistance activities and studies should

investments to maintain productive capacity

underpin

and create direct and indirect employment

alignment; (iii) every project should include

opportunities in the regions.

external co-financing as much as possible;

i c a n

D e v e l o p

operations

m e n

a n

ensure

better

Tu n i s i a : I n t e r i m C o u n t r y S t r a t e g y P a p e r - 2 0 1 4 - 2 0 1 5

(iv) result indicators should be reviewed; and

and social improvements (“quick wins”) and

(v) reform support and investment operations

(ii) a medium-/long-term horizon for activities

should be combined.

aimed at laying the foundations for a new economic and social development model.

Approach and instruments 3.1.12

To support the transition process,

3.1.9 The I-CSP prioritizes the principles

in particular and given financing challenges,

of alignment with Government’s priorities,

the Bank will lay special emphasis on tech-

complementarity with other partners and

nical assistance operations. The objectives

consolidation of the achievements of

of such operations will be to conduct strategic

previous operations. The I-CSP focuses on

or pre-investment studies in order to enable the

the Bank’s 2013-2022 Strategy, particularly

authorities to focus on medium- and long-term

“governance” and “infrastructure” operational

objectives during the transition period. The

priorities and incorporates the green dimen-

technical assistance operations may also help

sion in their implementation. In accordance

to identify reforms to support inclusive private

with the Bank’s private sector development

sector development in the short-term.

strategy, the I-CSP will ensure permanent dialogue between the Tunisian Government

3.1.13

and the private sector and promote PPPs.

of its commitment capacity, the Bank will

Depending on the development

consider financing (public and/or private) 3.1.10 In particular, the CSP recognizes

investment and budget support operations

the key role played by the IMF in stabilizing

(see section 3.2). In this connection, priority

the macro-economic framework and the

will be given to investment operations that

financial system. Additionally, the I-CSP

promote public-private partnerships and

focuses on two major challenges: (i) the

where the leverage effect of Bank resources

business climate and the competitiveness of

will be established. In this respect and in

the economy and (ii) regional disparities.

order to facilitate progressive commitment (in parallel with the development of its commit-

3.1.11 In view of the transitional situation,

ment capacity), an approach based on the

planned activities under the I-CSP will be

financing of several small- and medium-size

carried out within two time horizons: (i) a

operations (rather than a very small number

short-term horizon for activities carried out to

of large-scale operations) will be given

meet urgent needs or to enable rapid economic

priority.

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2014-2015 Intervention Component

Tunisia’s major challenges (Table 2 – Annex 2) while remaining consistent with

3.1.14

To promote the creation of high

the Government’s policy framework. In

value added jobs for young graduates and

particular, Government’s thrusts: (i) Economic

the economic attractiveness of regions,

Reforms and (ii) Infrastructure Modernization

emphasis will be laid on support for inclu-

are backed by actions carried out under the

sive private sector development within the

I-CSP governance and infrastructure pillars

framework of this strategy. This support

to: (a) improve the business climate and

entails the improvement of (i) private sector

competitiveness and (b) increase value

output (by improving governance) and (ii) the

added. On the other hand, Government’s

provision of production factors (by improving

thrusts: (iii) Regional Rebalancing and

infrastructure). Based on these factors and in

(iv) Strengthening of the Social Sectors of

line with the I-CSP 2012-2013, the I-CSP

Education and Employment are supported

2014-2015 will focus on two pillars in keeping

under the I-CSP governance and infra-

with the Ten-year Strategy to obtain a blend

structure pillars through actions to (c) improve

of governance and infrastructure domains.

public service delivery in the regions and (d) ensure access to employment by

3.1.15

Governance and infrastructure

improvement support helps to address

i c a n

developing skills and opportunities in the regions.

D e v e l o p

m e n

a n

i c a n

D e v e l o p

m e n

Social

a n

The management of water remains the main challenge. Progress has been made to promote renewable energies. (Page 9)

Environment

Poverty and inequality. Despite a decline in poverty, disparities between regions have increased. The authorities are concerned about the poor performance of social transfers. (Page 7) Unemployment and education. Employment remains the main challenge with high graduate unemployment, reflecting poor training and employment dynamics. (Page 9)

Instruments

Reducing regional disparities. These inequalities are reflected in the quality of public services At the national level, achieand economic attractiveness. vements in terms of the (Page 11) attainment of Millennium Development Goals are an Improving the training and asset. employment dynamics in an inclusive manner (Page 12).

IV. Strengthening the social sectors of education and employment

III.Regional rebalancing

II. Modernization of infrastructure

Including the green dimen- V. Promotion of sustainable sion in actions development

An economy that is well integrated internationally â&#x20AC;&#x201C; Infrastructure helping to exploit new Pillar opportunities. (Page 13)

A diversified economy, with huge sector potentials .(Page 12) Governance Pillar

and sub-regional context. Uncertainties weigh on recovery Country Strategic Flexible approach based - return to stability depends Framework (Page 9) on the changing situation. on a clear political agenda, (Pages 15-18) structural reforms and a coherent investment programme. (Page A sound administration capable of carrying on the 10) design of economic policies Pillars in a context of transition. (Page 12) Increased financial resource need â&#x20AC;&#x201C; however, macro-ecoI. Economic nomic balances should be reforms maintained. (Page 10)

Accelerating the structural transformation of the economy. This necessitates the development of sectors with higher value added, strengthening the Foreign trade and integration. There business climate and infrais heavy dependence on the EU, which structure support. (Page 10) slows down recovery. (Page 7)

Governance, business climate and competitiveness. There is a significant improvement in public governance and relations with citizens. However, the business environment and competitiveness are considered as having deteriorated. (Page 4)

Macro-economics. Economic recovery in 2012-2013. However, the budget deficit widened with a decline in investment expenditure, a slight decrease in foreign exchange reserves and a deteriorating sovereign rating by rating agencies. (Page 3)

Economique

Tunisia is implementing one of the most stable transition processes in the region. However, the political agenda (organization of elections) has been delayed. (Page1)

Countryâ&#x20AC;&#x2122;s Context and Prospects Challenges and Strengths and (Page 1) Weaknesses (Page 10) Opportunities (Page 12) Political Delays in the political agenda

38 Tu n i s i a : I n t e r i m C o u n t r y S t r a t e g y P a p e r - 2 0 1 4 - 2 0 1 5

Table 2: Alignment with I-CSP Analysis, Intervention Pillars and the Strategic Framework

Tu n i s i a : I n t e r i m C o u n t r y S t r a t e g y P a p e r - 2 0 1 4 - 2 0 1 5

“Governance” Pillar

assistance activities could also be carried out to prepare the implementation of medium-term

3.1.16

will

actions by supporting the decentralization

entail the provision of support for reforms

Governance

improvement

strategy (including training), implementation

and capacity building to improve the

of the industrial strategy or involvement of the

business climate at the national level and in

private sector in higher education.

the regions. This support will focus on the “governance” operational priority of the Bank’s

3.1.18 In terms of loans, budget support

2013-2022 Strategy. In this respect, the Bank

could be considered to support the imple-

will continue to support the priority thrusts of

mentation of reforms identified in technical

the reform programme at the national level,

assistance operations, if the Bank’s capacity

namely: (i) the establishment of a transparent

so permits (high scenario).

process of reviewing regulations and administrative procedures for businesses so as to

Infrastructure” Pillar

simplify procedures and limit discretion in the application of regulations; (ii) the improvement

3.1.19 This private sector development

of the performance of private sector support

support will require support for the formu-

entities by defining strategic studies; (iii) the

lation and/or implementation of (public

development of PPPs; and (iv) the improvement

and private) investment programmes

of governance in institutions responsible for

and strategies to improve the business

education and vocational training to provide

environment at the national level and in

skills necessary for the development of an

the regions and to back the sophistication

innovative private sector. At the local level, the

of the economy. This support will focus on

Bank will, in particular, support efforts to

the “infrastructure” operational priority of the

upgrade and decentralize the administration in

Bank’s 2013-2022 Strategy. At the regional

order to improve public service performance

level, this will hinge on the upgrading of

and, thus, attract investments to the regions

basic infrastructure in order to promote the

and promote more inclusive growth in Tunisia.

development of productive activities in disadvantaged regions. This will help to firmly

3.1.17 Regarding technical assistance,

establish growth in a context of enhanced

“quick wins” may be carried out to improve

social cohesion and facilitate the implemen-

the business climate by supporting adminis-

tation of reforms. At the national level, it will

trative reforms and implementing the Public

require the provision of support to key

Procurement Reform Action Plan. Technical

projects with a knock-on effect on the entire

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a n

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private sector or that serve as vectors of

pillars should lead to better coordination

innovation. Support to these investments will

of Bank actions and other donors and

be provided so as to include the “green” dimension and promote PPPs.

private partners. A 1-to-4 leverage effect will be sought. To that end, co-financing will be considered before fielding the identification

3.1.20

Regarding technical assistance,

mission and the Bank will first contact partners

the conduct of a market research on the choice

without the same operational capacity in

and type of deep-sea port(s) in the short-term

Tunisia (OFID, GEF).

could give a strong signal to investors, while technical assistance operations for the prepa-

3.1.23 Furthermore, considering financing

ration of the rural roads project, the develop-

constraints, priority will be given to the

ment of sanitation plans or an integrated

“infrastructure” pillar in the case of “low”

agricultural development programme would

and “median” loan scenarios. The “gover-

allow for the rapid formulation of investment

nance” pillar will be considered in terms of

operations in the regions and facilitate leverage

loans only in the case of “high” scenario.

effects. In the medium term, the Bank could support the development of a transport plan. 3.1.21 In terms of loans, where the Bank’s

3.2 Expected Results and Targets A. Monitoring and Evaluation

capacity permits, priority will be given to investment projects to upgrade basic infra-

3.2.1 Dialogue will be held with the

structure in the regions (natural gas distribution,

authorities every two months to monitor

rural and urban development and rural roads)

portfolio implementation status and

or highly innovative infrastructure with a high

evaluate results. Like the previous I-CSP,

leverage effect (solar energy). Where the

workshops will be organized to involve civil

Bank’s resources permit (median and high

society in the evaluation of results. This

scenarios) other basic infrastructure develop-

monitoring process will be based on the

ment operations in the regions (water and

monitoring and evaluation system of the

sanitation, urban development, roads) and

country which has well-developed statistical

strategic infrastructure development operations

tools. However, the Bank will consider

(Rades Port) could be considered.

providing support for the development of regional statistics to facilitate the monitoring

3.1.22 The quest for leverage effects

of project impacts and public policies in the

during the implementation of these two

regions.

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3.2.2 The logical framework of future projects

by a reform budget support (“high” scenario).

will include indicators helping to monitor

While enabling “quick wins”, all these actions

the implementation of the 2013-2022

will have paved the way for private sector

Strategy..

development.

3.2.3 The I-CSP results monitoring frame-

3.2.5

work matrix is presented in Annex 2. It will

investment projects to develop basic or

be revised depending on changes in the

innovative infrastructure will have been financed,

commitment capacity. Given the short

if the Bank’s lending capacity permits. This

duration of the I-CSP, two types of result

job-creating approach will improve the attrac-

indicators were established, namely the: (i)

tiveness of regions while reinforcing food

qualitative indicators by 2015 and (ii) quanti-

security (opening up of regions through the

tative indicators over a longer period (2018).

construction of rural roads and roads, impro-

Under the “infrastructure” pillar,

vement of sanitation and access to clean

B. Pillar Results and Targets

energy in regions and the implementation of the Integrated Rural and Urban Development

3.2.4 Structural and sector reforms will

Programme) and support innovation and

have been supported under the “governance”

national competitiveness (port and energy).

pillar to promote the qualitative transfor-

While enabling “quick wins” (project formulation

mation of the country’s institutional frame-

and leverage effect) the technical assistance

work. The Bank’s action, which was carried

operations will have layed the necessary

out mainly through technical assistance ope-

basis for the development of a more inclusive

rations, helped to improve regulations gover-

growth model.

ning economic and training activities, resulting in the creation of an environment that is more

3.3 Risks and Mitigative Measures

conducive to private sector development at the national and local levels (administrative

Risk

regarding

the

Bank’s

reforms, decentralization, development of

commitment capacity and financial

online services, application of the law on PPPs,

integrity

transparency in public procurement and operation of the Stock Exchange, etc.) of

3.3.1 The relative uncertainty surrounding

vocational training and education in the regions).

political events could represent a short-

This support provided through technical

term risk. Developments in the regional context

assistance will, where possible, be sustained

could also impact the country’s security. To

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address this situation, the proposed flexible

should be of paramount importance to investors,

approach will enable the Bank to adapt to all

including the Bank. For the latter, changes in

major changes to protect its financial integrity.

the risk situation will significantly influence the level and type of operation implemented in

3.3.2 Transition to democracy is often

Tunisia. In response, the Bank will adopt an

accompanied by social instability with

approach adaptable to the changing risk

attendant insecurity. Demands will cease

situation and promote technical assistance

only if the transition period is completed as

in the composition of its portfolio â&#x20AC;&#x201C; where

soon as possible and if a new elected

necessary (Annexes 2 and 7).

government is put in place with a clear longterm strategy to address social demands. In

3.3.4 Trends in risk assessment at the

this respect, the strategy proposed by the

regional and national levels will influence

Bank seeks to lessen social instability in a

the level and type of Bank operation (as

lasting manner by reducing regional disparities

investment projects are preferred to budget

and supporting job creation.

support operations in this respect). In this connection, three scenarios are being

3.3.3 The economic risk should also be

designed to introduce various possible levels

considered. Macro-economic imbalances

of commitment depending on changes in the

are manageable in the short term, but it is

Bankâ&#x20AC;&#x2122;s financing constraints (with maximum

difficult to predict the outlook over a three-year

grants being: (i) low scenario: UA 50 million

period. The country suffered a successive

and UA 13 million; (ii) median scenario:

degradation of its sovereign credit rating by

UA 150 million and UA 10 million; (iii) high

rating agencies. In this context, the effective

scenario: UA 300 million and UA 10 million)

implementation of the IMF-backed programme

(Table 3 and Annex 2).

Table 3: Loan Scenarios Scenario

Grants (AT) in UAM per year

Maximum Loan in UAM per year

Triggers

Low

Level of concentration of Bank lending in North Africa

Median

150

Political, economic and social situation

High

300

Reports of rating agencies and the IMF

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Risks regarding ongoing operations

(iii) Project selection should be based on a matrix of indicators reflecting strategy

3.3.5. Implementation of operations. The

objectives and the Bank’s 2013-2022

administration’s capacity to implement ope-

Strategy (in terms of impact on incomes,

rations was slightly affected by the transition

employment, reduction of regional inequalities,

(Annex 3). In response, the Bank will place

and improvement of the business climate and

three procurement experts at the disposal of

sophistication of the economy). To this end,

MDCI for an 18-month period. In addition,

a filter has been developed to select and

where the context is not conducive to the

improve project quality.

design of reform budget support operations, the Bank will promote direct investments.

(iv) Civil society will be involved in all stages of the project cycle.

3.3.6. Infrastructure maintenance. During a period of budget constraints, infrastructure

(v) The I-CSP implementation will be based

maintenance could suffer. To address this

on sustained analytical works to strengthen

situation, technical assistance titled “Strategy

the Bank’s advisory role. These works will

for Road Maintenance in Tunisia” will help to

contribute significantly to fostering dialogue

sensitize the authorities.

with the Government on reforms and innovative operations.

3.4 Implementation Arrangements (vii) The promotion of the “green growth” 3.4.1 During this transition period, the

objective of the Bank’s 2013-2022 Strategy

Bank’s actions should be implemented

during the design of potential projects.

through arrangements that ensure consistency and efficiency:

(viii) Gender mainstreaming in project design. Employment-generating projects should pay

(i) The search for leverage effects should be

special attention to women’s employment

done as indicated in paragraph 3.1.18.

(such as the Agricultural Development Programme), while projects that improve access

(ii) Communication on the Bank’s operations

to basic services (energy and water) will

should be permanent to strengthen their

ensure that vulnerable and single-parent

ownership (in harmony with the policy on

households benefit from them as a matter of

access to information).

priority. Furthermore, the gender perspective

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will be taken into account when designing

regional environment oblige development

council investment programmes. Lastly, stra-

partners to adopt a flexible approach.

tegic studies on the development of training and skills should take into account gender

3.5.2 Flexibility is reflected in the institution

mainstreaming to facilitate the transition from

of a permanent dialogue and convening

training to employment among women.

of meetings every two months with Tunisian authorities to adapt the Bank’s

3.5

Country Dialogue Issues

response. This flexibility will comply with the framework of the pillars defined in the

3.5.1 The I-CSP is part of an evolutionary

strategy paper approved by the Bank’s top

approach based on Tunisia’s political,

management.

economic and social situation. The I-CSP underpins the implementation of the Bank’s

3.5.3

support operations in a context of transition.

and environmental conservation will be

The political events of the next few months,

discussed regularly in order to include this

the macro-economic situation influenced by

strategy in the second pillar of the 2013-2022

an unstable global context and the changing

strategy.

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IV.

4.1

Conclusions and Recommendation

Conclusions

4.1.2 It is proposed that the Bank’s operation for the 2014-2015 period should be refocused

4.1.1 As Tunisia is laying the last foundations

on two pillars, namely “governance” and

for its new economic, political and social-

“infrastructure”.

model, financial and technicalassistance needs are enormous. In this context, the

4.2

Recommendation

Bank plans to strengthen its support, in terms of technicalassistance operations, for portfolio

4.2.1 The Board is requested to consider

implementation, while adapting the level of

and adopt the proposed I-CSP for the

investments to changes in risk assessment

2014-2015 period.

at the regional and national levels.

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ANNEXES Annex 1 ENDNOTES 1

Attack on the American Embassy, the killing of two political figures and the November 2013 suicide bombings

2 3

The Ministry of the Interior, Justice, Foreign Affairs and Defence Requirement of a two-thirds majority for adoption Aide-memoire of the Recovery Support Programme Multi-donor Supervision Mission - March 2013 (AfDB/WB/EU) The data used is derived from the African Development Bank Statistics Department

AfDB, INS, WB, 2013. Measuring Poverty, Inequalities and Polarization in Tunisia 2000-2010, January 2013

7 8 9 10 11 12 13

2.7%, according to AfDB (ESTA) Despite two successive increases in fuel and electricity prices According to analyzes carried out in 2013 by the AfDB, IMF and World Bank See AfDB Economic Brief: Inflation in Tunisia: Perception and Reality in a Context of Transition, July 2012 See AfDB Economic Brief: Trends in the Exchange Rate of the Tunisian Dinar and Economic Impacts See AfDB Economic Brief: Trends in Investment Flows (FDI) in 2012 See AfDB Economic Brief: The Revolution in Tunisia: Economic Challenges and Prospects

MPs, ministers and senior government employees henceforth have an obligation to declare their assets. In 2013, Tunisia is preparing its draft declaration of assets and the law on ill-gotten property and the protection of whistle-blowers. A code of conduct for public officials was prepared in 2013 and is presently the subject of a national consultation

A series of legal (Constitution, Organic Law) and operational (reorganization) measures has been identified 15 to consolidate the role of the Audit Office as a constitutional and legal institution and to strengthen its independence and that of its members 16 See AfDB Economic Brief: The Revolution in Tunisia - Economic Challenges and Prospects, March 2011 17 IMF, 2012 Political stability and inefficient administrative bureaucracy appear to be particularly problematic for the business 18 world as well as budget deficit, inflation and the efficiency of the labour market See AfDB Economic Brief: Capital Market Development in North Africa: Current Status and Future Potential, 19 April 2013 Through a Central Bank circular which authorized the non-classification of receivables whose counterparties 20 were facing financial difficulties due to the Revolution. It is estimated that a classification of these receivables as bad debts would increase the ratio of bad debts in the system to 17%-18% as against 13.5% at end- 2012 21 AfDB, INS, WB 2013. Measuring Poverty, Inequalities and Polarization in Tunisia, 2000-2010, January 2013 AfDB, INS CRES, 2013. Analysis of the Impact of Food Subsidies and Social Assistance Programmes on the Poor and Vulnerable Population 23 See ADB Economic Brief: Migration of Tunisians to Libya: Dynamics, Challenges and Prospects, January 2013 Resurgence of the misuse of resources in nature reserves and deforestation as well as uncontrolled construction 24 in protected areas or poor waste management See report “Towards a New Economic Model for Tunisia: Identifying Tunisia’s Binding Constraints to 25 Broad-Based Growth” AfDB, the Tunisian Government and various U.S. agencies (MCC – USAID – the State Department) 22

26 See AfDB Economic Brief: Migration of Tunisians to Libya: Dynamics Challenges and Prospects, January 2013 27 See AfDB report: Comparative Study of Export Policies of Egypt, Tunisia and South Korea, October 2012

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See AfDB Economic Brief: Open, Smart and Inclusive Development: ICT for Transforming North Africa, April 2012.

See AfDB Economic Brief: The Growth of International Trade in Health Services Export Prospects in North Africa, March 2013.

30 World Bank 2012 - Tunisia: From Revolutions to Institutions. 31

Co-contracting enables the production of goods in partnership with another economy, helping to transfer technology and upgrade quality.

32 ILO - Infrastructure and Employment Creation in the Middle East and North Africa. 33 Comete Engineering - Evaluation of the Rades Port. 34 OECD. Strengthening Public-Private Dialogue on Economic Policy Reforms in Egypt, Morocco and Tunisia, 2011. 35 See ADB Economic Brief: Jobs, Justice and the Arab Spring - Inclusive Growth in North Africa, May 2012. 36 See AfDB Economic Brief: What Policies to Deal With Inequalities in Access to Healthcare in Tunisia? 37 See AfDB Economic Brief: Regional Development and Job Creation in Tunisia, Strategic Guidelines. 38

OECD (2004), Development Centre Studies, “Institutional Efficiency and Its Determinants, The Role of Political Factors in Economic Growth”.

40 See AfDB Economic Brief: Tackling Youth Unemployment in the Maghreb, July 2011. 41

See report “Towards a New Economic Model for Tunisia: Identifying Tunisia’s Binding Constraints to BroadBased Growth” AfDB, Tunisian Government and various U.S. agencies ( MCC- USAID - State Department). See AfDB Economic Brief: Political Transitions and New Socio-economic Bargains in North Africa, May 2012. See report “Towards a New Economic Model for Tunisia: Identifying Tunisia’s Binding Constraints to BroadBased Growth” AfDB, Tunisian Government and various U.S. agencies (MCC- USAID - State Department). Aide-memoire of the Recovery Support Programme Multi-donor Supervision Mission - March 2013 (AfDB/WB/EU).

44 WB/AFD/FAO Report: Financing the Agricultural Sector in Tunisia. According to the gravity model of trade which best corresponds to empirical trends, the level of trade between 45 two countries is proportional to the product of their GDP and inversely proportional to the square of the distance between them (Anderson, 2011). 46

Such as the Gabes-Ras Jedir Highway Project co-financed with JICA in 2011 or the Credit Line for SME Development co-financed with the World Bank.

47 Some major donors such as the IsDB and IFAD are not on this list. See AfDB/WB publication: Final Report on the Evaluation of the National Public Procurement System in Tunisia, 48 May 2013: This report addresses the weaknesses of the current system and proposes concrete short- and medium-term actions to create conditions conducive to an efficient and transparent procurement system. 49

Whose pillars are (a) Growth and Job Creation; b) Regional Development and Social Protection; and (c) Governance.

See the report “Towards a New Economic Model for Tunisia: Identifying Tunisia’s Binding Constraints to BroadBased Growth”, AfDB, Tunisian Government and various U.S. agencies (MCC- USAID - State Department).

51 See the AfDB Economic Brief: The Political Economy of Food Security in North Africa, November 2012.

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Improving the business climate and II. Infrastructure competitiveness modernization

I. Economic reforms

Tunisia’s Strategic Objectives

Infrastructure and upgrading of transport systems

25% increase in container traffic all over the national territory The waiting time at the quay and time spent at the quay reduced by 25%

r The upgrading project is designed; the contract is concluded the use of PPP is prioritized The public sector consulted the private sector on the identification of the deep- sea port

The upgrading of port i nfrastructure is initiated, helping to decongest maritime t raffic

The deep-sea port is selected and the search for partners initiated (by prioritizing the PPP method) Infrastructure

Study Market research on the option and type of deep-sea port(s), conduct of geological studies related to site selection, conduct of feasibility studies and market research, preparation of BOT or PPP (OITC / OPSM) files

Investment project – Support for the development of the Rades port (PPP) (OITC/OPSM)

Problems Expected Expected Outputs AfDB Operations that can be Impeding Long-Term outcomes (that could implemented during the CSP period the Outcomes at the End be Achievement (that could of the CSP expected at Potential Potential of Strategic be 2015 Period the end of Pillars (and Technical 2013-2022 Loans Objectives expected in the CSP operational Assistance 2018) 2015 strategy period) priorities)

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Annex 2

RESULTS-BASED LOGICAL FRAMEWORK – TUNISIA’S CSP 2014-2015 – ADJUSTABLE TO CHANGES

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II. Infrastructure modernization

I. Economic reforms

Improving the business climate and competitiveness

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The State should ensure the compliance of its independent audit instruments with standards to evaluate public policies in order to improve the business climate and competitiveness

The public procurement system requires the initiation of reforms to comply with international standards

Complex administrative procedures do not facilitate private sector development and entrepreneurship among citizens The time taken to award a contract is reduced by 50% - 100% of public contracts are accessible online

Improvement of Tunisia’s ranking in Doing Business by at least 15 places

The Audit Office can fully play its role as a public policy auditor

A more transparent regulatory f ramework is put in place and a more efficient public procurement system established

Administrative procedures are simplified and their use by the private sector and citizens is facilitated

D e v e l o p

m e n Budget support measures facilitate the training and certification of magistrates in information technology, internal auditing, computerized auditing and corruption investigation techniques

Budget support measures facilitate the introduction of ICTs into the Audit Office’s information system and audit instruments

The implementation of the Public Procurement Reform Action Plan is at an advanced stage and the new procurement code is approved

The diagnosis of administrative procedures is carried out – measures are identified and implemented

Governance

Technical assistance – Support for the implementation of the Public Procurement Reform Action Plan (ORPF/ORNA)

Technical assistance – Support for administrative reform (OSGE/ICT4D)

Set of measures that can be included in a budget support programme (OSGE - OSHD)

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II. Infrastructure modernization

I. Economic reforms

Increasing value added (sophistication)

Improving the business climate and competitiveness

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D e v e l o p

Tertiary sector: the development of quality private higher education that meets private sector needs lacks a conducive regulatory framework and strategic vision

Secondary sector: the industrial sector lacks a clear vision to guide choices in terms of public policies and attract FDIs that support innovation

The institutional framework is not conducive to the development of PPPs

Increased diversification of private education courses accredited by the national quality assurance body which meet market needs

Implementation of the sector industrial strategy action plan

20% increase in industrial exports (in value)

50% increase in the number of students trained by private education (50 % of women)

The institutional framework for PPP formulation is put in place. A leverage effect of at least [2.0 x] is achieved through private sector investment in two pilot projects

Five pilot projects are implemented helping to raise TND 1.5 billion worth of private investment

Completion of diagnostic study (2014); Design of the Integrated Private Education Development Strategic Plan (2014)

The diagnosis and benchmark of industrial sector outputs are carried out; New industrial strategies are approved by the Government

Budget support measures facilitate the implementation of a PPP regulatory framework and a PPP Unit is operational

Governance

Gouvernance

Study â&#x20AC;&#x201C; Preparation of the diagnosis of and prospects for the development of private higher education (OSHD)

Technical Assistance â&#x20AC;&#x201C; Design of a new industrial and economic transformation strategy (ORNA)

Set of measures that can be included in a budget support programme (OSGE - OSHD)

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IV. Strengthening social, education and employment sectors

III. Regional rebalancing

II. Infrastructure modernization

I. Economic reforms

Improving public service delivery in regions

Increasing value added (sophistication)

The mobilization of financial resources is necessary to f acilitate access to basic infrastructure (water and sanitation, energy and roads). This mobilization is affected by the lack of a strategic plan or feasibility study

Tertiary sector: the promotion of health service exports is impeded by competition from other countries and the non- certification of health facilities

Secondary sector: the promotion of green energy is impeded by the low mobilization of concessional financial resources

D e v e l o p

m e n 250 km of additional express highways linking interior governorates to the coast, resulting in the creation of 3 000 additional jobs in the targeted regions (40 % for women)

250 km of additional rural roads, resulting in the creation of 2 000 additional jobs in the targeted (40 % for women)

50% increase in the share of health services in total service exports

Additional 50 MW for solar energy

The opening up of regions is accelerated and infrastructure is maintained

A health service export action plan is implemented - PPP projects are identified

Continuation of the diversification of Tunisia’s energy mix by increasing the share of renewable energy

The Transportation Plan and Road Management and Maintenance Strategy are available - roads are developed

The feasibility study is carried out and the 500 km of Rural Roads Project is launched

The strategic study on the export of health services in Tunisia is validated and its implementation is ongoing

Start-up of construction works of the Akarit 50 MW power plant

Infrastructure

Infrastructure and governance

Infrastructure

Technical Support – Design of a transport master plan and the Road Management and Maintenance Strategy (OITC)

Technical Assistance - for the preparation of the 500 km of Rural Roads Project (OSAN)

Investment project – roads in regions (OITC)

Investment project - 500 km of rural roads (OSAN)

Investment project Export of health services -PPP approach (OSHD/OPSM)

Investment project Concentrated Solar Project (ONEC)

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IV. Strengthening social, education and employment sectors

III. Regional rebalancing

Improving public service delivery in regions

The devolution / decentralization of government services is limited by an inappropriate institutional and territorial framework (one third of the Tunisian territory is not divided into councils) and a great need forinvestment in some areas in the regions.

i c a n Creation of 5 regional urban service agencies (50% of public investments are made at the local level).

95% of rural dwellers have access to drinking water

4 000 additional households have access to a source of clean energy (15% for single parents)

New councils are established from new territorial divisions, the distribution of the financial resources transferred to local authorities is improved and the activities of regional urban service agencies are initiated.

Improving access to drinking water and liquid and solid sanitization in regions

Improvement of access to a modern energy source (natural gas) in the disadvantaged areas of the western region

D e v e l o p Studies on (i) deconcentration and its impact on decentralization; (ii) territorial division and division of the national territory into councils; and (iii) transfer of financial resources and budgeting are carried out and reforms

Feasibility studies are available and the start of the Project to Sanitize 30 Councils with less than 10 000 inhabitants is launched

Feasibility studies are being finalized with MIC grant resources and start-up of RDWS project

The Project for Secure and Reliable Access to Natural Gas in the disadvantaged regions of the Western Region is launched

Governance (AT) Infrastructure (Investment)

Infrastructure

Technical assistance Support for the implementation of the decentralization strategy. Establishment of regional urban service agencies and joint support for the implementation of investment programmes (OSHD / OSGE)

Technical assistance for the development of sanitation master plans by governorate (12 disadvantaged governorates) and solid waste management (OWAS)

Investment project Support to the 2014-2018 Council Investment Programme in new councils ensuing from the creation of new territorial units (OSHD)

Investment project - RDWS Programme and Sanitization Programme of 30 councils with less than 10 000 inhabitants (OWAS)

Investment project - Project for the Development of a Network for the Transportation and Distribution of Natural Gas in the Western Region (ONEC)

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III. Regional rebalancing

Access to employment by developing skills and opportunities in regions

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D e v e l o p

Youth employability is limited by access to poor quality vocational training and a mismatch between job offer and demand

The decentralization of government services is limited by lack of capacity, particularly in the domain of education

Reduction of the unemployment rate of new entrants into the graduate labour market by 20% (similar for women and men )

Reduction of regional gaps in PISA tests by no less than 25% (girls and boys being at par)

Division of the entire national territory into councils (100%)

m e n Access to quality vocational training is increased and training meets private sector needs

Upgrading of the human resources in charge of management in the 24 regional education offices to enhanced the decentralized management of education

Council investment programmes in new councils are launched

Budget support measures facilitate the creation of new sectors in regions according to the needs of the economy and

All the 26 regional education offices are equipped with qualified human resources; partnerships are developed with specialized capacity building institutions; decentralized management tools are developed and disseminated in the regions

The Council Investment Programme 2014-2016 in new councils is launched

identified are implemented. The institutional framework for PPP projects is defined for councils.

Governance

Technical assistance â&#x20AC;&#x201C; Training regions in decentralized management of education (OSHD)

Set of measures that could be included in a budget support programme (OSHD - OSGE)

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IV. Strengthening social, education and employment sectors

III. Regional rebalancing

Access to employment by developing skills and opportunities in regions

The development of employment opportunities in rural areas is limited by lack of training, agricultural infrastructure and opportunities outside the agricultural sector

i c a n 15% reduction in the unemployment rate in the Zaghouane rural area (similar for women and men )

20% reduction in the unemployment rate of graduates from vocational training schools (similar for women and men )

An Integrated Agricultural Development Programme is launched in Zaghouan Region

The employability of graduates from vocational training schools is being improved

The programme has been launched

Budget support measures facilitate the establishment of a professional integration monitoring system and an institutional ramework that promotes the involvement of the productive sector

the strengthening of rotation and learning in companies and increased communication

Infrastructure

Gouvernance

Investment project Zaghouan Integrated Agricultural Development Programme (OSAN)

Set of measures that could be included in a budget support programme (OSHD - OSGE)

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Annex 3 I-CSP 2012-2013 COMPLETION REPORT AND PORTFOLIO PERFORMANCE REVIEW (2013) CONCLUSIONS AND RECOMMENDATIONS Restrict the number of pillars and be more selective about the expected outcomes of the next I-CSP to take into account the Bank’s resource constraint and Tunisia’s unstable environment. Strengthen the alignment of analytical works with the objectives and expected outcomes of the interim strategy. Strengthen strategic dialogue and communication with development partners and the Government on the search for the co-financing of the implementation of operations and analytical works.

I-CSP (2012-2013)

Improve the capacity to monitor and evaluate the I-CSP by developing result indicators that are simple, verifiable and limited in number for CSP pillars. Combine general budget support operations for structural reforms and sector budget support operations to increase strategic public investments in infrastructure (transport, energy and telecommunications) to preserve productive capacity and create direct and indirect employment in the regions. For the Government

Portfolio (Provisional Review 2012)

Auditing. Make adequate arrangements to meet the six-month deadline for submitting audit reports as from the 2012 financial year to the Bank and to ensure the verification of their quality by the CGF by indicating in particular the status of the recommendations of previous audits and appropriate measures to implement them. Auditing. Pursue dialogue with the Audit Office and development partners to agree on a roadmap in 2013 to enable the Office to audit externally-funded projects. Reporting. Improve the regularity and quality of project progress reports by strengthening ongoing project monitoring and evaluation units. Accelerate the effectiveness and fulfilment of conditions precedent to the first disbursement of non-performing loans (SME line of credit, Treated Wastewater Quality Improvement Project); Studies. Accelerate the award of delayed study contracts (BTS, health service exports, sanitation strategy) such as to enable the first disbursement of MICF grants before end-December 2012. These grants are liable to cancellation if not disbursed. Public procurement. Adopt the Reform Action Plan before end-December 2012. For the Bank Supervision. Maintain an adequate rate of project supervision in 2013 (average greater than 1.5) with 2 missions for decentralized projects. Mid-term review. In 2013, programme the mid-term review of projects whose implementation is at an advanced stage. Launching of new projects. In 2013, carry out at least one launching mission for new projects with ORPF and FFCO assistance. Replenishment of the special account of decentralized projects. Coordinate post-audit missions (FFCO) to build up of project working capital in 2013 with supervision missions. Provide assistance (technical and financial) for the good governance reforms of the public sector initiated by the Government in 2013, which have direct consequences on the viability and performance of the Bank’s portfolio. (Public procurement, Auditing, Citizen Participation).

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Annex 4 TUNISIA’S PORTFOLIO (UA) (JANUARY 2014) Dept.

Name

Financing

Closure Approval Amount Date

Disbur.

Age

100% 100%

3.88 5.05

Private Sector OPSM3 OPSM3

ETAP corporate loan Enfidha Airport project Enfidha Airport (conditional OPSM3 tranche) OPSM3 BH Tunisie OPSM3 BTEI- Line of credit OPSM APEX SME Line of Credit Facility

AfDB Private AfDB Private

29 Nov. 10 17 Mar. 10 31 Mar. 10 14 Jan. 09

97.64 60.03

AfDB Private

31 Mar. 10 14 Jan. 09

1.83

5.05

AfDB Private 28 Feb. 06 27 Feb. 02 AfDB Private 30 Apr. 07 20 Dec. 02 AfDB Public 31 Dec. 16 13 Jul. 11

25.18 35.34 32.55

100% 100% 50%

11.93 11.12 2.56

OWAS2

AfDB Public

31 Dec. 17 12-oct-11

83.78

15%

2.31

AfDB Public

31 Dec. 14 11 Jan. 12

28.67

2.06

MIC

31 Dec. 13

6 Oct. 09

0.58

12%

4.32

MIC

31 Dec. 14 5 Aug. 09

0.63

27%

4.49

MIC

30 june 14

4 Dec. 09

0.57

13%

4.16

AWF AWF

RDWS Programme Treated Wastewater Quality Improvement Project PCI Study – Grand Tunis Study on Zaarat Seawater Desalination Study on Tunisia’s Sanitation Strategy 2050 Water Vision and Strategy SINEAU

AWF AWF

31 Dec. 14 10 Jan. 11 31 Dec. 14 22 Dec. 09

1.05 1.74

7% 71%

3.06 4.11

OITC2 OITC2 OITC2

Gabes - Ras Jedir Highway Road Project - VI Road Project - V

AfDB Public AfDB Public AfDB Public

121.35 208.52 154.03

17% 64% 75%

2.62 3.38 5.64

OSAN1

Sector Investment Project

AfDB Public

31 Dec. 14 11-Dec. 08

20.24

65%

5.14

OSAN1 OSAN1 OSAN1 OSAN1

North Gafsa PDAI Kairouan PDAI GDA Support Grant - Gabes and Gafsa PDAI

AfDB Public AfDB Public MIC MIC

TBC 31-Jul. 14 31-Dec. 14 31-Dec. 14

13 Feb. 13 29 Mar. 06 20 Oct 09 26 Jul. 12

19.54 15.73 0.59 0.38

0% 71% 15% 48%

0.96 7.85 4.28 1.52

31 Dec. 13 28 Nov. 12 31 Dec. 13 28 Sept.05 31 Dec. 13 3 Nov. 09 31 Dec. 12 10 Sept.09

342.48 52.84 0.58 0.53

100% 89% 100% 25%

1.18 8.35 4.25 4.32

31 Dec. 13 22 Nov. 10

0.27

15%

3.19

31 Dec. 11 11 Mar. 11

0.65

100%

2.90

Water and Sanitation OWAS2 OWAS2 OWAS2 OWAS2

Transport 31 Dec. 17 21 June 11 31 Dec. 16 15 Sept.10 31 Dec. 13 11 June 08

Agriculture and Irrigation

Social OSHD2 Economic Recovery Support Project AfDB Public OSHD2 Sec. Education Support Project II AfDB Public OSHD3 Study on Emerging Diseases MIC OSHD3 Export of Health Services MIC Study on the Development of OSHD2 MIC Cultural Industries ORNA Humanitarian Assistance on the SRF Libyan Border

Governance and Reforms Preparatory Study on the Commercial Law Strengthening Project OITC E-government and Open government Statistical Capacity Building ESTA2 Programme II (SCB II) Study on Micro-credit System ORNA Evaluation (BTS) ORNA ITCEQ Support

OSGE2

MIC

31 Dec. 13 24-sept-10

0.32

16%

3.36

20 Dec. 12

0.68

1.12

MIC

31 Dec. 14 30 Mar. 11

0.49

50%

2.84

MIC

31 Dec. 12

6 Jan. 10

0.14

4.07

MIC

31 Dec. 11 3 Dec. 09

0.2

90%

4.16

42.03

78%

4.42

MIC

TBC

Energy ONEC1

Sanitation Restructuring Project

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AfDB Public

31 Dec. 13 2 Sep. 09

D e v e l o p

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Annex 5 TRENDS IN TUNISIA’S SOVEREIGN RATINGS Date of Date of modification Moody’s ratings modification Moody’s of S&P’s scale ratings ratings

S &P’s ratings scale

Investment grade

Aaa

AAA

Aa1 / Aa2 / Aa3

AA+ / AA / AA-

A1 / A2 / A3

A+ / A / A-

Baa1

BBB+

Date of modification Fitch ratings

Fitch ratings scale

17 April 2003

Baa2

21 March 2000

BBB

24 May 2001

BBB

April 1995 19 Jan. 2011

Baa3

Sept. 1995 16 March 2011

BBB-

Sept. 1995 2 March 2011

BBB-

Speculative grade

28 Feb. 2013

Ba1

BB+

30 May 2013

Ba2

23 May 2012

25 Nov. 2013

Ba3

19 Feb. 2013

BB-

B1 / B2 / B3

16 Aug. 2013: B

B+ / B / B-

Caa1/Caa2/Caa3

CCC+/CCC/CCC -

CCC

Ca / C

CC / C

SD / D

RD / D

11 Dec. 2012

BB+ BB

30 Oct. 2013 BB-

BB-

* This table does not include the dates of confirmation of ratings. *Bleu = Date of positive rating action; Red = Date of negative rating action.

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Annex 6 IMF: USD 1.74 BILLION STANDBY ARRANGEMENT

1. Introduction

The main objectives of the IMF-backed programme are to: (i) strengthen budgetary

On 7 June, the Executive Board of the Interna-

and external flexibility (through monetary and

tional Monetary Fund (IMF) approved a 24-

budgetary policies); (ii) lay the foundations for

month standby arrangement of an amount

growth (by addressing the vulnerabilities of the

equivalent to SDR 1.146 billion (USD 1.74 billion)

banking sector, facilitating better composition

for Tunisia to support its economic reform

of expenditure and implementing an ambitious

programme for the 2013-2015 period intended

structural reform programme that promotes

to strengthen budgetary and external flexibility

private sector development and reduces regional

and foster more robust and inclusive growth.

disparities and pervasive State intervention); (iii)

The Executive Boardâ&#x20AC;&#x2122;s decision helped to

protect vulnerable groups (social assistance

ensure the immediate disbursement of USD

mechanisms and systematic evaluation of the

150 million. The disbursement of the remaining

social impact of proposed reforms). Thus,

amount will span the duration of the programme

they are a continuation of multi-donor budget

and subject to eight reviews. The first review will

support programmes in which the AfDB

take place at end-September. As a reminder,

participated, thus underscoring the consistency

this is the third loan agreement between Tunisia

of the analysis of the various technical and

and the IMF (the preceding agreements were

financial partners and the relevance of the

concluded in 1964 and 1986).

reforms encouraged.

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Annex 7 SIMULATION IN TERMS OF LOANS Scenario

Maximum Loan in UAM per year

Grant (AT) UAM per year

Triggers

Low

Level of concentration of Bank lending in North Africa

Median

150

Political, economic and social situation

High

300

Ratings of rating agencies

PRE-IDENTIFIED PROJECTS (IN GREEN - LOW SCENARIO, IN ORANGE - MEDIAN SCENARIO AND IN BLUE - HIGH SCENARIO) Time Horizon

Scenario

Instrument

Project Name

Amount (UA million)

Department

Pilier - Infrastructure Sector loan

Project to Develop Natural Gas Transportation and Distribution Network in the Western Region

30-40

ONEC

Sector loan

Rural Development Project

22-30

OSAN

Sector loan

Farm Road Project

40 - 60

OITC - OSPM ifi PPP

Sector loan

Projet de pistes agricoles

27-43

OSAN

Sector loan

Concentre Solar Project (under leverage effect and short term economic viability conditions)

30-50

ONEC

Sector loan

Rural Drinking Water Supply Programme

OWAS

Sector loan

Road Project

30-50

OITC

Sector loan

Council Investment Project

75-100

OSHD

Low

2014

Median

Low

2015 Median

High

Pillar - Governance 2014

High

Sector loan

Health Service Export Project

OSHD

2014

High

Budget support

Budget Support Programme

100-250

OSGE and OSHD

2015

High

Budget upport

Budget Support Programme

100-250

OSGE and OSHD

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Annex 8 POVERTY AND UNEMPLOYMENT IN THE REGIONS Governorate Unemployment Rate in 2010

Poverty in 2010

Governorate Unemployment Rate in 2010

Poverty in 2010

Ariana

10.4

5.8

Manouba

14.7

9.1

Beja

11.2

22.1

Mednine

13.8

18.8

Ben Arous

11.7

5.0

Monastir

5.7

5.5

Bizerte

12.3

19.4

Nabeul

11.1

3.6

Gabes

17.4

15.1

Sfax

7.1

9.4

Gafsa

28.5

22.2

Sidi bouzid

14.0

28.3

Jendouba

17.0

28.6

Siliana

15.3

20.3

Kairouan

10.2

23.9

Sousse

13.0

7.7

Kasserine

20.1

46.9

Tataouine

22.7

21.7

Kebili

17.1

21.8

Tozeur

16.8

18.8

Le Kef

11.5

30.4

Tunis

13.8

13.1

Mahdia

12.0

8.5

Zaghouan

4.8

11.1

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Annex 9 LIST OF ECONOMIC AND SECTOR STUDIES ON TUNISIA CARRIED OUT SINCE 2011 Study Title

Date of Publication

African Economic Outlook 2013 - Structural Transformation and Natural Resources in June 2013 Africa Final Report on the Evaluation of the National Public Procurement System in Tunisia

May 2013

Capital Market Development in North. Africa: Current Status and Future Potential

April 2013

Trends in Investment Flows (FDI) in 2012

March 2013

Development of International Trade in Health Services: North Africa’s Export Prospects

March 2013

Measuring Poverty, Inequalities and. Polarization in Tunisia, 2000-2010

January 2013

Identifying Tunisia’s Binding Constraints to Broad-Based Growth

January 2013

Towards a New Growth Model for Tunisia. June 2012 Seminar Proceedings

December 2012

The Political Economy of Food Security in North Africa

November 2012

Could Oil Shine like Diamonds? How Botswana Avoided the Resource Curse and its ImNovember 2012 plications for a New Libya Unlocking North Africa’s Potential through Regional Integration

October 2012

Comparative Study on Export Policies in Egypt, Tunisia and South Korea

October 2012

Forecasting the Costs and Benefits of Implementing Basel III for North African Emerging September 2012 Economies: An Application to Egypt and Tunisia Tunisia: Economic and Social Challenges Beyond the Revolution

September 2012

Inflation in Tunisia: Between Perception and Reality in a Context of Transition

July 2012

Political Transitions and New Socio-economic Bargains in North Africa

May 2012

Jobs, Justice and the Arab Spring: Inclusive Growth in North Africa

May 2012

African Economic Outlook 2012 - Promoting Youth Employment

May 2012

The African Development Bank Group in North Africa 2012 - A Year of Transition

May 2012

Open, Smart and Inclusive Development: ICTs for Transforming North Africa

April 2012

Tunisia - Interim Strategy Paper 2012-2013

January 2012

New Libya, New Neighbourhood: What Opportunities for Tunisia?

January 2012

Islamic Banking and Finance in North Africa

December 2011

Libya: Post-war Challenges

October 2011

Distortions to Incentives and Agricultural Policy in Tunisia: A Preliminary Analysis

September 2011

Poverty and Inequality in Tunisia, Morocco and Mauritania

August 2011

Tackling Youth Unemployment in the Maghreb

July 2011

Impact of Libya’s Conflict on the Tunisian Economy: A Preliminary Assessment

July 2011

The African Development Bank Group in North Africa - 2011

April 2011

The Revolution in Tunisia: Economic Challenges and Prospects

March 2011

Chinese Investments and Employment Creation in Algeria and Egypt

January 2011

The BRICs in North Africa: Changing the Name of the Game?

January 2011

Alleviating Poverty in Rural Tunisia: An Integrated Approach to Agriculture

July 2010

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Annex 10 STATUS OF IMPLEMENTATION OF AfDB BUDGET SUPPORT MEASURES IN 2011 AND 2012 Status of Implementation

Measures

Remarks

Economic Recovery and Inclusive Development Support Programme - 2012 Lifting the ceiling of the tax on industrial, commercial or professional Implemented. establishments Very satisfactory

TND 60 million collected in 2012

Adoption of a circular on the establishment of an information system for social protection programmes

Adopted. Unsatisfactory

The implementation of the plan has been delayed

Adoption of a decree establishing a national health care accreditation Adopted. body and defining its functions and laying down its administrative, Unsatisfactory scientific and financial organization as well as functioning

The appointment of members has delayed the operationalization of this body

Adoption of a decree establishing a participatory process for the Adopted. evaluation and review of the administrative procedures governing Unsatisfactory the conduct of economic activities

The review is ongoing

Adoption of a decree laying down procedures for the functioning of Adopted. the microfinance control authority

The authority is operational.

Adoption of Decrees No. 2012-890 and No. 2012-891 of 24 July 2012 to amend the law relating to venture capital and mutual invest- Adopted. ment fund companies and relax the terms and conditions of their Satisfactory operation

Ongoing

Adoption of a decree to amend and supplement Decree No. 349Adopted. 2009 of 9 February 2009 establishing National Employment Fund Satisfactory programmes and the terms and conditions of their benefit

New employment programme and the reorganization of ANETI are underway

Adoption of a decree defining the composition of the National Evaluation, Quality Assurance and Accreditation Authority and its functioning

Adopted. Unsatisfactory

The operationalization of MES has been delayed

Adoption of a note on the publication of public finance-related data

Adopted. Satisfactory

Budget information is published on MFâ&#x20AC;&#x2122;s website

Approval by the Government of the report on the evaluation of the Adopted. national procurement system according to OECD/DAC methodology Satisfactory as well as the ensuing action plan

The implementation of the Action. Plan is ongoing. A new procurement code is being finalized.

Adoption of a circular issued by the Head of Government outlining Adopted, but not the provisions of Decree-Law No. 2011-41 of 26 May 2011 governing applied. access to the administrative documents of public bodies

Some past laws governing the administration are contradictory and should be amended.

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Governance and Inclusive Development Support Programme 2011 Improvement of targeting quality and extension of the coverage of Ongoing the Needy Families Support Programme

Targeting quality is being improved

Review of criteria for the allocation of investments to disadvantaged Completed regions

Besides human development indicators, criteria should be improved

Adoption of a comprehensive programme for the active support of Adopted. job-seekers (AMAL) Satisfactory

Grants have been awarded to 200 000 unemployed

Issuing of a Presidential decree transferring the management of the Completed. National Employment Fund (Fund 21/21) to the Ministry of Vocational Satisfactory Training and Employment

Increased transparency in the allocation of funds

Adoption of the roadmap on microfinance reforms

The action plan has been implemented; orders relating to accounting and external audit standards should be issued

Ongoing. Unsatisfactory

Setting up of special delegations with the participation of civil society Completed. in lieu of municipal councils Satisfactory

Special delegations have been set up in 236 delegations

Strengthening mechanisms for the evaluation of public services by citizens

Partly implemented

The process has been launched in three regions, but it is yet to be institutionalized

Adoption of a decree-law on access by the public to information held by the Government

Decree adopted, but not implemented. Unsatisfactory

Its implementation is impeded by lack of awareness and poor dissemination among actors and the population The Committee manages the entire public procurement system reform process

Adoption of a decree establishing the National Public Procurement Adopted. Reform Coordination and Monitoring Committee (NPPCMC) Satisfactory

Publication of annual Audit Office reports in full

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Annex 11 CIVIL SOCIETY PARTICIPATION IN STRATEGY PREPARATION

On 14 January 2011, Tunisian civil society

its potential and needs. Meetings held during

which, hitherto, was virtually absent from the

this exercise also helped the Tunisian civil

national public scene, entered an intense

society to better understand the role and

development phase resulting in the creation

operations of the AfDB. The relations developed

of numerous organizations. This unprecedented

have subsequently been maintained.

development also gave an opportunity to technical and financial partners in the country,

(ii) Holding of regular meetings with civil

including the African Development Bank, to

society to discuss issues of common

renew their relationships with this now inevitable

interest. During the past two years, the AfDB

actor in Tunisia. In this context, the dialogue

has sought to involve CSOs in many events

initiated during the preparation of the previous

relating to political, financial, economic and

I-CSP was consolidated through five work-

social challenges in North Africa, particularly

thrusts.

monthly conferences organized within the framework of the North Africa Policy Series. In

(i) Conduct of an in-depth study and survey

fact, besides building their capacity through

on “Participatory Governance: How to

the direct dissemination of information from

Improve Public Service Delivery through

this research, their contribution to debates

State-Citizen Partnership”. The identification

helps to understand certain field realities

work initiated after the Revolution gave rise

which could be reflected in the Bank’s strategy

to genuine literature review. The report was

and operations in North Africa. During these

prepared on the basis of interviews with key

meetings, the Bank also serves as a catalyst

stakeholders (citizens, civil society organizations

by promoting dialogue between the public

(CSOs) and public authorities) and a survey of

sector, the world of research and other tech-

256 Tunisian associations in 24 governorates

nical and financial partners. This dialogue has

to analyze the present context of participatory

been complemented by the organization of

governance in Tunisia and the capacity of

quarterly national conferences (in collaboration

Tunisian associations. The African Development

with the administration, in most cases) where

Bank now has a genuine qualified database as

civil society has played a very active role to

well as an accurate assessment of the sector,

share their views with those of institutions,

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including the AfDB (this includes, among

creation. Its main objective is to encourage

others, a workshop on employment strategy,

and support ideas from a wide range of

the presentation of the findings of the study

participants such as young entrepreneurs or

on poverty, etc.).

civil society organizations by providing them with necessary financing and support. Colla-

(iii) The participatory approach adopted for

boration with TOUENSA, Souk’s partner and

the design of AfDB projects in Tunisia. At

civil society representative, was instrumental

the operational level, the direct involvement of

in involving more associations in promoting

civil society has been strengthened through:

entrepreneurship in Tunisia, thus facilitating

(i) the consultation of civil society during the

contact with the target public thanks to the

identification and formulation of the Bank’s

close ties established with the population.

operations and (ii) the involvement of civil

TOUENSA facilitated the dissemination of

society in the evaluation of activities. The best

information and helped candidates to prepare

example of this approach is perhaps the

and submit their applications by establishing

fruitful exchange of ideas on priority reforms

10 focal points and mobilizing a network of

needed in Tunisia during the preparation of

50 associations.

the 2012 budget support. These discussions contributed significantly to fine-tuning proposals

(v) Consultation workshop on the new

and helped to better meet the expectations

interim Country Strategy Paper 2014-2015

of the Tunisian population. This exercise

and bilateral meetings. The consultation

should be maintained and its mechanisms

workshop on the new interim Country Strategy

institutionalized.

Paper 2014-2015, which took place on the Bank’s premises on 24 September 2013 at

(iv) The Souk At-tanmia Project which is a

the end of the evaluation mission, helped to

partnership involving civil society as an

reap the benefits of partnership with civil

actor and a beneficiary. Souk At-tanmia is

society developed over the last two years.

inspired by the Bank’s reflections on its new

Some fifteen participants from various

framework of commitment with civil society,

backgrounds discussed the relevant needs

particularly its desire to “involve more CSOs

and priority areas of the I-CSP 2014-2015

and beneficiaries in local projects aimed at

in Tunisia with Bank staff. Discussions with

reducing poverty with potential large-scale

Bank staff and associations helped not

impacts”. Souk At-tanmia is a partnership

only to promote dialogue and strengthen

incorporating several dimensions capable of

diagnosis, but also to increase the visibility

stimulating development and promoting job

and legibility of the Bank’s action amongst

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key opinion relays. The majority of organi-

Though the Bank has demonstrated the

zations dwelled on the importance of such

capacity to devise a new form of relationship

meetings while civil society representatives

with Tunisian civil society over the last two

reiterated their interest in developing a long-

years, efforts are still needed. The identification

term strong and direct commitment with the

of entities should be continuous and progressive

AfDB to achieve tangible impacts. This

like the changing sector. The frequency of

workshop completed a series of bilateral

meetings should not wane and new interactions

meetings on specific topics such as public-

could be developed. Special attention could

private partnerships with public and private

be paid to regional associations which are

sector representatives.

more difficult for the Bank to access.

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Annex 12 PUBLIC FINANCE AND PROCUREMENT MANAGEMENT SYSTEMS: BANK’S RISKS AND FIDUCIARY STRATEGY

1. Introduction

complies with international standards, improving time frames for submitting accounts and

The Bank’s Department of Fiduciary Services

strengthening the external audit system.

carried out an evaluation of the framework

Thus, performance budgeting (PB) has been

and fiduciary risks in Tunisia (March 2012) as

on the drawing board in Tunisia since June

part of the preparation of the CSP in September

2010. It includes several components,

2013.

namely: (1) multi-year budgeting and resultsbased management; (2) the review of budget

2. Overview of National Systems and Fiduciary Risks

nomenclature; (3) the reform of the system of control and accountability of authorizing officers; (4) the reform of the accounting

2.1. Public Finance Management:

system to upgrade it to IPSAS standards and accrual accounting; and (5) the modernization

the evaluation of Tunisia’s public finance

of information systems. Several ministries

using PEFA methodology (June 2010)

and cross-cutting departments have tested

showed that the Tunisian public finance

the budget system and performance indicators.

management system sufficiently supports the

It should be noted that in 2012 the Bank’s

implementation of fiscal discipline, the strategic

PARDI programme supported the adoption

allocation of resources and the provision of

of a decision by the Ministry of Finance

services to citizens. The strengths are the

to publish detailed budget information at

preparation and strict implementation of the

end-2012. To date, the implementation of

annual budget, internal controls and checks

several performance budgeting components

and a non-accrual, but reliable accounting

has been delayed due to the transition

system. However, priority areas remain,

period. Concerning external audits, the Audit

namely: ensuring the efficiency of the entire

Office is preparing a reform proposal whose

budget system through multi-year budget

key orientations are a series of legal and

planning and functional budget classification,

operational measures needed to consolidate

rationalizing internal audit bodies, establi-

the role of the Audit Office as a constitutional

shing a modern accounting system that

and legal institution, strengthen the indepen-

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dence of the Office and its members and

confused institutional framework, with the

institute better monitoring by Parliament.

non-separation of some functions which are

Since the issuing of the Decree of 7 May 2011

incompatible. To address these problems, in

authorizing the full publication of the latest

accordance with commitments made within

annual reports of the Audit Office, the Office

the framework of PARDI, the Government

was reorganized and it recruited 40 new

carried out an overall evaluation of the procu-

magistrates. It has also submitted to the

rement system to initiate the structural

Constituent Assembly a proposal relating to

reforms necessary for its modernization. The

its status and guarantees of independence for

system was evaluated using the OECD/DAC

possible inclusion in the draft Constitution. An

methodology (internationally accepted tools)

analysis of the Tunisian control and audit

during the first half of 2012, with AfDB and

system carried out in 2013 with the assistance

World Bank technical support. It gave rise to

of OECD re-emphasized the need to reform

a report and an action plan approved by the

the audit system.

Government in August 2012. The implementation of the actions contained in this plan will

2.2. Procurement:

complete the structural reform of the national procurement system initiated by the Govern-

Tunisiaâ&#x20AC;&#x2122;s legal and regulatory framework for

ment and help to: (i) increase efficiency in

procurement is governed by the 17 Decem-

order to reduce delays in the implementation

ber 2002 Decree (and subsequent instru-

of contracting cycles; (ii) strengthen

ments, the last of which dates back to May 2011). The Bank evaluated this framework in 2011 and concluded that its risk was mode-

2.3. Summary of fiduciary risks and mitigative measures:

rate. This evaluation helped to conclude that all national LCB procedures are compatible

the fiduciary risk as a whole is deemed

with the Bankâ&#x20AC;&#x2122;s fiduciary obligations, excep-

moderate, based on the most recent diag-

ting some differences identified. Although it

noses of public finance management and

guarantees globally acceptable procedures,

corruption perception. However, this risk can

the system is characterized by (i) a problem

be reduced by: (i) initiating far-reaching reforms

of efficiency, with long contract cycle time

of external auditing to guarantee its adminis-

frames; (ii) a need to improve the access of

trative and financial independence and

foreign contractors to public procurement; (iii)

professionalism; (ii) ensuring good prospects

a redress and complaint management

for continuing and completing the reform

system that is not independent; and (iv) a

initiated in 2010 in order to improve budget

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management and introduce management by

procedures and systems, while continuing

objectives; (iii) fostering and pursuing the

its support for the reform of the system.

implementation of the action plan to reform

However, the approach could be adapted

the public procurement system adopted in

and revised during the period. Hence:

August 2012; (iv) developing the national anticorruption strategy and establishing the legal

Budget support using the entire public

anti-corruption framework; (v) the willingness

expenditure chain could continue, subject

and efforts of TFPs and the Government

to the implementation, in the medium term, of

to rapidly reach a lasting and satisfactory

the mitigative measures recommended above

consensus on the external auditing of projects

(2.3). The use of budget support resources will

implemented through external financing and

be audited through the examination of

provide the Audit Office with the means to

Settlement Laws by the Audit Office, which

fulfil this mandate; and (vi) the consideration

laws will be published within the statutory

by the Tunisian Government of the possibility

deadlines. The Bank reserves the right to

of establishing a unified framework for

request any auditing of the financial flows of

planning,

support operations and/or the performance of

coordinating

and

monitoring

reforms related to public finance manage-

programmes it deems necessary.

ment in order to ensure synergy and better Public investment projects/programmes

information dissemination.

will use most of the existing execution and

3. Bankâ&#x20AC;&#x2122;s Fiduciary Strategy in Tunisia for the I-CSP 2013-2014 period

control procedures of the public system, though with restrictions on external auditing. Thus, besides systematically including external financing in the State budget, priority will be

3.1. Recommended level of use of the National Public Finance Management System

given to the use of the existing capacity and resources of public entities, the opening of project accounts in the Central Bank of Tunisia,

In accordance with the provisions of the

disbursements that are consistent with the

Paris Declaration and the Accra Forum, the

Bankâ&#x20AC;&#x2122;s procurement rules as well as with

Bankâ&#x20AC;&#x2122;s decision to use the national public

public expenditure authorization and control

finance management system was examined.

rules, the internal auditing of projects by public

This examination showed a moderate

entities, systematic inclusion in the ADEB

fiduciary risk, enabling the Bank to maintain

(budget execution) system and in the local

an approach based primarily on national

accounting system of pay masters. Where

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the local public system is limited, separate

other TFPs on the one hand and through

accounts will be kept in order to have

assistance for strengthening the capacity and

accounts by financing and by component

technical resources of the Audit Office, imple-

and the necessary financial reports. Each

menting one or more components of the

evaluation will propose appropriate measures

reform of Objectives-based Budget Mana-

to mitigate specific fiduciary risks and justify,

gement as well as support for the reform of

where necessary, the need for alternative

external auditing, on the other hand.

arrangements. Regarding the external auditing of investment projects/programmes, arrangements will continue to be considered

3.2. Recommended Level of the Use of the National Procurement System

on a case by case basis, pending the outcome of the dialogue initiated with

To ensure harmonization, the Bank will

Tunisian authorities. For long, project auditing

continue to implement its strategy for the

was entrusted to the General Financial

use of the Tunisian national system. This

Controller (GFC). However, given his/her

strategy will be consistent with the chosen

position, the GFC does not meet INTOSAIâ&#x20AC;&#x2122;s

approach to be implemented by the Bank in

criteria for independence of supreme audit

its RMCs. It comprises the following distinct

institutions. Thus, it is necessary to extend

phases: (a) Phase 1: strengthening of the use

ongoing dialogue with the authorities to other

of national procedures in the LCBs specified

partners and to find solutions to support the

in Bank operations; and (b) Phase 2: use of

Audit Office and give it the means to perform

the entire national procurement system,

its task of ensuring the external auditing of

together with its legal and regulatory frame-

projects financed by the State and TFPs.

work, institutional framework, purchasing

Where independent implementing agencies

practices and control and redress mechanism.

that already have a private external auditor are used, the same auditor will be proposed

Under Phase 1 of its strategy, the Bank will

for the project.

soon initiate discussions with the Tunisian Government to carefully examine the major

One of the elements of the Bankâ&#x20AC;&#x2122;s strategy

differences contained in its regulatory frame-

in Tunisia is continuous support for the

work. Once agreement is reached on the

continuation of the reform of the public

report submitted to the Tunisian party,

finance management system. This support

Tunisian procedures may be used for all

could be reflected in increased dialogue with

LCBs financed by the Bank during the period

the authorities to improve consultation with

covered by this CSP. Phase 2 of the Bankâ&#x20AC;&#x2122;s

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initiative is expected in the medium/long

the Bankâ&#x20AC;&#x2122;s procurement operation will seek

term. It will entail (according to modalities

to: (i) carry on dialogue with the Government

to be determined and approved by Bank

(to overcome the differences observed

authorities) using the entire national system.

following the evaluation of the national

This stage, which must be preceded by a

procedures by the Bank) so as to sign a letter

system performance evaluation using the

of understanding for the use of the existing

OECD/DAC methodology, will be feasible

national procedures for LCBs and (ii) provide

only after the implementation of the Action

support to revitalize the implementation of

Plan activities.

the actions identified and included in the action plan ensuing from the evaluation of

During this CSP period, the Bank will s

the national procurement system (using the

upport Tunisia to address the challenges

OECD/DAC methodology) approved by the

identified and presented above. Specifically,

Government.

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Pillars

1- Budget: Preparation, Execution, Control

2- Financial information and auditing

➢ No multi-year budget ➢ Non-functional classification of the budget ➢ Large number of internal control bodies and missions, related high costs, risk of duplication or conflict

PEFA 2010, interview with Min. Finance, DGRE, CGABE, DGCPR

Low

Initial Risk i. Ongoing or planned measures ➢ Implementation of a comprehensive objectivesbased budget management project, including: - budget reform incorporating multi-year budgeting and results-based management - revision of budget nomenclature - reform of the system of control and accountability of authorizing officers, incorporating performance auditing - reform of the accounting system to upgrade it to ISPAS standards and accrual accounting - modernization of information systems The implementation of objectives-based budget management has been delayed since 2011 due to the ongoing transition process. ➢ Measure on budget transparency and more information disclosure (Open Government) contained in the PARDI 2012 programme ii. (Other Bank recommendations ➢ The Government should complete the reforms of objectives-based budget management which will help to establish multi-year budget planning and functional budget classification and streamline internal audit bodies

Mitigative Measures

➢ Reliable management, but not accrual, Moderate i. Ongoing or planned measures accounting: risk relating to the exhaustiveness - Accounting System Reform Project within and relevance of financial information the framework of objectives-based budget ➢ Still long delays in tabling the Settlement Bill management to upgrade to accrual accounting before the Audit Office and comply with IPSAS accounting standards. ➢ Comprehensiveness ➢ Previous reports of the Audit Office were Design slowed in 2011 ➢ Efficacy published in 2011, but their future publication - The deadline for submission of accounts by ➢ Quality is not yet guaranteed by instruments ➢ Opportunity the DGCRP has improved; 1.5 years in 2 ➢ The scope of external auditing is inadequate, ➢ PI 22-25 009 and 2010. The statutory period may but changing ➢ PI 26-28 ➢ Insufficient independence safeguards for the T be reduced within the framework of objectivesexamination unisian Audit Office based budget management ➢ Limited content of parliamentary scrutiny - Permanent change in the scope of auditing ➢ The auditing of external financing entrusted by of the Audit Office (CDC), with a risk-based the Government to the GFC which does not approach in the sampling of units. The meet all INTOSAI’s criteria: there is still an capacity building plan for the year is submitted audit risk on operations controlled solely by - New guidelines presented by the Audit Office: the GFC

PEFA 2010, interview with DGCRP and the Audit Office

➢ Credibility PI 1-4 ➢ Comprehensiveness PI 5-7 ➢ Transparency PI 8-10 ➢ Policy-based budgeting PI 11-12 ➢ Efficacy (predictability and monitoring of implementation) PI 13-21

Risk Factors

Indicators

Low

Residual Risk

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TABLE OF DETAILED ANALYSIS OF COUNTRY RISKS BY PILLAR

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- Consolidation of the Constitution and legal framework - organizational and financial autonomy vis-à-vis the executive – Consolidation of the independence of members and functional independence – Abolition of presidential discretion on the publications in the Organic Law – institution of review and monitoring sessions by Parliament – expansion of competences. Ten sub-committees have been set up to prepare the revision of the organic law of the Audit Office (CDC) - The CDC has tabled before the Constituent Assembly a bill relating to its status and guarantees of independence in the new Constitution being drafted ii. Other Bank recommendations ➢ The Government should prioritize the far-reaching reform of the external auditing system to enhance the independence of the Audit Office, improve its scope and means and monitoring of reports by Parliament ➢ Similarly, dialogue between TFPs and the authorities on the external auditing of projects financed with external resources was expected to help find solutions to enable the Audit Office to fulfil its mandate ➢ The Government should complete the reform of objectives-based budget management to upgrade it to a modern accrual accounting system that is consistent with international standards and to improve the time frame for auditing accounts

➢ Prohibition of the access (or prerequisites) of foreign Moderate i. Ongoing or planned measures ➢ In the short term, the Bank and Government contractors to CBs should initiate a dialogue to satisfactorily ➢ Uncontrolled participation of public enterprises in CBs address the differences that are incompatible ➢ The bid opening mechanism contains provisions impeding with the Bank’s fiduciary obligations and contained in the report on the evaluation of transparency national LCB procedures ➢ Possibility of modifying the content of bids after they have ➢ The Government should take support measures been opened (training of actors) enabling the smooth ➢ Possibility of using specific evaluation criteria for local implementation of interim measures which contractors (fair treatment) are the subject of revision of procurement ➢ The current redress and complaints management me regulations carried out in May 2011 chanism is not independent (subject to political control) ➢ The Government should revitalize and pursue and is hampered by a conflict of interest (COSEM and the implementation of the action plan of the MSC fall under the same authority) measures identified through the evaluation of the national procurement system carried out using OECD/DAC methodology

➢ Increased delays in submitting project audit reports over the past three years

Low

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PEFA 2010, interview with Min. Finance

Moderate

➢ Lack of a unified framework for planning, coordination Moderate i. Ongoing or planned measures ➢ Point brought to the attention of the Ministry of and monitoring public finance management-related Finance reforms: risk of low synergy and sequencing and inadequate dissemination of reforms and monitoring ii. Other Bank recommendations of their progress (also identified by PEFA 2010) ➢ The Government should consider empowering a body of the Ministry of Finance to: (i) design a strategy and a unified and sequenced public finance management system action plan, in consultation with the departments of the Ministry of Finance, sector ministries and audit bodies; (ii) coordinate and report on the status of implementation; (iii) establish a framework for dialogue and partnership with TFPs for the implementation of this strategy

ii. Other Bank recommendations ➢ Develop a national anti-corruption strategy ➢ Continue to reform objectives-based budget management to ensure accountability and efficiency in resource management ➢ Reform external auditing to combat corruption

Transparency International, ➢ Corruption Perceptions Index 2012, 41/100 Moderate i. Ongoing or planned measures (43/100 in 2011) interview with ➢ A ministry in charge of Governance and Min. Finance, interview ➢ Anti-corruption measures initiated, but to be pursued Corruption Control (at the SG of Government) with Ministry GAC has been established ➢ An independent anti-corruption body will be reviewed and institutionalized ➢ Tunisia carried out an integrity scan in 2013 ➢ MPs, ministers and senior government employees are obliged to declare their assets ➢ Bills on the declaration of assets and legislation on ill-gotten property being prepared in 2013 ➢ The Code of Conduct for Public Officials is prepared in 2013 and is the subject of a national consultation. Still to come into force

3 - Procurement - This pillar has been the subject of a separate assessment ORPF.1

Overall assessment of fiduciary risk

Adequate Reform Plan and Monitoring

Low

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Annex 13 MEDIUM- AND LONG-TERM DEBT SUSTAINABILITY ANALYSIS

1. Trend. Although debt represented 60% of

increase steadily by 5% in the short term to

GDP on average in the 1990s, the drastic

attain 49% of GDP by 2015 and decline

debt reduction strategy implemented by

again progressively in the medium term to

Tunisian authorities helped to reduce public

about 44% in 2018. This expected increase

debt ratio to 40.4% of GDP in 2010. This

in the public debt ratio is expected to stem

adjustment mainly concerned external debt

mainly from an increase in the estimated

which rose from 65% of GDP in 2002 to 48%

budget deficit needed to continue to meet

of GDP at the end of 2011 after a drastic

sustained social demands while providing the

budget adjustment accompanied by a mode-

resources required to recapitalize public

rate current account deficit. The authorities

sector banks (cost estimate: 3% of GDP ) as

have also adopted shrewd borrowing policies

well as strengthen public enterprises (cost

by prioritizing recourse to concessional loans

estimate: 7% of GDP) and the social protection

from multilateral development banks and EU

system. This favourable debt dynamics,

grants rather than borrowing on the interna-

however, calls for the streamlining of public

tional market. However, the expansionary

finance based on an overall deficit reduced

fiscal policy implemented by the Government

to 2.3% of GDP in 2018 and maintaining

after the January 2011 Revolution, coupled

continued real growth rates (4.6% on average)

with a fall in GDP (-1.6%) and a growing

during the 2013-2018 period as against

current account deficit, has contributed to

3.2% during the 2008-2013 period.

increasing the public debt ratio to 44.6% in

2.Structure and outstanding debt. As at 30 June

late 2011.

2013, Tunisiaâ&#x20AC;&#x2122;s nominal outstanding public In 2012, a return to growth (+3.8%) helped to

debt stood at TND 33.275 billion, as against

maintain the debt-to-GDP ratio at about 44%,

TND 31.418 billion in June 2012, representing

despite growing budget deficits. However, the

a 6% increase. In terms of GDP, the nominal

projections made by the IMF within the frame-

outstanding public debt during the same

work of the preparation of the USD 1.78 billion

period was 44.5% of GDP, as against 43.8%

standby agreement approved on 7 June 2013

of GDP at end-2012. External debt represents

confirmed that the public debt ratio will

the largest share of public debt. As at 30

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June 2013, external debt represented

most shocks, excepting a major real

58.1% of total outstanding debt and 41.9%

exchange rate depreciation. The external

of domestic debt. Domestic debt is financed

debt ratio will remain below 58% of GDP in

mainly through the issuance of short- and

all scenarios during the projection period.

medium-term treasury bills, while external

Thus, a lasting negative shock on growth or

debt is financed through borrowings from

current account would increase the debt ratio

multilateral financial institutions (mainly the

to 55%-58% of GDP, while an increase in the

African Development Bank and the World

average interest rate would have a much

Bank) and from foreign countries (France,

lesser impact. However, a potential significant

USA and Japan). However, Tunisiaâ&#x20AC;&#x2122;s debt

real depreciation of 30% of the exchange rate

is mainly in Euros and its current and future

in 2013 compared to the benchmark would

debt servicing is denominated in that currency,

increase the debt ratio to around 80%

representing 52.3% of the outstanding debt

of GDP.

to be paid at maturity in 2025. Furthermore, public debt seems to be highly

3. Debt sustainability in the medium term. Tunisiaâ&#x20AC;&#x2122;s

vulnerable to negative shocks. Public debt

debt strategy, which was defined within the

could reach 60% of GDP by 2018 under a

framework of the IMF-backed programme,

scenario in which public finance management

presupposes the transfer of the bulk of public

is streamlined in the medium term. The debt

debt to foreign debt. The latter should therefore

dynamics is also very sensitive to actions

increase to 55% of GDP in 2015 as against

aimed at maintaining the primary deficit to the

29.5% expected in 2013, before declining to

current and historic level. Lastly, over 60%

49.2% by 2018 owing to a favourable current

of public debt is denominated in foreign

account balance. Sensitivity tests show that

currency. An occasional depreciation of 30%

the external debt ratio is resistant to most

would increase the public debt-to-GDP ratio

negative external shocks, except a major

in the short term to about 63% and then

exchange rate depreciation. The relatively

decline to 56% by 2018. However, the

low level and profile of Tunisiaâ&#x20AC;&#x2122;s debt (low

dynamics of public debt will resist fairly well

average interest rate and relatively long

to an interest rate shock and stand at a

maturity) will, however, enable it to resist

sustainable level of 50% in the medium term.

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