finance & economy

“State’s credibility must be restored,” Economy Minister says in interview with TAP

October 22, 2020

(TAP/Interview by Imen Gharb) - Restoring the State's credibility by honoring its commitments and cutting its spending is going to be the government’s policy until the end of 2020, Minister of Economy, Finance and Investment Support Ali Kooli said in an interview with TAP.

This government's new orientation will also apply to the 2021 Finance Law Bill which will focus on simplifying the tax system by converging corporate tax rates (corporate tax) to 18%.

How did you find the situation of the country's public finance?

I have to say that, I wasn't greatly surprised as I was fully aware of the whole situation prior to my appointment. I knew that Tunisia was going through hard times.

The country was facing a crisis in 2010 and has tried several remedies ever since.

It has achieved some success. And then, we welcomed 2020 with several challenges.

These challenges become more serious with the unexpected health crisis, namely the COVID-19 pandemic which has been one of the most difficult incidents witnessed by our world for more than 100 years.

Countries, like Germany, which were healthy, were completely shaken by the crisis. What to say about a country like Tunisia that has already been ailing.

What is the status of negotiations with donors within the framework of the annual IMF-WB meetings? Will there be a new programme with the IMF? If so, when will the negotiations restart and under which conditions?

For several years, Tunisia has built outstanding relations with its donors. It has been successful to boost bilateral relations with countries all over the world, or as part of its relations with financial institutions and organisations like the International Monetary Fund (IMF) and the World Bank (the WB).

With the IMF, I wouldn't speak of negotiations, because negotiations are often conducted, between two parties with opposing visions, yet, I would rather speak of a dialogue that has lasted for over 30 years and never been interrupted.

Over the past two weeks, I have had a series of meetings in this context and I am planning to have more in the upcoming period.
These meetings are an opportunity for us to expose our country's situation while our IMF partners will explain the main orientations to be used, so that together we can overcome Tunisia's crisis.

This week coincides with the annual meetings of the WB and the IMF. By the end of these meetings, there will be important announcements on how the WB and the IMF will cope with countries around the world in the months and years to come.

Once these announcements are made, we will certainly have a more sustained dialogue with the IMF. Based on this dialogue as well as our government's priorities, we will define the ways we will be cooperating.

What are the main guidelines of the 2021 Finance Bill?

Before we start talking about 2021, I think it is crucial to know where we are starting from.

2020 has been an exceptional year because the assumptions we made in 2019 to draft the 2020 Finance Law Bill have been completely distorted by the COVID-19 crisis.

For 2020, we had projected a growth of 3%, yet we have faced a contraction by nearly - 8%, a difference of 11 points, inducing nearly 8 billion dinars of budget revenue less.

As part of the 2020 Complementary Finance Law, we have tried to reduce this 8 billion dinar drop in revenue to 6 billion dinars. But despite this, we will go move from 36 billion dinars of expected revenue to 30 billion of expected revenue, a decrease of 20%.

As far as expenditures are concerned, there have been contingencies.

This adjustment is explained by two important elements: the additional cost of the action against the pandemic (nearly 2.5 billion dinars) and the new orientation adopted by the government to meet the State's commitments towards its suppliers (public and private companies).

We believe that it is crucial to restore the State's credibility. Tunisia should inspire confidence among its partners. This could be done only when its commitments are honored and its words turn into deeds.

We have not been able to absorb all the liabilities so far, but at least we have decided not to increase the bill any further and to no longer let others assume State debts.

That's why, we decided for the rest of 2020 to pay back the State debts to its suppliers. The ministry teams made an enormous effort to identify these debts and certify the amounts. Once the supplementary finance bill has been validated, we will settle this debt, which will amount to 4.5 billion dinars.

The additional spending incurred in 2020 will generate a budget deficit of nearly 14% in 2020. In 2021, we will try to redeem the situation by reducing the 14% to 7%.

Some experts argue that a 7% budget deficit is a very high level of deficit. But we must not forget that the 7% deficit covers major challenges including debt service, which should amount at 15.8 billion dinars in 2021.

This deficit was less than 4 billion dinars in 2010 and slightly more than 9 billion dinars in 2019.

This discrepancy is due to Tunisia's mounting debts over the past years. This could also be explained that, from 2012 to 2015 and onwards, we thought that 2021 was a very distant date and that 10 years after the revolution, the situation would be much better and we could therefore repay larger number of ours debts.

One of the major challenges that we will therefore have to face is to roll this debt down.

In developed countries, debt rollover is a natural mechanism. In the United States, for instance, regularly, there are issues of treasury bills that replace installments that have been paid. We will try to adopt this type of mechanism in Tunisia.

The other important block of State spending for 2021 is made up of salary spending which will be 21 billion dinars. It is almost the equivalent of the State budget in 2011. The State must honor this wage bill, while ensuring that it does not explode.

As for the development budget, we have tried to keep the investment at an amount of 7 billion dinars.

How do you assess Tunisia's debt level? What capacity does the country have today to honor its debts?

Indebtedness is only a result; it is not an end in itself. Just as one cannot imagine that the State will fail to meet its commitments in terms of subsidy and the wage bill, one cannot imagine that the State will not meet its commitments in terms of debt repayment.

Today, our indebtedness is almost 90% of our GDP. Next year, it is likely to increase by 2 points to around 92 or 93%. A country like Japan has a domestic debt of around 300%, but no one cares because it could fund it locally.

For Tunisian debt, the problem does not lie in the stock of debts, but rather the concentration of maturity and the high proportion of foreign debts, relative to local debts. And it is on this type of mix that we will try to change in the months and years to come, so that the effect on the economy is less.

Don't you think that the choice made under the 2021 Finance Bill to resort to borrowing from the domestic market risks worsening the liquidity drain for companies?

I have personally noticed over the past 10 years that private investment has been very low in Tunisia. When we talk about liquidity drain, we think there is a high demand for credit, which is not the case.

In recent years, there has been certainly a growing demand for consumer credits but very limited demand for investment loans.

Yet, investment loans help boost tomorrow's growth. In 2020, with the COVID-19 crisis, I feel like very little investment has taken place although there has been increasing liquidity on the market.

There is more liquidity now than ever before. I believe the market has the needed depth to fund the needs.

One important thing we should take into consideration the money just spins around. As I have mentioned earlier, 4.5 billion dinars will be used to repay the State's debts to its suppliers.

This money will not vanish, because when the State will pay its suppliers, they will in turn pay their banks. Suppliers will then have cash to buy the State bonds.

For this reason, we have opted for indebtedness from the domestic market.

Meanwhile, the Central Bank is planning to intervene differently just like any central banks worldwide.

In countries like the United States, the Federal Reserve System (FRS) injects nearly 20% of the American GDP for the repurchase of debts, and when in other countries which are the champions of liberalism, the central banks do the same, I think that the BCT could inject 1 or 2 or 3% of GDP, to buy back public or private debts.

It's true that we should remain vigilant about inflation, yet experiences underwent by several countries across the world where there has been massive injection of money into their economies, have shown that inflation has not increased unreasonably.

I believe by maintaining some balance, we can reconcile the need for the State financing and good price control.

Why hasn't the 2021 Finance Law Bill provided for any specific funding to save SMEs and the thousands of jobs lost due to lockdown?

I think this assertion is a little bit tough because the State, within the framework of the 2021 Finance Law Bill, tried to protect both public and private companies as they are the ones

that generate wealth and jobs.

In continuity with the efforts made in 2020, the State will in 2021 mobilise expenditures of 7 billion dinars, under the amount dedicated to investments and nearly 6.5 billion dinars, under support to public enterprises and subsidy.

These are significant amounts that will be mobilised without really increasing the taxation of companies or individuals.

The government said that individuals, particularly employees, are subject to a very high tax rate and is keen not to increase this rate further, for the first time in a very long time.

On the contrary, we wanted to encourage individuals to save by increasing the ceiling for stock savings accounts (CEA) and life insurance and to acquire real estate by granting them a tax incentive of 100 dinars.

For businesses, we have tried to make corporate tax rates converge to 18%, despite a very significant budgetary imbalance.

You have spoken of a budget deficit of 14% in 2020, is it still sustainable for an economy in crisis?

Do we have any other options? Can we stop paying employees in October, or not providing assistance to individuals and companies amid the COVID-19 crisis? Or stop honoring the State commitments? The answer is certainly, no.

One thing is certain, in 2021 we have decided to incur only expenses that are necessary and for which we believe we have funding.

A deficit of 14% was certainly not a choice, but the outcome of a state of affairs, of an unexpected crisis which drastically reduced our revenues and considerably increased our expenses.

This doesn't apply only to Tunisia; several countries such as France, Germany, and the United States saw high and sometimes double digit deficit.

Neighboring countries such as Egypt and Morocco are also recording deficits that they had not budgeted for.

For 2021, we have planned to halve this rate and we will keep adopting the same approach to bring it as close as possible to zero in 2024.

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