Tunisia: IMF loan for COVID-19

Tunisia has obtained a $745 million loan from the International Monetary Fund (IMF) for its national responses to the novel coronavirus (COVID-19).

Prime minister Elyes Fakhfakh said this month that $1 billion is the amount needed to tackle the impact of the pandemic. Overall, Tunisia has to lend $3 billion internationally for 2020 spending requirements. The European Union provided 250 million euros ($272 million) in financial aid.

Rwanda was the first African country to secure an emergency coronavirus funding of $109 million from the IMF. The IMF then approved a $165 million loan for Madagascar. Gabon was the third African state to obtain such a loan, parting with $147 million.

As of Wednesday, 15^th April, Unmask Africa’s COVID-19 tally outlined that there are 747 reported cases of the pandemic, 34 deaths and 43 recoveries in this northern African nation with a population of more than 11 million people.

“The IMF financing will support the authorities’ emergency measures to contain the spread of the virus and mitigate its human, social, and economic toll amid unprecedented uncertainty,” according to the funding announcement.

“These measures involve raising health spending, strengthening social safety nets, and supporting small- and medium-sized firms hit by the crisis. The IMF financing will also ensure an adequate level of international reserves and catalyze additional donor financing,” read the statement.

“Additional concessional and grant financing from external partners is critical to help Tunisia respond to the COVID-19 crisis. It will also help preserve the sustainability of its debt,” said Mitsuhiro Furusawa, IMF deputy managing director and chair.

Funds will come from the Rapid Credit Facility (RCF), which “provides rapid concessional financial assistance with limited conditionality to low-income countries … facing an urgent balance of payments need,” explained IMF’s website.

RCF’s lending terms are at a zero-interest rate with a grace period of 5½ years and a final maturity of 10 years. Its funding is aimed at addressing balance of payments difficulties, support poverty reduction and growth objectives.

Abidjan-based African Development Bank has availed a $10 billion COVID-19 response fund for governments and the private sector. On the other hand, the World Bank agreed on $1.9 billion for global coronavirus funding: Ethiopia will part with $82.6 million, $50 million to Kenya, and $47 million to the Democratic Republic of Congo.

In a proposal to the G-20 (which consists of major creditor countries), Ethiopia said the continent needs $150 billion in stimulus measures. The IMF has allocated $50 billion to aid 80 nations: twenty of these countries are African states.  Nonetheless, analysts have argued that the servicing costs of such loans are not cheap for African countries and that they pay more in contrast to other nations.

Economic effects of COVID-19

Fiscal and balance of payments needs are estimated at 2.6% and 4.7% of the gross domestic product (GDP), respectively. IMF projects a 4.3% contraction in the economy. If this happens, it will be the deepest recession since Tunisia’s independence in 1956.

Prime minister Fakhfakh last month announced that the country had reduced its growth forecast this year to 1% from 2.7%. An outcome partly triggered by the decline in travel and tourism related activities, caused by the restrictive movement of people during the COVID-19 pandemic.

Travel and tourism related activities are key sources of foreign currency and contribute about 8% to the GDP. Other key sectors include agrobusiness and energy (gas and oil); they contributed to the 2018 GDP growth but experienced a decline in 2019.

“Growth will be supported by expansion in agriculture, manufacturing, and tourism, and the coming online of the Nawara gas field,” according to the World Bank. These sectors are currently affected by the disruption in supply chains and the travel restrictions resulting from the pandemic.

In 2019, “revenues increased by 18.1 percent, driven by growth in VAT revenues and customs duties,” outlines the World Bank. The latter will likely be impacted by the travel restrictions imposed to curb the spread of the virus.

The government has restricted air travel from and to areas with coronavirus and limited citizens’ movement by imposing a general lockdown.

A total of 2.5 billion dinars ($850 million) has been allocated for the economic and social effects of COVID-19. Tunisia has delayed tax debts, postponed taxes on small- and medium-sized businesses, availed 1.2 billion in loans and aid to help companies, adjourned repayment of low-income employee loans, provided 450 million dinars in financial assistance to poor families and Tunisians who have lost their jobs.

The Central Bank of Tunisia last month cut its key interest rate by 100 basis points. Central (or federal) banks often lower their main lending rates to stimulate economic growth. These rates result to lower debt financing costs, which can then encourage borrowing and investing.

Tunisia IMF history of lending arrangements as of 30^th June 2019

“The IMF lends under concessional and non-concessional arrangements. A lending arrangement, which is like a line of credit, is approved by the IMF executive board to support a country’s adjustment program. The arrangement requires the member to observe specific terms and subject to periodic reviews in order to continue to draw upon it,” according to the IMF’s website.

Amounts below are in thousands of Special Drawing Right (SDR). “The SDR is an international reserve asset, created by the IMF in 1969 to supplement its member countries’ official reserves,” the institution’s website explains.

“So far SDR 204.2 billion (equivalent to about US$281 billion) have been allocated to members, including SDR 182.6 billion allocated in 2009 in the wake of the global financial crisis. The value of the SDR is based on a basket of five currencies—the U.S. dollar, the euro, the Chinese renminbi, the Japanese yen, and the British pound sterling,” it adds.

Facility	Date of Arrangement	Expiration Date	Amount Agreed	Amount Drawn	Amount Outstanding
Extended Fund Facility	May 20, 2016	May 19, 2020	1,952,253	1,161,713	1,161,713
Standby Arrangement	Jun 07, 2013	Dec 31, 2015	1,146,000	1,002,750	196,969
Extended Fund Facility	Jul 25, 1988	Jul 24, 1992	207,300	207,300	0
Standby Arrangement	Nov 04, 1986	May 31, 1988	103,650	91,000	0
Standby Arrangement	Jan 01, 1970	Dec 31, 1970	7,500	7,500	0
Standby Arrangement	Jan 01, 1969	Dec 31, 1969	6,000	4,500	0
Standby Arrangement	Dec 27, 1967	Dec 26, 1968	9,610	9,610	0
Standby Arrangement	Dec 05, 1966	Dec 04, 1967	9,600	9,600	0
Standby Arrangement	Nov 12, 1965	Nov 11, 1966	5,600	5,600	0
Standby Arrangement	Oct 01, 1964	Sep 30, 1965	14,250	14,250	0
Total			3,461,764	2,513,824	1,358,683

Access this link for Gabon’s financial position in the Fund as of 30^th June 2019.

IMF’s At a Glance

• 2020 projected real GDP: 2.4% (change)
• 2020 Projected Consumer Prices: 5.4% (change)
• Country population: 11.783 million
• Date of membership: 14^th April 1958
• Article IV/Country Report: 12^th June 2018
• Outstanding purchases and loans (SDR): 1269.15 million (31^st December 2019)
• Special drawing rights (SDR): 6.24 million
• Quota (SDR): 545.2 million
• Number of arrangements since membership: 10

Reporting by Gaby Ndongo. Editing by Kupa Kambasha. Image by Pexels.