2014-2015 - Tunisia Interim Country Strategy Paper · 4 Tunisia: Interim Country Strategy Paper -...

TunisiaInterim Country Strategy Paper2014 - 2015

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

T u 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 3

A f r i c a n D e v e l o p m e n t B a n k

Country Strategy Paper Drafting Team

Design Team:

V. CASTEL, Chief Country Economist, ORNA

K. ABDERRAHIM-BEN SALAH, Economist, ORNA

P. TRAPE, Principal Country Economist, ORNA

M. CHAUVIN, Economist, ORNA

Team Members:

A. B. DIALLO, Chief Energy Engineer, ONEC1

A. KESSAB, Governance Expert, OSGE1

A. YAHIAOUI, Chief ICT Expert, ICT4D

A. CHOUCHANE, Chief Research Economist, EDRE1

B. BEN SASSI, Principal Water and Sanitation Officer,

OWAS

C. AMBERT, Senior Strategy Officer, OPSM.0

C. MOLLINEDO-TRUJILLO, Chief Strategist, STRG

F. BOUGAIRE, Principal Water and Sanitation Engineer,

AWF

H. CHAHBANI, Principal Infrastructure Expert, ONRI1

I. HAFSA, Assistant Statistician, ESTA

J. BANDIAKY, Senior Macro-economist, OSGE1

J. MURARA, Chief Socio-economist, OSHD1

K. HASSAMAL, Strategy Analyst, STRG

K. LUMBILA, Senior Economist, OSGE1

L. BOURKANE, Economist, OSHD.2

L. DADE, Regional Financial Management Coordinator,

ORPF.2

L. LANNES, Principal Health Economist, OSHD3

M.DAMAK, Principal Credit Risk Officer, FFMA2

M. GUEYE, Principal Education Economist, OSHD.2

M. OULD TOLBA, Chief Agronomist, OSAN1

S. DAH, Procurement Expert, ORPF1

S. OMAR ELMI, ICT Expert, ICT4D

T. MOURGUES, Consultant, OPSM0

W. DAKPO, Regional Procurement Coordinator, ORPF1

Regional Director:

Jacob KOLSTER, Director, ORNA

Peer Review:

K. MHIRSI, Chief Investment Officer, Mauritius Country

Office

M. NDONG NTAH, Chief Country Economist, ORNB

H. SAMER, Division Manager, OPEV2

S. LARBI, Senior Investment Officer, OPSM3

T u 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 54


Table of Contents

11 I Introduction

13 II Country Context and Prospects

13 2.1 Context

A. Political Situation B. Economic Context C. Social Situation D. Environment and Climate Change

25 2.2 Strategic Options

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

31 2.3 AID Coordination/Harmonization and AfDB Positioning in the

Country

34 III Bank Group Strategy

34 3.1 Rationale for Bank Group’s Involvement40 3.2 Expected Outcomes and Targets 41 3.3 Risks and Mitigative Measures43 3.4 Implementation Arrangements44 3.5 Country Dialogue Issues

45 IV Conclusions and Recommendation

45 4.1 Conclusions45 4.2 Recommendation

List of Annexes

1. Endnotes

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

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

4. Tunisia’s Portfolio (UA) (September 2013)

5. Trends in Tunisia’s Sovereign Ratings

6. IMF: USD 1.74 Billion Standby Arrangement

7. Simulation in Terms of Loans

8. Poverty and Unemployment in the Regions

9. 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

2. Macro-Economic Indicators

3. Distribution of FDI Flows by Sector (2012)

4. Governance Index 2012 – Tunisia’s Scores Compared to Africa

5. Freedom of Expression and Accountability and Corruption Perceptions Indices

6. Business Environment: Comparative Ranking with 183 Countries

7. Business Climate: Competitiveness Survey 2012 Results

8. Overall Factor Productivity Growth

9. GCI 2011-2012 Ranking

10. Tunisia’s Main Trading Partners

11. Main Destinations of Tunisian Exports and Complementarities





List of Tables

1. key Partners’ Active Portfolios by Sector (2013 - in USD Million)

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

3. Loan Scenarios

List of Boxes

1. Innovations in the Approach Adopted

2. 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

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

Acronyms and Abbreviations



AFD French Development Agency

AfDB African Development Bank

AMU Arab Maghreb Union

ANC National Constituent Assembly

AWF African Water Facility

B 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

EU 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

KfW KreditanstaltfürWiederaufbau

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

UA 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

WB World Bank

WEF World Economic Forum

WGI World Governance Indicators



Executive Summary

1. The previous Interim Country Strategy

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

Board of Directors on 27 February 2012.

In view of political, economic and social

uncertainties in the wake of the Revolution,

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

I-CSP. Two priority focus areas for the Bank

were adopted in agreement with Tunisian

authorities after broad consultations with civil

society and the private sector, namely: (i)

Growth and Economic Transformation and

(ii) Inclusion and Reduction of Regional

Disparities.

2. Political Context: In January 2014 the

adoption of the new constitution ended the

Tunisian political crisis that lasted more than

6 months. Indeed the national consensus

signed by the main political parties in October

2013 to end the political crisis resulted in

the appointment of new Prime Minister in

December, and the announcement of his

government in January 2014, following the

adoption of the new Constitution. These two

major political events have ended the lack of

political visibility affecting donors’ intervention

and impeding economic recovery. The transition

process in Tunisia remains one of the most

stable in the sub-region and the forthcoming

elections scheduled for end of 2014 could

establish a renewed virtuous circle.

3. Economic Context: After the Revolution,

the Tunisian economy has been affected by

social movements, political developments

and the fragile global economic context.

However, the relative resilience of the economy

to the two shocks of the 2011 Revolution and

the Euro zone crisis tends to prove that despite

economic uncertainties, Tunisia’s economic

fundamentals are still good. After a GDP

contraction of 1.9% in 2011, the Tunisian

economy recorded a 3.3% growth rate in

2012. This rate is estimated to 2.6% in 2013

(BCT estimate).

4. Government’s Objectives: In a context

of transition, the authorities have opted for a

flexible strategy aimed at appeasing social

and economic demands while preparing

necessary structural reforms. The I-CSP is

based on Government’s guidelines which

were presented in March 2013. This vision

provides for a series of medium- and long-

term structural reforms and investments

aimed at creating conditions for accelerated



growth and job creation to ensure regional

balance and inclusive development.

5. Identification of Bank Group Operations:

the operations were identified on the basis

of the recommendations contained in the

I-CSP 2012-2013 completion report and the

discussions held with the Government and

development partners during missions fielded

in June and September 2013. Besides bilateral

meetings, a workshop was organized with

civil society in September 2013 to examine

the Government’s strategy. The document was

discussed with the new authorities in 2014.

6. Intervention Pillars: the I-CSP prioritizes

the principles of alignment with Government’s

priorities, particularly the creation of (higher

value added) jobs and the reduction of regional

disparities and to that end, it seeks to support

actions to develop an inclusive private sector.

The CSP is a continuation of the previous

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

the Bank’s operation for the 2014-2015

period on two pillars, namely “governance”

and “infrastructure” - in line with the Bank’s

Ten-Year Strategy. Furthermore, in a context

of transition, support within the framework of

the pillars will be provided with a dual temporal

objective of carrying out (i) short-term actions

to ensure rapid achievements and (ii) medium-

/long-term actions to lay the foundations for a

new more inclusive and higher value-added

development model.

7. Instruments and Risks: in view of

challenges on the Bank’s financing, special

emphasis will be laid on technical assistance.

Trends in risk assessment at the regional

and national levels will influence the level

and type of Bank operation (technical

assistance, investment projects or budget

support). In this respect, three scenarios

have been developed to introduce various

possible levels of commitment. Furthermore,

in terms of loans, priority will be given to

the “infrastructure” pillar in the “low” and

“average” scenarios.



I. Introduction

1.1 Tunisia is a founding member of the

Bank and its second historic beneficiary.

The Bank’s portfolio in Tunisia, which is the

institution’s second largest portfolio, comprises

16 operations and 24 technical assistance

operations amounting to UA 1.3 billion.

Furthermore, the Bank contributed UA 659

million to the State budget in 2011 and 2012.

1.2 The previous Interim Country Strategy

Paper (I-CSP) was approved by the

Bank’s Board of Directors on 27 February

2012. In view of political, economic and

social uncertainties following the Revolution,

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

I-CSP. Two priority areas for Bank intervention

were adopted in agreement with Tunisian

authorities after broad consultations with civil

society and the private sector, namely: (i)

Growth and Economic Transformation and (ii)

Inclusion and Reduction of Regional Disparities.

1.3 Since the approval of the 2012-2013

I-CSP, Tunisia’s transition has been cha-

racterized by a decline in political visibility

and growing economic uncertainty.

1.4 Social movements, particularly in

disadvantaged regions, have continued,

bringing to the fore issues related to (qualitative

and quantitative) employment, the situation

of youths, regional disparities and poverty.

In addition, the crises in Europe and Libya

profoundly affected economic recovery,

already weakened by the Revolution.

1.5 The lack of political visibility during

the period 2012-2013 also contributed to

slowing down economic recovery. Besides

the unrest that took place between February

and July 2013, political uncertainty stemmed

from delays in drafting the new Constitution

and holding new elections.

1.6 Nevertheless, the authorities have

maintained, at the same time, a dialogue

with key development partners on reforms

and investments, even without a 5 years

development plan.

1.7 The authorities are striving to remove

such uncertainties and the adoption of the

Constitution in January 2014 is a major



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

organized and a new development plan

designed.

1.10 Though the I-CSP is a continuation

of the previous interim strategy, it takes

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.



Box 1: Innovations in the ApproachAdopted

1. A commitment level that can be adjustedin the light of risks in order to mobilizemaximum resources.

2. Strong portfolio implementation supportthrough the establishment of an internalcoordination entity (Baobab) and the provision of technical support to accelerateprocurement.

3. Strong mobilization of technical assis-tance resources and advisory capacities tosupport transition and develop the futureportfolio.

4. Refocusing activities on (i) support to enhance the business climate and (ii) improvement of public service delivery andaccess to employment in disadvantagedregions.

5. Strong mobilization of partners and theprivate sector in all operations for leverageeffect.

6. Support in designing the new developmentplan, where appropriate.

7. The logical framework of designed projects should include indicators for monitoring the achievement of the Bank’s2013-2022 Strategy objectives.

II. Country Context and Prospects

2.1 Political, economic and socialcontext

A. Political Situation

2.1.1 After exercising power for over 23

years, President Ben Ali went into exile on

14 January 2011 following one month of

protests. Pressure exerted by demonstrators

and civil society led to the setting up of three

successive transitional governments (from

January to December 2011) to manage the

country’s economy and prepare free and

transparent Constituent Assembly elections.

2.1.2 The October 2011 Constituent

Assembly elections, though delayed, were

conducted in accordance with the electoral

process in place. To form a stable majority,

the Islamic Party, Ennahdha, which obtained

41.7% of the vote, formed a coalition with

the centre-left Party, CPR, and the Social

Democratic Party, Ettakatol. The initial aim

was to draft a new Constitution in one year.

2.1.3 The Troika, which won 63.6% of

seats in the National Constituent Assembly,

formed a government in December 2011

headed by the Secretary-General of Ennahda.

The office of President of the Republic is held

by the CPR Chairman and the Chairman of

Ettakatol is the ANC President.

2.1.4 However, the unrest that occurred

between end-2012 and November 20131

influenced the political process in 2012-

2013. In March 2013, tensions led to the

formation of a new government. Independent

personalities were appointed at the helm of

four key ministries2 to meet the expectations

of opposition parties. Security has become a

central issue and many actions have been

carried out to restore confidence.

2.1.5 In January 2014, the adoption of the

new constitution and the announcement

of a new government ended the Tunisian

political crisis that lasted more than 6 months.

Indeed, the national consensus signed by the

main political parties in October 2013 resulted

in the appointment of a new Prime Minister

in December, and the announcement of his

government in January 2014, the day following

the adoption of the new Constitution.



2.1.6 These two political events have

considerably lessened uncertainty and

lack of political visibility which had affected

donors’ intervention, and impeded economic

recovery. Following the vote of confidence

for the new government, the Tunisian Stock

Exchange closed on a positive note, the dinar

appreciated against the Euro and the U.S.

Dollar, and the IMF announced a disbursement

of $ 500 million of its support program.

2.1.7 In addition, the transition process in

Tunisia remains one of the most stable in

the region. The announcement of a new

government of technocrats and independents

as well as the holding of the forthcoming

elections scheduled for October 2014 could

husher a new positive impetus.

B. Economic Context3

2.1.8 Tunisia has for long been considered

as an economic success story in the region.

Since independence, the Tunisian economy

has undergone profound restructuring.

Its domestic production, which was initially

dominated by agriculture and raw materials

(phosphate, oil and gas), is directed towards

services and, to a lesser extent, the manu-

facturing industry.

2.1.9 The decade preceding the Revolution

was a period of transition for the Tunisian

economy plagued by many challenges. The

objectives of the reforms included in the

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

(2007-2011) Plans were to increase growth

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

ployment rate from 14.2% to 13.4% by 2011.

During this period, the country experienced

moderate, but steady, growth of 4.9% annually,

raising GDP (PPA) per capita to a little over

USD 4 200, despite the shock of the 2008

financial crisis. This growth contributed to

reducing poverty in rural and urban areas4

and improving health and education indicators.

Despite the global economic crisis, downswing

effects and the Recovery Plan helped to

implement a counter-cyclical policy without

worsening the budget deficit (less than 3% in

2009). However, despite the good perfor-

mance recorded, the set objectives in terms

of employment, social equality and regional

development were not achieved.

u Macro-economic Developments

2.1.10 After the Revolution, the Tunisian

economy has been affected by social

movements, political developments and

the fragile global economic context.

However, the economy was resilient to the

two shocks of the 2011 Revolution and the

Euro zone crisis, indicating that Tunisia’s

economic fundamentals are still good, despite

economic uncertainties. The impact of

the European crisis on the key sectors of

manufacturing and textile industries (-8%) and



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.

2.1.11 In fact, after recording a negative

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

experienced an upswing in 2012 with a

3.3%5 growth rate which is expected to be

between 2.6% 3% in 2013 (Fig.2).

2.1.12 The budget deficit rose from 3.4%

of GDP in 2011 to 4.9% in 2012 and is

expected to stand at 6.5% in 2013. Tax and

non-tax revenues increased moderately in

2012.

2.1.13 The increase in public consumption

expenditure was relatively significant,

thus accelerating the deterioration of the

budget deficit. In particular, grants expenditure

increased sharply due to rising food and

oil prices, coupled with the depreciation of

the dinar6. Furthermore, the increase in civil

servants’ salaries and the recruitment of new

workers raised the public wage bill significantly

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

this expenditure which has stimulated overall

demand partly explains the rapid cushioning

of the shock caused by the January 2011

Revolution. It should be noted that interest on

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

2.2.1.14 Regarding investments, budget

execution in 2012 and 2013 was less

expansionary than envisaged. Development

expenditure included in the Supplementary

Finance Law increased by 18.7% in 2012.

However, constraints on implementation

capacity at the regional level and on procu-



-40.0

-30.0

-20.0

-10.0

0.0

10.0

20.0

2008 2009 2010 2011 2012

Chemical

Hotel and catering

Transportation

Textile, clothing and leather

Mechanical and electrical

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

Figure 2: Macro economics (AfDB)

rement led to a budget execution rate of

74.4% in 2012.

2.1.15 In 2014, debt will remain sustainable7,

provided the budget deficit is reduced and

growth is revived (Annex 13). According to

the standards of rating agencies and interna-

tional institutions, the debt/GDP ratio of mid-

dle-income countries like Tunisia must not

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

ratio dropped from 44.6% in 2011 to 43.8%

in 2012 and is expected to stand at 46.8% in

2013. Sixty-three percent of public debt is

held abroad for a seven-year average repayment

period and a low average annual cost of

about 3.5%, excluding the repayment of the

principal before 2017. The budget deficit is

expected to fall to 4.3% in 2015.

2.1.16 However, the State’s financing

needs are huge and estimated at USD

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

4.3 billion in 2014. Following development

partners’ interventions of, Tunisia has mana-

ged to bridge the financing gap in 2013.

Negotiations with the IMF on a precautionary

standby arrangement led to the approval –

on 7 June 2013 - by the IMF Executive Board

of a USD 1.7 billion programme for the 2013-

2015 period at a 1.07% interest rate (Annex

6) which is subject to the implementation

of reforms to restore macro-economic

stability.

2.1.17 The Central Bank of Tunisia (BCT)

has continued to implement a flexible

monetary policy to support the revival

policy. The structural liquidity deficit which

characterized the cash position of banks in

2011 continued in 2012, necessitating greater

BCT intervention on the money market

through the injection of about TND 5 billion

during the first 10 months of 2012. Total

deposits decrease by 7.8 in 2013 compared

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

lending to the economy increased by only

8.7%, as against 13.4% in 2011.

2.1.18 Increasing inflationary pressures

prompted the BCT to gradually tighten its

monetary policy and implement a neutral

intervention strategy in line with changes in

autonomous bank liquidity factors. In fact, on

average, inflation stood at 6.4% in 2013 as

against 5.4% in 2012 and 3.5 % in 2011 due

mainly to8 : (a) rising world market prices of

some imported products; (b) the depreciation

of the dinar (from 0.52 dinars for TDN

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

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

weakening price control, dysfunction of

distribution networks and the smuggling of

some products into neighbouring countries

(Libya).

2.1.19 The current account deficit rose

from 7.3% of GDP in 2011 to about 8.2%



in 2012 and 8.3% in 2013, despite an

increase in revenue accruing from tourism

and remittances from Tunisian workers

abroad (34% and 22%) and the depreciation

of the exchange rate (12% against the Euro

in 20139 and 16% since 2010).

2.1.20 Hence, foreign exchange reserves,

though substantial, declined in 2013. The

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,

representing 107 import days. Likewise,

foreign exchange reserves attained their

2010 level in 2012 (USD 8.5 billion) following

an increase in FDIs10 (Fig. 3) sustained parti-

cularly by the sale of ill-gotten property,

bilateral and multilateral loans and access to

financial markets (with the U.S. Treasury and

JBIC guarantee).

2.1.21 Tunisia’s sovereign rating was revised

downwards in this context marked by the

relative deterioration of macro-economic

balances. Since 2011, Standard & Poor’s

has progressively reduced Tunisia’s sovereign

rating by six notches from BBB to B in August

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

sources of financing and increased their cost

at a time of growing needs. However, Tunisia

has never defaulted on its financial commitments

to the Bank or other donors and such scenario

is unlikely in the short- and medium-term

(Annex 13).

u Gouvernance

2.1.22 Before the Revolution, poor public

and private sector governance impeded

civil society participation in the running of

the country and also hampered private

sector development11. It is said that poor

governance cost the Tunisian economy two

growth points. In 2012, however, governance

indicators continued to portray Tunisia as the

most advanced country in Africa in terms of

HDI and sustainable economic development.

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

score remained very close to the average of

African countries in 2012 (Fig. 4). Supplementary

and sustained efforts should be made to restore

the confidence of entrepreneurs and investors,

particularly in the judicial system.

2.1.23 During the post-Revolution period,

the authorities implemented several

initiatives to improve transparency and

good governance. This resulted in the



1% 1% 5% 8%

4%

2%

36%3%

40%

Miscellaneous industries

Agro-food

Building materials

Mechanical-Electrical-Electronic Chemical, Rubber and Plastic

Textile, Clothing, Leather andFootwear

Energy

Tourism and Real Estate

Services and others

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

creation of a Ministry in charge of Gover-

nance in 2012. An action plan was prepared

following the conduct of a governance

evaluation and a diagnosis of the extent of

corruption in Tunisia. This led to (i) the lifting

of reservations allowing the entry into force of

the United Nations Convention against

Corruption, 2003 and (ii) the revitalization of

the Independent National Anti-corruption

Authority in April 2012. In 2013, the Government

also carried out the OECD integrity scan

which constitutes an important milestone.

2.1.24 Tunisia has also made substantial

progress12 in establishing a legal and

institutional framework for public trans-

parency. The analysis of the Tunisian control

and audit system in 2013 underscored the

need to reform auditing as the basis for

corruption control. The reform of the financial

system is underway with the application of

objectives-based budget management which

ensures greater efficiency in resource mana-

gement. These achievements, whose impact

is still to be assessed, should be strengthened

by putting in place a robust legal framework.

2.1.25 Measures have also been taken to

improve Government’s accountability to

control institutions13. The Audit Office also

plans to reform its internal structures in order

to adapt the organization of its services,

particularly the pole centred around the

General Secretariat, and its operation to good

governance requirements. This structural reform

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

techniques on the one hand, and the esta-

blishment of an information system adapted to

the needs of the Audit Office on the otherhand.

2.1.26 Corruption remains the centre of

attention. According to Transparency Inter-

national, Tunisia’s corruption perceptions

index declined in 2011 and 2012 compared

to 2010 and 2011 (Fig. 5). However, despite

the establishment of the National Corruption

and Embezzlement Investigation Commission

and the National Committee on the Recovery

of Ill-gotten Property Abroad, anti-corruption

measures are inadequate. Furthermore, the

report on the self-assessment of the national

procurement system conducted in 2012

highlighted a major weakness in the integrity



62.7

81.7

54.1

68.6

51.2

56.7

53.3

47.3

0 10 20 30 40 50 60 70 80 90

Governance Index (Mo Ibrahim Index)

Human Development Index (HDI)

Security and Rule of Law

Sustainable economic development

Africa Tunisia

Figure 4: Governance Index 2012: Tunisia’sScore, Compared to Africa (AfDB)

and transparency of the Tunisian public

procurement system.

2.1.27 Since Revolution, major efforts

have been made to promote access to

information, civil society development and

greater citizen control14 (Fig. 5). These

include, for example, the enactment of the

2011 law on associations. The Tunisian

Government enacted a law on access to

information in May 2011 and also started

disseminating key statistical and financial

data such as budget implementation reports,

complete Audit Office reports, as well as

household and labour force surveys. This

is facilitated by the Bank’s support to

e-Government.

u Business Environment and

Competitiveness

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

all indicator rankings (Fig. 6). According to

the latest Global Competitiveness Report,

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

open or not to foreign investment, and

requests for prior authorization, particularly

in the service sector, are limiting factors.

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 all indicator

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

Competitiveness Report, 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



9.95

35.68

42.65

4.3 3.8 4.12010 2011 2012

Freedom of Expression andAccountability

Corruption Perceptions Index

Figure 5: Trends in Freedom of Expressionand Accountability and Corruption PerceptionIndices (IMG and Transparency International)

sectors, whether these sectors are open or

not to foreign investment, and requests for

prior authorization, particularly in the service

sector, are limiting factors.

2.1.29 ITCEQ’s Competitiveness Survey

2012 revealed that the business envi-

ronment is one of the main challenges

for corporate development, particularly

regarding corruption and insecurity

(Fig. 7).

2.1.30 Total factor productivity remains

low compared to those recorded in other

middle-income countries such as Morocco

and Romania, Tunisia’s main competitors

(Fig. 8). Although the country’s annual growth

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

rate owing to greater trade openness and

worsening terms of trade15.

2.1.31 A more knotty issue is that Tunisia

lost 43 places and was ranked 83rd in the

World Economic Forum’s Global Competi-

tiveness Report in August 201316 (Fig. 9).

Nevertheless, it has continued to honour its

commitment regarding the implementation of

reforms to improve the business environment

(new investment code, simplification of

administrative formalities and implementation

of administrative reforms). According to its

main partners, however, there is need to

accelerate the implementation of reforms.



10497

3130

39

8793

5466

4550

6470

7778

6062

4649

38

0 50 100 150

Ease of doing business

Starting a business

Obtaining building permit

Obtaining creditAcquisition of property

Investor protection

Taxation

International trade

Contact compliance

Closing a business

2012 2013

Figure 6: Business Environment: Comparative Ranking with 183 Countries

(Doing Business)

0.733

0.7190.7130.657

0.61

0.587

0.568

0.547

0.493

Infrastructure

Human resources

Macro-economic uncertainties Administrative procedures and system…

Contracting parties

Bank financing

Social security contributions Corruption

Insecurity

0 0.2 0.4 0.6 0.8

Figure 7: Business Climate:Competitiveness Survey 2012 Results

(ITCEQ)

1.2%1.5%1.4%

1.1%

2.7%

0.4%

5.5%

1.4%

2000-2005- 2006-2010-

Tunisia Morocco Turkey Romania

Figure 8: Overall Factor Productivity Growth for the 2000-2005 and 2006-2010

Periods (AfDB)

u Financial Sector

2.1.32 The already fragile financial sector

has been affected by the transition17. Before

the Revolution, it was already plagued by

structural vulnerabilities such as undercapita-

lization, poor asset quality, fragmentation,

poor banking supervision or underdeveloped

stock markets. The banking sector has been

affected by the Revolution owing to its

exposure to risks related to sensitive sectors

such as tourism as well as companies owned

by the former President’s family. Bad debts

have been maintained artificially at their

pre-Revolution levels and profits do not

reflect the low level of banks’ provisions and

equity. State banks are the most vulnerable

because they were used as economic policy

instruments. According to the BCT, the rate

of non-performing loans of State banks was

17.8% at end-2012 and would be more than

20% if rescheduled debts (in line with the

June 2011 BCT circular) are taken into

account18. Furthermore, the banking system

does not support SME and micro-enterprise

development.

2.1.33 The banking sector is at the core

of the reforms included in the IMF programme.

According to the recent assessment of financial

system soundness, the cost of restructuring

the public banking sector could reach 2.6%

of GDP over the next two years. The reforms

supported by the IMF include the improvement

of banking information, bank recapitalization,

the management of non- performing loans

(especially those related to tourism), improved

management of public banks, better banking

supervision and the establishment of a crisis

management system.

u Trade and Regional Integration

2.1.34 The Partnership Agreement between

the EU and Tunisia has enabled the country

to reach important milestones regarding

liberalization and integration. However, this

has been achieved at the expense of heavy

dependence on the European economy

which was the destination of 73% of Tunisian

exports in 2012. The top ten destinations

include Libya, Algeria, Morocco and the United

States which absorb 16.4% of Tunisian

exports (Fig. 10).



0 50 100 150

Global Competitiveness Index 2011-…

Institutions

Infrastructure

Macro-economic environment

Health and primary education

Higher education and training

Contracting effectiveness

Technological maturity

Innovation

Turkey Brazil Tunisia

Figure 9: GCI 2012-2013 Ranking (WEF)

2.1.35 However, integration in the sub-

region and with sub-Saharan Africa is a

source of significant, but untapped,

potential growth. Tunisia exports much more

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

(Figure 11). Nevertheless, the merchandise

trade complementarity index shows that its

exports are more complementary with Came-

roonian (0.457) than French (0.433) exports

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

designed a roadmap in conjunction with the

private sector and market research consulting

firms to ease access to African markets. Tunisia

is also negotiating free trade agreements with

WAEMU and the establishment of free trade

zones with Libya and Algeria.

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

witnessed 23 strikes, of which only 11 were

legal (affecting 21 enterprises, 4 of them

public) that caused the loss of 4 000 working

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

2000 to 15.5% in 2010)19. Global inequalities

have reduced, with a decline in the Gini Index

from 0.37 in 2000 to 0.35 in 2010 (Figure 12

– Annex 8). Despite the decrease in inequalities

at the national level, regional disparities have

continued to increase, further polarizing the

society.

2.1.38 The authorities are concerned

about the poor performance of social



26%

16%

9%8%

4%

37%France

Italy

Germany

Libya

Spain

Rest of the World

Figure 10: Tunisia’s Main Trading Partners(% share of total exports) (INS)

0.14

26.28

0.15

9.39

0.062.99

0.11

0.457

0.433 0.4300.419

0,4100.405 0.401

0.3800.370

0.3900.4000.4100.4200.4300.4400.4500.4600.470

0.00

5.00

10.00

15.00

20.00

25.00

30.00 % Share of Total Export

Complementarity

Figure 11: Main Destinations of Tunisian Exports and Complementarities

(UNCTAD)

transfers20. In fact, to alleviate poverty and

preserve food security, Tunisia has implemented

social policies based on direct and indirect

transfers (food and energy subsidies) since

independence so as to promote inclusive

growth-driven development. However, analyses

of the efficacy of food subsidies have shown

that despite their significant redistributional

effects (without subsidies, the poverty rate

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

versal nature of these subsidies undermines

the efficacy of this tool as a mechanism

for reducing inequalities and poverty. Poor

households which represented 15.5% of the

total population in 2010 receive only 12% of

food subsidies.

u Unemployment and Education

2.1.39 Despite the growth rebound in

2012, employment remains the major

preoccupation of Tunisian policy-makers.

During the third quarter of 2013, the average

unemployment rate and the unemployment

rate of graduates rose to 15.7% and 33.5%

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

coupled with the massive influx of Tunisians

repatriated from Libya21 explain these rates

which remain high despite a slight decrease

compared with the previous year (particularly,

following recruitments in the public sector).

This structural unemployment, is a result

of a quantitative (between higher education

and private sector needs) and qualitative

(graduates lacking the required skills to enter

the labour market) mismatch. The distribution

of unemployment is also an important indicator

of regional and social disparities. The authorities

are also concerned about the informal sector

(36.8% of employment in 2007).

u Gender Issues

2.1.40 The Bank conducted a gender

diagnosis in 2012-2013. As regards gender

equity, the 1956 Personal Status Code



23.3

34.8

61.9

15.5

32.7

62.5

Poverty rate Global inequality Polarization

2005 2010

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

. . .

. . . . .

.. . .

.

..

..

.

.....

.

Figure 13: Trends in the Overall Unemployment Rate among University

Graduates and Women 2006-2012, in % (INS)

places Tunisia at the vanguard of the Arab

world with respect to the status of women in

society. Nevertheless, there are still reservations

at the CEDAW concerning the law of succession,

the Nationality Code and the concept of

patriarchy. During the transition period, there

were a lot of tensions during which achieve-

ments were sometimes threatened.

2.1.41 Concerning human capital,

Governments’ efforts have borne fruit,

although some disparities remain. There

is a higher female enrolment in universities

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

education, the illiteracy rate in 2010 was

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

rural areas, women sometimes lack access

to specific health (gynaecological) care.

2.1.42 Regarding economic inclusion,

women’s labour market participation is

irregular and declines from the age of 30

years. Women represent less than a quarter

of an active population of 3.2 million and their

unemployment rate is higher than that of

men. Sectors characterized by job insecurity,

underemployment and major differences in

remuneration are dominated by women. A

better women labour market positioning

would increase GDP by 0.7 percentage

points.

2.1.43 Women’s participation in the three

branches of government has improved

significantly. Women hold 22.6% of

positions in decision-making bodies. The

adoption of the gender equality principle

during the first ANC elections resulted in the

election of 49 women out of 217 seats and

the Vice-President of the ANC is a woman.

Although this representation seems is low in

absolute terms, it is remarkable in the sub-

region.

D. Environment and Climate Change

2.1.44 During the post-revolutionary

period, the management of environmental

issues has deteriorated. This degradation

is related to the difficulties encountered

by the government in applying the law22.

2.1.45 However, the renewed involvement

of civil society, which is clamouring for

better natural resource and environmental

management, is visible. The demands concern

improvement of the quality of life and natural

resource management, reduction of public

health disparities between regions and also

within towns through equitable access to

drinking water and sanitation and improved

waste management.

2.1.46 Like in most North African countries,

water is a precious commodity in Tunisia.

More than half of available water is surface

water and about 44% is derived from water

tables. Although all available water reserves

have not been harnessed, the excessive

consumption of groundwater is increasingly



disquieting. On average, water reserves are

extracted at 146% of their recharge rate23.

2.1.47 Tunisia is implementing an aggressive

policy in the area of energy conservation

and new and renewable energy (wind,

solar, sludge from sewage treatment plants)

which should be encouraged. Energy intensity,

which is 0.08 ktoe per USD 1 000 of GDP,

is less than the world average of 0.13 as

well as the average of 0.18 in the MENA

region.

2.1.48 In addition, climate change may

have a significant impact in Tunisia. Tunisia

is expected to experience a warmer and

more variable climate by 2030. These expected

changes will have considerable impacts on

water resources, agriculture and natural

resources. In 2050, the impact is expected to

represent about 0.3% of GDP.

2.2 Strategic Options

A. Country Strategic Framework

2.2.1 Soon after the Revolution, Tunisia

stopped the preparation of five-year

development plans implemented since the

sixties. In a context of transition, the authorities

have opted for a flexible strategy aimed at

appeasing social and economic demands

while preparing necessary structural reforms.

The I-CSP is based on Government’s

guidelines which were presented in March

2013 and on (i) the September 2011 Jasmin

Plan and (ii) the October 2012 Letter of

Development Policy. These guidelines provide

for a series of structural reforms and investments

aimed at creating conditions for accelerated

growth and job creation to ensure regional

balance and inclusive development. They

build on five pillars, namely: (i) economic

reforms; (ii) infrastructure modernization; (iii)

strengthening of the social sectors of education

and employment; (iv) regional balance; and

(v) promotion of sustainable development.

There is, however, no detailed plan for its

operationalization.

2.2.2 The authorities intend to formulate

a development plan in 2014. In this

connection, the I-CSP proposed by the Bank

would cover the period of the formulation of

this new plan.

B. Challenges and Weaknesses

u Delays in the political agenda

and the sub-regional context

2.2.3 The relative slow pace of the political

transition process impedes the return to

a sustainable growth model. Economic



actors are awaiting the implementation of a

clear political agenda, far-reaching structural

reforms and a coherent public investment

programme.

2.2.4 Geopolitical uncertainties in the sub-

region also weigh heavily on stability. The

Libyan crisis has had a direct impact on the

Tunisian economy resulting, inter alia, in the

return of workers, and heightened insecurity,

particularly in border regions24. The crisis in

Europe, Tunisia’s main trading partner, has

also affected the Tunisian economy.

u Need for more resources

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 macro-

economic stability. Besides the international

community’s role in providing such financing,

technical support should be intensified to

carry on the structural reforms presented

below.

u Accelerating the structural

transformation of the economy

2.2.6 The persistent dependence of the

economy on low-cost production and

export sectors with low value added make

it uncompetitive and vulnerable25. The

sophistication of Tunisian exports has not

improved since 1960 (Fig. 14). The structural

transformation of the economy should build

on: (i) the substantial contribution of exports

to growth; (ii) the greater contribution of

the service sector to growth26 (health27, air

transport or telecommunication28) and (iii)

the orientation of production towards

sectors with higher value added by moving

from a subcontracting to a co-contracting

economy29.

2.2.7 Furthermore and as indicated above

(2.1.30), the business climate should be

significantly improved. Micro-economic

policies and inefficient institutions hinder

investment, particularly foreign investment,

which offers a huge potential for bridging the

technological gap as well as enabling Tunisian

businesses to become competitive by supplying

export enterprises or exporting directly. Thus,



Figure 14: Evolution Index sophistication of exports (EXP) for Tunisia

and some Asian countries

additional efforts should be made to improve

the business climate and strengthen the

competitiveness of businesses by simplifying

procedures. In this regard, regional consultations

on the Investment Code, which were initiated

on 25 May 2013, will be conducted before it

is tabled before the ANC for approval.

2.2.8 It is also necessary to continue

to develop infrastructure for economic

transformation30. The level of infrastructure

is relatively satisfactory. Good economic

performance was achieved over the last

decade thanks to investments in, and regular

upgrading of, new infrastructure. However,

Tunisia faces the challenge of maintaining,

during the transition period, an ambitious

public investment level to support economic

transformation (developing and improving the

management of trade infrastructure, particularly

ports31- or developing green energy).

2.2.9 It is necessary to redefine relation-

ships between the public and private

sectors. Although the outlines of public-

private partnerships (PPPs) are being defined,

it is obvious that the structural transformation

of the economy can only be achieved by

increasingly using them32.

u Reducing Regional Disparities

2.2.10 Regional disparities in Tunisia

primarily affect the quality of public

services33,34. As regards primary education,

tests conducted worldwide have shown that

schools in small towns are unable to give

their pupils the same level of skills acquired

by pupils of schools in big towns. In the same

vein, the knowledge index developed by the

authorities shows that the level of knowledge

is 30 times higher in Tunis than in Kasserine,

thus limiting the region’s participation in the

country’s economic transformation. Likewise,

the quality of health services is six times better

in Tunis than in Kairouan and eleven times

better than in Sidi Bouzid35. Citizens’ access

to water and sanitation, roads and energy in

disadvantaged regions is sometimes difficult

(Fig. 15).

2.2.11 These disparities are also reflected

in economic attractiveness36. Low levels

of private investment reflect imbalanced

development in terms of employment oppor-

tunities, underscoring the need to improve



0.70

0.33

0.68

0.41

0.20

0.39

Wealth and employment Health and population Knowledge

Coastal Governorates Inland Governorates

Figure 15: Indices of Regional Disparities inTerms of Wealth, Health and Education

(MDCI)



the business climate in regions with regard to

the quality of public services provided to

enterprises (Fig. 16).

2.2.12 There is need to continue to build

infrastructure to support regional integration.

Ambitious public investment will help to

reduce regional disparities by linking under-

served regions, thereby inducing a ripple

effect on the private sector so as to stimulate

growth while enhancing its inclusiveness.

Thus, besides providing support to techno-

logical hubs, special attention should be paid

to all basic infrastructure assets, be they

transport (including rural roads), logistics,

telecommunications, education or social

services.

2.2.13 However, these two components

can be achieved only by carrying on with

the reorganization of the State37. There is

need for Tunisia to implement urgent reforms

to make centralized State procedures more

flexible and upgrade institutions pending the

implementation of the necessary structural

reforms. In this regard, it is necessary to

strengthen the decentralization of the State

in regions and improve the implementation

of investment budgets in the short term.

Secondly, it is essential to formulate regional

development plans rapidly and to transfer

powers to councils, divisions and regions.

u Improving training-employment

dynamics in an inclusive manner

2.2.14 The reduction of unemployment

entails more efficient training-employment

dynamics38. Tunisia is suffering from major

structural unemployment, hence the need to

initiate the structural reform of the educational

and training system. Concerning basic

education, the aim should not only be to

undertake pedagogical reforms, but also to

ensure that these reforms have an impact on

learning. With regard to vocational training,

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

capacity of the vocational training system; (ii)

to improve its quality and adaptation to

the economic fabric; and (iii) to improve its

governance through increased private sector

involvement. Concerning higher education,

there is need to give a boost to the sub-

sector’s reform by focusing the reform

3323

7396

10619

4194 4358

8552

0

2000

4000

6000

8000

10000

12000

Public Private Total

Coastal Governorates Inland Governorates

Figure 16: Per Capita Investment in TNDfor the 1987 – 2010 Period (MDCI)

strategy on excellence, quality assurance and

managerial accountability of schools through

partnership with the private sector in terms of

research and innovation to meet economic

needs.

2.2.15 Lastly, it is necessary to ensure

coordination between training actors and

sectors so as to adopt a common human

capital development vision. New entrants

are trained and encouraged to join the public

sector, which is the main source of employment.

Thus, there is a mismatch between the skills

available on the labour market and corporate

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

training is put into question (OECD PISA

tests).

2.2.16 Furthermore, the growth diagnosic39

highlights the rigidities of the Labour

Code which do not facilitate transition from

training to formal employment and job creation.

These may be overcome only through the –

ongoing–renegotiation of the social contract40.

C. Strengths and Opportunities

u Strong central administration

2.2.17 Thanks to its strong central admi-

nistration, Tunisia still has the capacity

to formulate economic policies in the

context of transition. The authorities are

carrying on dialogue with key development

partners. Similarly, the central administration

continues to design investment projects in all

sectors.

2.2.18 However, the transition has slightly

affected the capacity of the central adminis-

tration. There are some slippages in the

implementation of projects. The effective

implementation of reforms, particularly within

the framework of multi-donor budget support

operations, is sometimes considered to be

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

political instability, occasional conflicting

visions of policy-makers (belonging to different

political parties) and schooling in participatory

decision-making.

u Diversified economy

2.2.19 Tunisia has a relatively diversified

economy. In 2011, agriculture accounted

for 8.8% of GDP, manufacturing industries



9.6

12.4

32.4

26

26.1

25.4

27.4

10.5

5.7

13.9

6.3

15.9

Certificate before the Baccalauréat

Senior TechnicianBaccalauréat

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

Master’s degree in hard sciences

Other certificate

Medicine or Pharmacy

Certificate in Engineering

Master’s Degree or equivalent certificate

Doctorate

Other certificate

Figure 17: Rate of Youth Unemployment(Aged 18 – 30 Years)by Type of Certificate

(2010) (INS)



17.6%, non-manufacturing industries 12.9%,

tradable services 42.5% (tourism 6.3%) and

non-tradable services 18.2% (public adminis-

trative services 17.8%). Though Tunisia was

mainly an agricultural and mineral product

exporting country in the 1970s, textiles, elec-

tronics and chemicals now occupy the

largest share of its export basket. Since the

dismantling of the Multifibre Agreement, the

share of textiles in total exports has declined

over the past five years, while that of mecha-

nical and electronic products rose from

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

2.2.20 Tunisia has a number of sector

with huge potential (tourism, agriculture42,

manufacturing industries and services)

to support growth and employment. In this

regard, the current structure of the economy

provides a solid base for initiating economic

transformation.

u Sound international integration

2.2.21 Tunisia strengthened its integration

in the international economy in the late

1990s. Its openness to the external world has

made foreign trade and foreign investment the

engines of its growth. Its proximity to and

agreements concluded with the European

market are an asset for sustainable growth,

despite the tumultuous European economic

situation.

2.2.22 At the same time, Tunisia has

succeeded in exploiting export opportunities

in North Africa – although the Maghreb is

one of the world’s least economically integrated

regions43. Tunisia also benefits from numerous

bilateral trade agreements signed in 1999

and agreements concluded with GAFTZ

and AMU countries. It collaborates with sub-

Saharan African countries and develops

investments projects in the industrial and

service sectors (see 2.1.26).

2.2.23 However, Tunisia must find new

markets to reduce its heavy trade dependence

on a limited number of countries (France -

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

Greater integration with Africa and Asia could

create new sources of growth.

46.6

37.7

22.316.5

23.1

36.6

2000 2005 2012

Textiles, clothing and leather Mechanical and electronic industries

Figure 18: Share of Textile, Mechanical andElectronic Products in the export

Basket % (INS)

2.3. Aid Coordination/Harmonizationand AfDB Positioning in the Country

2.3.1 Tunisia signed up to the Paris

Declaration on Aid Effectiveness which

advocates, in particular, the conduct of a

survey on the monitoring of related indi-

cators. It did not participate in the global

surveys carried out by the OECD, but the

internal survey conducted by the Bank in

2012 shows that the aid provided is aligned

with national priorities. Concerning the har-

monization of procedures, projects financed

by the Bank and key partners in Tunisia are

implemented mainly by ministries and public

institutions, thus helping to limit the establish-

ment of parallel entities.

2.3.2 In 2012, the Government initiated,

with Bank and World Bank support, an

auto-evaluation of its national procurement

system by a national committee (open to

all public procurement stakeholders). This

auto-evaluation gave rise to an evaluation

report and an action plan which were validated

by the Government in August 2012. This

is the first step towards the use of country

systems by the Bank (Annex 12).

2.3.3 Given its adequate management

capacity, the Tunisian Government takes

responsibility for planning and coordinating

donor operations. Some attempts to formalize

the coordination framework have been made

without much success to date. These include

in particular an “employment and regional

development” group steered initially by the

Swiss Cooperation. However, coordination is

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

form of information sharing and consultations

among the partners involved in similar

areas/operations. In this respect, the Bank

has prepared a series of distribution lists to

facilitate discussions among actors and

improve its dialogue with civil society.

2.3.4 Collaboration and coordination

with other donors are well-developed for

programmes co-financed in accordance

with the Paris Declaration. The partners: (i)

conducted joint budget support missions

giving rise to joint matrices of measures and

aide-memoires negotiated in a coordinated

manner; (ii) shared analytical works before

their publication; (iii) co-finance technical

assistance and investment programmes44.

2.3.5 Tunisia’s traditional donors’ speciali-

zation is based on their comparative

advantages and possible synergies and

complementarities. The IMF is supporting a

series of structural reforms helping particularly

to strengthen the financial sector and is coor-

dinating international support to stabilize the

macro-economic framework. The support of

AFD, JICA and KfW is focused on the private

sector, sanitation, local and agricultural develop-

ment and transport. For their part, multilateral



donors provide multi-sector budget support45.

The WB and EIB give priority to the private and

transport sectors, while the EU is interested in

education and justice. Methods of intervention

have evolved and increased recourse to

technical cooperation is discernible. In this

respect, the Bank has continued to position

itself in sectors where its comparative advan-

tage is recognized in Tunisia (improvement of

basic infrastructure in the regions or vectors

of innovation and sophistication, the education

sector, governance support for private

sector development) or in sectors where it is

developing expertise such as PPP (Table 1).



Table 1: Key Partners’ Active Portfolio by Sector (2013 - in USD million)46

Agr. HumanDev.

Transp. Ener./Env.

Reg.Int.

Private Water &San.

Loc. Dev.

Re-forms

Fin. Total %

AfDB 84 84 815 214 176 1013 138 2524 26,3

EIB 696 905 332 4 72 100 2109 22,0

WB 47 44 20 44 197 1059 54 1492 15,6

AFD 117 45 53 11 140 185 197 246 993 10,4

EU 115 63 40 73 75 79 545 990 10,3

AFESD 11 151 216 277 54 709 7,4

KfW 86 565 651 6,8

USAID 1 97 18 2 118 1,2

Total 286 440 1799 1600 40 696 1201 366 2865 292 9585 100,0

% 3 5 19 17 0 7 13 4 30 3 100

2.3.6 In addition, the Bank is coordinating

its activities together with other IFIs within

the framework of the Deauville Partnership.

In this connection, it hosted its secretariat in

2012. This partnership has helped to mobilize

additional resources in the form of grants,

share knowledge and coordinate operations.

2.3.7 The Bank has for long been a

preferred development partner of Tunisia.

The Bank’s portfolio (the institution’s second

largest) comprises 16 projects (of which four

non-sovereign) and 24 technical assistance

operations financed with grants to the tune

of UA 1.36 billion. Furthermore, in 2011 and

2012 UA 659.9 million was allocated for two

budget support operations. The road sector

represents 36% of the portfolio (in value),

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

private sector (16%) (Annex 4).



2.3.8 The 2013 portfolio review showed

that the portfolio in Tunisia remains

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

a public portfolio financial performance of

71.8% in 2013. However, delays in loan

implementation have increased since the

Revolution and the good performance is

attributable to the presence of two aged projects

and the disbursement in a single tranche of

the budget support approved in November

2012. The level of grant disbursement, in

particular, remains modest with a rate of

40.1% (Annex 4).

2.3.9 The main recommendations of the

2013 portfolio review concerned audits,

disbursement timeframes and public

procurement procedures (Annex 3). The Bank

is continuing dialogue to enable the Audit Office

to implement projects with external financing. To

strengthen portfolio-related services, the Bank

has transferred three procurement experts to

the MDIC for an 18-month period to help speed

up disbursement for operations. Furthermore,

the Bank is supporting the public procurement

system reform which is a prerequisite for the use

of the country system47 (Annex 12).



3.1 Rationale for Bank Group Involvement

3.3.1 The Tunisian authorities have

requested the preparation of a two-year

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

adaptable to the changing political, eco-

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 well-

targeted 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

2011, the Bank has organized monthly

meetings to exchange ideas with civil society,

private operators and the administration on

challenges of the country and the region. In

addition to bilateral meetings with the private

sector, a workshop was organized with civil

society in September 2013 to discuss the

strategy (Annex 11). External peer reviewers

(including development partners) were also

involved. The document was also discussed

with the new authorities in 2014.

3.1.4 Furthermore, the Bank’s strategic

positioning has been enhanced by the

growth diagnosis conducted with Tunisian

III. Bank Group Strategy

Box 2: Choice of the I-CSP Tool

1. The existence of sustained dialogue withthe authorities promotes the formulation ofa new strategy whereas the lack of visibilityunderpins its interim nature.

2. The lessons learned from achievementsin 2012-2013 encourage the refocusing ofactivities, necessitating the reformulation ofthe content of the two pillars.

3. Existing constraints on the level andtype of AfDB operation necessitated theestablishment of sustained dialogue duringconduct of the I-CSP preparation mission.

4. The authorities requested the design ofa I-CSP that gives a clearer signal to otherpartners and eases resource mobilization.



authorities and U.S. agencies . This diagnostic

underscores the importance of removing

micro-economic constraints to stimulate

growth driven by the private sector.

3.1.5 Despite a great deal of work to

improve knowledge done by the Bank

during the previous I-CSP (Annex 9),

huge knowledge gaps remain concerning

particularly the design of strategic frameworks

and reforms to support the transition process.

These gaps relate to the need to define condi-

tions for economic transformation (development

of an industrial strategy, agricultural sector

support, the selection of a deep-sea port and

the involvement of the private sector in educa-

tion) or conditions for the decentralization of

the State.

u Lessons learned from the previous

I-CSP

3.1.6 The recommendations of the I-CSP

2012-2013 completion report are as follows:

(i) Limit the Bank’s scope of intervention; (ii)

Strengthen the alignment of analytical works

with the I-CSP; (iii) Intensify the search for

co-financing; (iv) Improve the monitoring and

evaluation capacity of the I-CSP by identifying

simple and verifiable result indicators; and (v)

Combine budget support operations and

investments to maintain productive capacity

and create direct and indirect employment

opportunities in the regions.

3.1.7 The budget support mobilized 87%

of resources allocated during I-CSP 2012-

2013 implementation. This was justified (and

could be justified in the future) by the need to

support actions to revive demand while

preserving investment in order to guarantee

social peace and facilitate the transition

process. The budget support has enabled

achievements in local governance, support

to civil society, employment and public

finance whose scope may seem to be limited

but which, in the current context of transition,

should be considered as quite significant

(Annex 10). However, the examination of

public accounts during the 2011-2013 period

showed that constraints on financing led to

trade-offs in favour of recurrent expenditure,

to the detriment of public investment. To

avoid the loss of competitiveness related,

inter alia, to under-investment and strategic

infrastructure maintenance, special attention

should be paid to ensuring an optimal blend

between budget support operations and

investment projects during the implementation

of the I-CSP.

3.1.8 To take these recommendations

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

Bank’s operation should be refocused on

governance and infrastructure; (ii) technical

assistance activities and studies should

underpin operations to ensure better

alignment; (iii) every project should include

external co-financing as much as possible;



(iv) result indicators should be reviewed; and

(v) reform support and investment operations

should be combined.

u Approach and instruments

3.1.9 The I-CSP prioritizes the principles

of alignment with Government’s priorities,

complementarity with other partners and

consolidation of the achievements of

previous operations. The I-CSP focuses on

the Bank’s 2013-2022 Strategy, particularly

“governance” and “infrastructure” operational

priorities and incorporates the green dimen-

sion in their implementation. In accordance

with the Bank’s private sector development

strategy, the I-CSP will ensure permanent

dialogue between the Tunisian Government

and the private sector and promote PPPs.

3.1.10 In particular, the CSP recognizes

the key role played by the IMF in stabilizing

the macro-economic framework and the

financial system. Additionally, the I-CSP

focuses on two major challenges: (i) the

business climate and the competitiveness of

the economy and (ii) regional disparities.

3.1.11 In view of the transitional situation,

planned activities under the I-CSP will be

carried out within two time horizons: (i) a

short-term horizon for activities carried out to

meet urgent needs or to enable rapid economic

and social improvements (“quick wins”) and

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

aimed at laying the foundations for a new

economic and social development model.

3.1.12 To support the transition process,

in particular and given financing challenges,

the Bank will lay special emphasis on tech-

nical assistance operations. The objectives

of such operations will be to conduct strategic

or pre-investment studies in order to enable the

authorities to focus on medium- and long-term

objectives during the transition period. The

technical assistance operations may also help

to identify reforms to support inclusive private

sector development in the short-term.

3.1.13 Depending on the development

of its commitment capacity, the Bank will

consider financing (public and/or private)

investment and budget support operations

(see section 3.2). In this connection, priority

will be given to investment operations that

promote public-private partnerships and

where the leverage effect of Bank resources

will be established. In this respect and in

order to facilitate progressive commitment

(in parallel with the development of its commit-

ment capacity), an approach based on the

financing of several small- and medium-size

operations (rather than a very small number

of large-scale operations) will be given

priority.



u 2014-2015 Intervention Component

3.1.14 To promote the creation of high

value added jobs for young graduates and

the economic attractiveness of regions,

emphasis will be laid on support for inclu-

sive private sector development within the

framework of this strategy. This support

entails the improvement of (i) private sector

output (by improving governance) and (ii) the

provision of production factors (by improving

infrastructure). Based on these factors and in

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

2014-2015 will focus on two pillars in keeping

with the Ten-year Strategy to obtain a blend

of governance and infrastructure domains.

3.1.15 Governance and infrastructure

improvement support helps to address

Tunisia’s major challenges (Table 2 –

Annex 2) while remaining consistent with

the Government’s policy framework. In

particular, Government’s thrusts: (i) Economic

Reforms and (ii) Infrastructure Modernization

are backed by actions carried out under the

I-CSP governance and infrastructure pillars

to: (a) improve the business climate and

competitiveness and (b) increase value

added. On the other hand, Government’s

thrusts: (iii) Regional Rebalancing and

(iv) Strengthening of the Social Sectors of

Education and Employment are supported

under the I-CSP governance and infra-

structure pillars through actions to (c) improve

public service delivery in the regions and

(d) ensure access to employment by

developing skills and opportunities in the

regions.



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

Country’s Context and Prospects

(Page 1)

Challeng

es and

Weaknesses (Pag

e 10)

Strengths and

Opp

ortunities (Page 12)

Instruments

Coun

try Strateg

ic

Framew

ork (P

age 9)

Political

Delays in the political agenda

and sub-regional context.

Uncertainties weigh on recovery

- return to stability depends

on a clear political agenda,

structural reforms and a coherent

investment programme. (Page

10)

A sound administration

capable of carrying on the

design of economic policies

in a context of transition.

(Page 12)

Flexible approach based

on the changing situation.

(Pages 15-18)

Tunisia is implementing one of the

most stable transition processes in

the region. However, the political

agenda (organization of elections) has

been delayed.(Page1)

Economique

Increased financial resource

need – however, macro-eco-

nomic balances should be

maintained.(Page 10)

Pillars

Macro-economics. Economic recovery

in 2012-2013. However, the budget

deficit widened with a decline in invest-

ment expenditure, a slight decrease

in foreign exchange reserves and a

deteriorating sovereign rating by rating

agencies.(Page 3)

Governance

Pillar

Infrastructure

Pillar

I. Economic

reforms

Governance, business climate and

competitiveness. There is a significant

improvement in public governance and

relations with citizens. However, the

business environment and competiti-

veness are considered as having

deteriorated.(Page 4)

Accelerating the structural

transformation of the econom

y.This necessitates the develop-

ment of sectors with higher

value added, strengthening the

business climate and infra-

structure support. (Page 10)

A diversified economy,

with huge sector potentials

.(Page 12)

II. Modernization of

infrastructure

Foreign trade and integration. There

is heavy dependence on the EU, which

slows down recovery.(Page 7)

An economy that is well

integrated internationally –

helping

to exploit new

opportunities.(Page 13)

Social

Reducing regional disparities.

These inequalities are reflected

in the quality of public services

and economic attractiveness.

(Page 11)

At the national level, achie-

vements in terms of the

attainment of Millennium

Development Goals are an

asset.

III.Regional rebalancing

Poverty and

inequality. Despite a

decline in poverty, disparities between

regions have increased. The authorities

are concerned about the poor perfor-

mance of social transfers.(Page 7)

IV. Strengthening the social

sectors of education

and

employment

Unemployment and education. Employ-

mentremains the main challenge

with high graduate unemployment,

reflecting poor training and employment

dynamics. (Page 9)

Improving the training and

employment dynamics in an

inclusive manner (Page 12).

Environm

ent

Including the green dimen-

sion in actions

V. Promotion of sustainable

development

The managem

ent of water rem

ains

the main challenge. Progress has

been made to promote renewable

energies.(Page 9)



u “Governance” Pillar

3.1.16 Governance improvement will

entail the provision of support for reforms

and capacity building to improve the

business climate at the national level and in

the regions. This support will focus on the

“governance” operational priority of the Bank’s

2013-2022 Strategy. In this respect, the Bank

will continue to support the priority thrusts of

the reform programme at the national level,

namely: (i) the establishment of a transparent

process of reviewing regulations and adminis-

trative procedures for businesses so as to

simplify procedures and limit discretion in the

application of regulations; (ii) the improvement

of the performance of private sector support

entities by defining strategic studies; (iii) the

development of PPPs; and (iv) the improvement

of governance in institutions responsible for

education and vocational training to provide

skills necessary for the development of an

innovative private sector. At the local level, the

Bank will, in particular, support efforts to

upgrade and decentralize the administration in

order to improve public service performance

and, thus, attract investments to the regions

and promote more inclusive growth in Tunisia.

3.1.17 Regarding technical assistance,

“quick wins” may be carried out to improve

the business climate by supporting adminis-

trative reforms and implementing the Public

Procurement Reform Action Plan. Technical

assistance activities could also be carried out

to prepare the implementation of medium-term

actions by supporting the decentralization

strategy (including training), implementation

of the industrial strategy or involvement of the

private sector in higher education.

3.1.18 In terms of loans, budget support

could be considered to support the imple-

mentation of reforms identified in technical

assistance operations, if the Bank’s capacity

so permits (high scenario).

u Infrastructure” Pillar

3.1.19 This private sector development

support will require support for the formu-

lation and/or implementation of (public

and private) investment programmes

and strategies to improve the business

environment at the national level and in

the regions and to back the sophistication

of the economy. This support will focus on

the “infrastructure” operational priority of the

Bank’s 2013-2022 Strategy. At the regional

level, this will hinge on the upgrading of

basic infrastructure in order to promote the

development of productive activities in disad-

vantaged regions. This will help to firmly

establish growth in a context of enhanced

social cohesion and facilitate the implemen-

tation of reforms. At the national level, it will

require the provision of support to key

projects with a knock-on effect on the entire



private sector or that serve as vectors of

innovation. Support to these investments will

be provided so as to include the “green”

dimension and promote PPPs.

3.1.20 Regarding technical assistance,

the conduct of a market research on the choice

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

could give a strong signal to investors, while

technical assistance operations for the prepa-

ration of the rural roads project, the develop-

ment of sanitation plans or an integrated

agricultural development programme would

allow for the rapid formulation of investment

operations in the regions and facilitate leverage

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

capacity permits, priority will be given to

investment projects to upgrade basic infra-

structure in the regions (natural gas distribution,

rural and urban development and rural roads)

or highly innovative infrastructure with a high

leverage effect (solar energy). Where the

Bank’s resources permit (median and high

scenarios) other basic infrastructure develop-

ment operations in the regions (water and

sanitation, urban development, roads) and

strategic infrastructure development operations

(Rades Port) could be considered.

3.1.22 The quest for leverage effects

during the implementation of these two

pillars should lead to better coordination

of Bank actions and other donors and

private partners. A 1-to-4 leverage effect

will be sought. To that end, co-financing will

be considered before fielding the identification

mission and the Bank will first contact partners

without the same operational capacity in

Tunisia (OFID, GEF).

3.1.23 Furthermore, considering financing

constraints, priority will be given to the

“infrastructure” pillar in the case of “low”

and “median” loan scenarios. The “gover-

nance” pillar will be considered in terms of

loans only in the case of “high” scenario.

3.2 Expected Results and Targets

A. Monitoring and Evaluation

3.2.1 Dialogue will be held with the

authorities every two months to monitor

portfolio implementation status and

evaluate results. Like the previous I-CSP,

workshops will be organized to involve civil

society in the evaluation of results. This

monitoring process will be based on the

monitoring and evaluation system of the

country which has well-developed statistical

tools. However, the Bank will consider

providing support for the development of

regional statistics to facilitate the monitoring

of project impacts and public policies in the

regions.



3.2.2 The logical framework of future projects

will include indicators helping to monitor

the implementation of the 2013-2022

Strategy..

3.2.3 The I-CSP results monitoring frame-

work matrix is presented in Annex 2. It will

be revised depending on changes in the

commitment capacity. Given the short

duration of the I-CSP, two types of result

indicators were established, namely the: (i)

qualitative indicators by 2015 and (ii) quanti-

tative indicators over a longer period (2018).

B. Pillar Results and Targets

3.2.4 Structural and sector reforms will

have been supported under the “governance”

pillar to promote the qualitative transfor-

mation of the country’s institutional frame-

work. The Bank’s action, which was carried

out mainly through technical assistance ope-

rations, helped to improve regulations gover-

ning economic and training activities, resulting

in the creation of an environment that is more

conducive to private sector development at

the national and local levels (administrative

reforms, decentralization, development of

online services, application of the law on PPPs,

transparency in public procurement and

operation of the Stock Exchange, etc.) of

vocational training and education in the regions).

This support provided through technical

assistance will, where possible, be sustained

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

While enabling “quick wins”, all these actions

will have paved the way for private sector

development.

3.2.5 Under the “infrastructure” pillar,

investment projects to develop basic or

innovative infrastructure will have been financed,

if the Bank’s lending capacity permits. This

job-creating approach will improve the attrac-

tiveness of regions while reinforcing food

security (opening up of regions through the

construction of rural roads and roads, impro-

vement of sanitation and access to clean

energy in regions and the implementation of

the Integrated Rural and Urban Development

Programme) and support innovation and

national competitiveness (port and energy).

While enabling “quick wins” (project formulation

and leverage effect) the technical assistance

operations will have layed the necessary

basis for the development of a more inclusive

growth model.

3.3 Risks and Mitigative Measures

u Risk regarding the Bank’s

commitment capacity and financial

integrity

3.3.1 The relative uncertainty surrounding

political events could represent a short-

term risk. Developments in the regional context

could also impact the country’s security. To



address this situation, the proposed flexible

approach will enable the Bank to adapt to all

major changes to protect its financial integrity.

3.3.2 Transition to democracy is often

accompanied by social instability with

attendant insecurity. Demands will cease

only if the transition period is completed as

soon as possible and if a new elected

government is put in place with a clear long-

term strategy to address social demands. In

this respect, the strategy proposed by the

Bank seeks to lessen social instability in a

lasting manner by reducing regional disparities

and supporting job creation.

3.3.3 The economic risk should also be

considered. Macro-economic imbalances

are manageable in the short term, but it is

difficult to predict the outlook over a three-year

period. The country suffered a successive

degradation of its sovereign credit rating by

rating agencies. In this context, the effective

implementation of the IMF-backed programme

should be of paramount importance to investors,

including the Bank. For the latter, changes in

the risk situation will significantly influence the

level and type of operation implemented in

Tunisia. In response, the Bank will adopt an

approach adaptable to the changing risk

situation and promote technical assistance

in the composition of its portfolio – where

necessary (Annexes 2 and 7).

3.3.4 Trends in risk assessment at the

regional and national levels will influence

the level and type of Bank operation (as

investment projects are preferred to budget

support operations in this respect). In this

connection, three scenarios are being

designed to introduce various possible levels

of commitment depending on changes in the

Bank’s financing constraints (with maximum

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

and UA 13 million; (ii) median scenario:

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

scenario: UA 300 million and UA 10 million)

(Table 3 and Annex 2).

Table 3: Loan Scenarios

Scenario Grants (AT) inUAM per year

Maximum Loanin UAM per year

Triggers

Low 13 50 Level of concentration of Bank lending in NorthAfrica

Political, economic and social situation

Reports of rating agencies and the IMF

Median 10 150

High 10 300



u Risks regarding ongoing operations

3.3.5. Implementation of operations. The

administration’s capacity to implement ope-

rations was slightly affected by the transition

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

three procurement experts at the disposal of

MDCI for an 18-month period. In addition,

where the context is not conducive to the

design of reform budget support operations,

the Bank will promote direct investments.

3.3.6. Infrastructure maintenance. During a

period of budget constraints, infrastructure

maintenance could suffer. To address this

situation, technical assistance titled “Strategy

for Road Maintenance in Tunisia” will help to

sensitize the authorities.

3.4 Implementation Arrangements

3.4.1 During this transition period, the

Bank’s actions should be implemented

through arrangements that ensure consis-

tency and efficiency:

(i) The search for leverage effects should be

done as indicated in paragraph 3.1.18.

(ii) Communication on the Bank’s operations

should be permanent to strengthen their

ownership (in harmony with the policy on

access to information).

(iii) Project selection should be based on a

matrix of indicators reflecting strategy

objectives and the Bank’s 2013-2022

Strategy (in terms of impact on incomes,

employment, reduction of regional inequalities,

and improvement of the business climate and

sophistication of the economy). To this end,

a filter has been developed to select and

improve project quality.

(iv) Civil society will be involved in all stages

of the project cycle.

(v) The I-CSP implementation will be based

on sustained analytical works to strengthen

the Bank’s advisory role. These works will

contribute significantly to fostering dialogue

with the Government on reforms and innovative

operations.

(vii) The promotion of the “green growth”

objective of the Bank’s 2013-2022 Strategy

during the design of potential projects.

(viii) Gender mainstreaming in project design.

Employment-generating projects should pay

special attention to women’s employment

(such as the Agricultural Development Pro-

gramme), while projects that improve access

to basic services (energy and water) will

ensure that vulnerable and single-parent

households benefit from them as a matter of

priority. Furthermore, the gender perspective



will be taken into account when designing

council investment programmes. Lastly, stra-

tegic studies on the development of training

and skills should take into account gender

mainstreaming to facilitate the transition from

training to employment among women.

3.5 Country Dialogue Issues

3.5.1 The I-CSP is part of an evolutionary

approach based on Tunisia’s political,

economic and social situation. The I-CSP

underpins the implementation of the Bank’s

support operations in a context of transition.

The political events of the next few months,

the macro-economic situation influenced by

an unstable global context and the changing

regional environment oblige development

partners to adopt a flexible approach.

3.5.2 Flexibility is reflected in the institution

of a permanent dialogue and convening

of meetings every two months with

Tunisian authorities to adapt the Bank’s

response. This flexibility will comply with the

framework of the pillars defined in the

strategy paper approved by the Bank’s top

management.

3.5.3 Issues related to climate change

and environmental conservation will be

discussed regularly in order to include this

strategy in the second pillar of the 2013-2022

strategy.



IV. Conclusions and Recommendation

4.1 Conclusions

4.1.1 As Tunisia is laying the last foundations

for its new economic, political and social-

model, financial and technicalassistance

needs are enormous. In this context, the

Bank plans to strengthen its support, in terms

of technicalassistance operations, for portfolio

implementation, while adapting the level of

investments to changes in risk assessment

at the regional and national levels.

4.1.2 It is proposed that the Bank’s operation

for the 2014-2015 period should be refocused

on two pillars, namely “governance” and

“infrastructure”.

4.2 Recommendation

4.2.1 The Board is requested to consider

and adopt the proposed I-CSP for the

2014-2015 period.



ANNEXES

Annex 1

ENDNOTES

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

2 The Ministry of the Interior, Justice, Foreign Affairs and Defence

3 Requirement of a two-thirds majority for adoption

4Aide-memoire of the Recovery Support Programme Multi-donor Supervision Mission - March 2013(AfDB/WB/EU)

5 The data used is derived from the African Development Bank Statistics Department

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

7 2.7%, according to AfDB (ESTA)

8 Despite two successive increases in fuel and electricity prices9 According to analyzes carried out in 2013 by the AfDB, IMF and World Bank10 See AfDB Economic Brief: Inflation in Tunisia: Perception and Reality in a Context of Transition, July 201211 See AfDB Economic Brief: Trends in the Exchange Rate of the Tunisian Dinar and Economic Impacts12 See AfDB Economic Brief: Trends in Investment Flows (FDI) in 201213 See AfDB Economic Brief: The Revolution in Tunisia: Economic Challenges and Prospects

14

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 anational consultation

15A series of legal (Constitution, Organic Law) and operational (reorganization) measures has been identified 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 201117 IMF, 2012

18Political stability and inefficient administrative bureaucracy appear to be particularly problematic for the businessworld as well as budget deficit, inflation and the efficiency of the labour market

19See AfDB Economic Brief: Capital Market Development in North Africa: Current Status and Future Potential,April 2013

20Through a Central Bank circular which authorized the non-classification of receivables whose counterpartieswere facing financial difficulties due to the Revolution. It is estimated that a classification of these receivables asbad 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

22AfDB, INS CRES, 2013. Analysis of the Impact of Food Subsidies and Social Assistance Programmes on thePoor and Vulnerable Population

23 See ADB Economic Brief: Migration of Tunisians to Libya: Dynamics, Challenges and Prospects, January 2013

24Resurgence of the misuse of resources in nature reserves and deforestation as well as uncontrolled constructionin protected areas or poor waste management

25See report “Towards a New Economic Model for Tunisia: Identifying Tunisia’s Binding Constraints to Broad-Based Growth” AfDB, the Tunisian Government and various U.S. agencies (MCC – USAID – the StateDepartment)

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



28See AfDB Economic Brief: Open, Smart and Inclusive Development: ICT for Transforming North Africa, April2012.

29See 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.

31Co-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.

38OECD (2004), Development Centre Studies, “Institutional Efficiency and Its Determinants, The Role of PoliticalFactors in Economic Growth”.

39See report “Towards a New Economic Model for Tunisia: Identifying Tunisia’s Binding Constraints to Broad-Based Growth” AfDB, Tunisian Government and various U.S. agencies ( MCC- USAID - State Department).

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

41See report “Towards a New Economic Model for Tunisia: Identifying Tunisia’s Binding Constraints to Broad-Based Growth” AfDB, Tunisian Government and various U.S. agencies ( MCC- USAID - State Department).

42

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 Broad-Based Growth” AfDB, Tunisian Government and various U.S. agencies (MCC- USAID - State Department).

43Aide-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.

45According to the gravity model of trade which best corresponds to empirical trends, the level of trade betweentwo countries is proportional to the product of their GDP and inversely proportional to the square of the distancebetween them (Anderson, 2011).

46Such 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.

48See AfDB/WB publication: Final Report on the Evaluation of the National Public Procurement System in Tunisia,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.

49Whose pillars are (a) Growth and Job Creation; b) Regional Development and Social Protection; and (c) Governance.

50See the report “Towards a New Economic Model for Tunisia: Identifying Tunisia’s Binding Constraints to Broad-Based 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.



Annex 2

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

Tunisia’s

Strategic

Objectives

Tunisia’s

Strateg

icChalleng

es

Problems

Imped

ing

the

Achievement

of Strateg

icObjectives

Expected

Long

-Term

Outco

mes

(that co

uld

be

expected in

2018)

Expected

outcomes

at the End

of the CSP

2015 Period

Outputs

(that could

be

expected at

the end of

the CSP

2015

period)

AfDB Operations that can be

implemented during the CSP period

Pillars (and

2013-2022

operational

strategy

priorities)

Potential

Technical

Assistance

Potential

Loans

I. Econo

mic

reform

s

II.Infrastructure

mod

ernization

Improving the

business

climate and

competitiveness

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%

The upgrading

of port i

nfrastructure is

initiated,

helping to

decongest

maritime t

raffic

The upgrading

project is

designed; the

contract is

concluded -

the use of

PPP is

prioritized

Infrastructure

Investment

project –

Support for

the

development

of the Rades

port (PPP)

(OITC/OPSM)

The deep-sea

port is

selected and

the search for

partners

initiated (by

prioritizing the

PPP method)

The public

sector

consulted the

private sector

on the

identification

of the

deep- sea port

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



I. Econo

mic

reform

s

II.Infrastructure

modernization

Improving the

business

climate and

competitiveness

Complex admi-

nistrative proce-

dures do not

facilitate private

sector develop-

ment and entre-

preneurship

among citizens

Improvement of

Tunisia’s ranking

in Doing Busi-

ness by at least

15 places

Administrative

procedures are

simplified and

their use by the

private sector

and citizens is

facilitated

The diagnosis of

administrative

procedures is

carried out –

measures are

identified and

implemented

Governance

Technical

assistance –

Support for

administrative

reform

(OSGE/ICT4D)

Set of

measures that

can be included

in abudget

support

programme

(OSGE - OSHD)

The public

procurement

system requires

the initiation of

reforms to

comply with

international

standards

The time taken

to award a

contract is

reduced by

50% - 100% of

public contracts

are accessible

online

A more

transparent

regulatory f

ramework is put

in place and a

more efficient

public procure-

ment system

established

The implemen-

tation of the

Public Procure-

ment Reform

Action Plan is at

an advanced

stage and the

new procure-

ment code is

approved

Technical

assistance –

Support for the

implementation

of the Public

Procurement

Reform Action

Plan

(ORPF/ORNA)

The State

should ensure

the compliance

of its indepen-

dent audit

instruments with

standards to

evaluate public

policies in order

to improve the

business climate

and competiti-

veness

The Audit Office

can fully play its

role as a public

policy auditor

Budget support

measures

facilitate the

introduction of

ICTs into the

Audit Office’s

information sys-

tem and audit

instruments

Governance

Budget support

measures

facilitate the

training and

certification of

magistrates in

information

technology,

internal auditing,

computerized

auditing and

corruption

investigation

techniques



I. Econo

mic

reform

s

II.Infrastructure

modernization

Improving the

business

climate and

competitiveness

The institutional

framework is

not conducive

to the

development of

PPPs

Five pilot

projects are

implemented -

helping to raise

TND 1.5 billion

worth of private

investment

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

Budget support

measures

facilitate the

implementation

of a PPP

regulatory

framework and

a PPP Unit is

operational

Gouvernance

Set of

measures that

can be included

in abudget

support

programme

(OSGE - OSHD)

Increasing

value added

(sophistication)

Secondary

sector: the

industrial sector

lacks a clear

vision to guide

choices in terms

of public

policies and

attract FDIs that

support

innovation

20% increase

in industrial

exports

(in value)

Implementation

of the sector

industrial

strategy action

plan

The diagnosis

and benchmark

of industrial

sector outputs

are carried out;

New industrial

strategies are

approved by the

Government

Governance

Technical

Assistance –

Design of a new

industrial and

economic

transformation

strategy (ORNA)

Tertiary sector:

the

development of

quality private

higher education

that meets

private sector

needs lacks a

conducive

regulatory

framework and

strategic

vision

50% increase in

the number of

students trained

by private

education

(50 % of

women)

Increased

diversification

of private

education

courses

accredited by

the national

quality

assurance body

which meet

market needs

Completion of

diagnostic study

(2014);

Design of the

Integrated Pri-

vate Education

Development

Strategic Plan

(2014)

Study –

Preparation of

the diagnosis of

and prospects

for the

development of

private

higher

education

(OSHD)



I. Econo

mic

reform

s

II.Infrastructure

modernization

Increasing

value added

(sophistication)

Secondary

sector: the

promotion of

green energy is

impeded by the

low mobilization

of concessional

financial

resources

Additional 50

MW for solar

energy

Continuation of

the diversifica-

tion of Tunisia’s

energy mix by

increasing the

share of rene-

wable energy

Start-up of

construction

works of the

Akarit 50 MW

power plant

Infrastructure

Investment

project -

Concentrated

Solar Project

(ONEC)

Tertiary sector:

the promotion of

health service

exports is impe-

ded by competi-

tion from other

countries and

the non- certifi-

cation of health

facilities

50% increase in

the share of

health services

in total service

exports

A health service

export action

plan is imple-

mented - PPP

projects are

identified

The strategic

study on the

export of health

services in

Tunisia is

validated and its

implementation

is ongoing

Infrastructure

and

governance

Investment

project -

Export of health

services -PPP

approach

(OSHD/OPSM)

III. R

egional

rebalancing

IV. S

trengthe-

ning

social,

education and

employm

ent

sectors

Improving

public service

delivery in

regions

The mobilization

of financial

resources is

necessary to f

acilitate access

to basic infra-

structure (water

and sanitation,

energy and

roads). This

mobilization is

affected by the

lack of a strate-

gic plan or

feasibility study

250 km of

additional rural

roads, resulting

in the creation

of 2 000

additional jobs

in the targeted

(40 % for

women)

The opening up

of regions is

accelerated and

infrastructure is

maintained

The feasibility

study is carried

out and the 500

km of Rural

Roads Project is

launched

Infrastructure

Technical

Assistance- for

the preparation

of the 500 km of

Rural Roads

Project (OSAN)

Investment

project -500

km of rural

roads (OSAN)

250 km of

additional

express high-

ways linking

interior governo-

rates to the

coast, resulting

in the creation

of 3 000 additio-

nal jobs in the

targeted regions

(40 % for

women)

The

Transportation

Plan and Road

Management

and

Maintenance

Strategy are

available - roads

are developed

Infrastructure

Technical

Support –

Design of a

transport

master plan and

the Road

Management

and Mainte-

nance Strategy

(OITC)

Investment

project – roads

in regions (OITC)



III. R

egional

rebalancing

IV. S

trengthe-

ning

social,

education and

employm

ent

sectors

Improving

public service

delivery in

regions

4 000 additional

households

have access to

a source of

clean energy

(15%

for single

parents)

Improvement of

access to a

modern energy

source (natural

gas) in the

disadvantaged

areas of the

western region

The Project for

Secure and

Reliable Access

to Natural Gas

in the disadvan-

taged regions of

the Western

Region is

launched

Infrastructure

Investment

project - Project

for the

Development of

a Network for

the Transportation

and Distribution

of Natural Gas

in the Western

Region (ONEC)

95% of rural

dwellers have

access to

drinking water

Improving

access to

drinking water

and liquid and

solid sanitization

in regions

Feasibility

studies are

being finalized

with MIC grant

resources and

start-up of

RDWS project

Infrastructure

Technical

assistance for

the development

of sanitation

master plans by

governorate (12

disadvantaged

governorates)

and solid waste

management

(OWAS)

Investment

project - RDWS

Programme and

Sanitization

Programme of

30 councils with

less than 10

000 inhabitants

(OWAS)

Feasibility

studies are

available and

the start of the

Project to

Sanitize 30

Councils with

less than 10

000 inhabitants

is launched

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 forinvest-

ment in some

areas in the

regions.

Creation of 5

regional urban

service agencies

(50%

of public

investments are

made at the

local level).

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.

Studies on (i)

deconcentration

and its impact

on decentraliza-

tion; (ii) territorial

division and divi-

sion of the na-

tional territory

into councils;

and (iii) transfer

of financial re-

sources and

budgeting are

carried out and

reforms

Governance

(AT)

Infrastructure

(Investment)

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)

Investment

project -

Support to the

2014-2018

Council

Investment

Programme in

new councils

ensuing from

the creation of

new territorial

units (OSHD)



III. R

egional

rebalancing

IV. S

trengthe-

ning

social,

education and

employm

ent

sectors

identified are

implemented.

The institutional

framework for

PPP projects is

defined for

councils.

Division of the

entire national

territory into

councils (100%)

Council

investment

programmes in

new councils

are launched

The Council

Investment

Programme

2014-2016 in

new councils is

launched

Access to

employm

ent by

developing

skills and

opportunities in

regions

The

decentralization

of government

services is

limited by lack of

capacity,

particularly in

the domain of

education

Reduction of

regional gaps in

PISA tests by no

less than 25%

(girls and boys

being at par)

Upgrading of

the human

resources in

charge of

management in

the 24 regional

education

offices to

enhanced the

decentralized

management of

education

All the 26

regional

education

offices are

equipped with

qualified human

resources;

partnerships are

developed with

specialized

capacity buil-

ding institutions;

decentralized

management

tools are

developed and

disseminated in

the regions

Governance

Technical

assistance –

Training regions

in decentralized

management of

education

(OSHD)

Set of measures

that could be

included in a

budget support

program

me

(OSHD - OSGE)

Youth

employability is

limited by access

to poor quality

vocational

training and a

mismatch

between job

offer and

demand

Reduction of the

unemployment

rate of new

entrants into the

graduate labour

market by 20%

(similar for

women and

men )

Access to

quality

vocational

training is

increased and

training meets

private sector

needs

Budget support

measures

facilitate the

creation of new

sectors in

regions

according to the

needs of the

economy and



III. R

egional

rebalancing

IV. S

trengthe-

ning

social,

education and

employm

ent

sectors

Access to

employm

ent by

developing

skills and

opportunities in

regions

the strengthe-

ning of rotation

and learning in

companies -

and increased

communication

Gouvernance

Set of measures

that could be

included in a

budget support

program

me

(OSHD - OSGE)

20% reduction

in the

unemployment

rate of

graduates from

vocational

training schools

(similar for

women and

men )

The

employability of

graduates from

vocational

training schools

is being

improved

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

development of

employment

opportunities in

rural areas is

limited by lack

of training,

agricultural

infrastructure

and opportuni-

ties outside the

agricultural

sector

15% reduction

in the

unemployment

rate in the

Zaghouane rural

area (similar for

women and

men )

An Integrated

Agricultural

Development

Programme is

launched in

Zaghouan

Region

The programme

has been

launched

Infrastructure

Investment

project -

Zaghouan

Integrated

Agricultural

Development

Programme

(OSAN)



I-CSP 2012-2013 COMPLETION REPORT AND PORTFOLIO PERFORMANCE REVIEW (2013)

CONCLUSIONS AND RECOMMENDATIONS

Annex 3

I-CSP (2012-2013)

Restrict the number of pillars and be more selective about the expected out-comes of the next I-CSP to take into account the Bank’s resource constraintand Tunisia’s unstable environment.

Strengthen the alignment of analytical works with the objectives and expectedoutcomes of the interim strategy.

Strengthen strategic dialogue and communication with development partnersand the Government on the search for the co-financing of the implementation ofoperations and analytical works.

Improve the capacity to monitor and evaluate the I-CSP by developing resultindicators that are simple, verifiable and limited in number for CSP pillars.

Combine general budget support operations for structural reforms and sectorbudget support operations to increase strategic public investments in infra-structure (transport, energy and telecommunications) to preserve productivecapacity and create direct and indirect employment in the regions.

Portfolio (Provisional Review 2012)

For the Government

Auditing. Make adequate arrangements to meet the six-month deadline forsubmitting 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 thestatus of the recommendations of previous audits and appropriate measuresto implement them.Auditing. Pursue dialogue with the Audit Office and development partners toagree on a roadmap in 2013 to enable the Office to audit externally-funded projects.Reporting. Improve the regularity and quality of project progress reports bystrengthening ongoing project monitoring and evaluation units.Accelerate the effectiveness and fulfilment of conditions precedent to the firstdisbursement of non-performing loans (SME line of credit, Treated WastewaterQuality Improvement Project);Studies. Accelerate the award of delayed study contracts (BTS, health serviceexports, sanitation strategy) such as to enable the first disbursement of MICFgrants before end-December 2012. These grants are liable to cancellation ifnot disbursed.Public procurement. Adopt the Reform Action Plan before end-December2012.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 projectswhose implementation is at an advanced stage.Launching of new projects. In 2013, carry out at least one launching missionfor new projects with ORPF and FFCO assistance.Replenishment of the special account of decentralized projects. Coordinatepost-audit missions (FFCO) to build up of project working capital in 2013 withsupervision missions.Provide assistance (technical and financial) for the good governance reformsof the public sector initiated by the Government in 2013, which have directconsequences on the viability and performance of the Bank’s portfolio. (Publicprocurement, Auditing, Citizen Participation).



Annex 4

TUNISIA’S PORTFOLIO (UA) (JANUARY 2014)

Dept. Name FinancingClosureDate

Approval Amount Disbur. Age

Private SectorOPSM3 ETAP corporate loan AfDB Private 29 Nov. 10 17 Mar. 10 97.64 100% 3.88

OPSM3 Enfidha Airport project AfDB Private 31 Mar. 10 14 Jan. 09 60.03 100% 5.05

OPSM3 Enfidha Airport (conditionaltranche) AfDB Private 31 Mar. 10 14 Jan. 09 1.83 0% 5.05

OPSM3 BH Tunisie AfDB Private 28 Feb. 06 27 Feb. 02 25.18 100% 11.93

OPSM3 BTEI- Line of credit AfDB Private 30 Apr. 07 20 Dec. 02 35.34 100% 11.12

OPSM APEX SME Line of Credit Facility AfDB Public 31 Dec. 16 13 Jul. 11 32.55 50% 2.56

Water and SanitationOWAS2 RDWS Programme AfDB Public 31 Dec. 17 12-oct-11 83.78 15% 2.31

OWAS2 Treated Wastewater Quality Improvement Project AfDB Public 31 Dec. 14 11 Jan. 12 28.67 1% 2.06

OWAS2 PCI Study – Grand Tunis MIC 31 Dec. 13 6 Oct. 09 0.58 12% 4.32

OWAS2 Study on Zaarat Seawater Desalination MIC 31 Dec. 14 5 Aug. 09 0.63 27% 4.49

OWAS2 Study on Tunisia’s SanitationStrategy MIC 30 june 14 4 Dec. 09 0.57 13% 4.16

AWF 2050 Water Vision and Strategy AWF 31 Dec. 14 10 Jan. 11 1.05 7% 3.06

AWF SINEAU AWF 31 Dec. 14 22 Dec. 09 1.74 71% 4.11

TransportOITC2 Gabes - Ras Jedir Highway AfDB Public 31 Dec. 17 21 June 11 121.35 17% 2.62

OITC2 Road Project - VI AfDB Public 31 Dec. 16 15 Sept.10 208.52 64% 3.38

OITC2 Road Project - V AfDB Public 31 Dec. 13 11 June 08 154.03 75% 5.64

Agriculture and Irrigation

OSAN1 Sector Investment Project AfDB Public 31 Dec. 14 11-Dec. 08 20.24 65% 5.14

OSAN1 North Gafsa PDAI AfDB Public TBC 13 Feb. 13 19.54 0% 0.96

OSAN1 Kairouan PDAI AfDB Public 31-Jul. 14 29 Mar. 06 15.73 71% 7.85

OSAN1 GDA Support MIC 31-Dec. 14 20 Oct 09 0.59 15% 4.28

OSAN1 Grant - Gabes and Gafsa PDAI MIC 31-Dec. 14 26 Jul. 12 0.38 48% 1.52

SocialOSHD2 Economic Recovery Support Project AfDB Public 31 Dec. 13 28 Nov. 12 342.48 100% 1.18

OSHD2 Sec. Education Support Project II AfDB Public 31 Dec. 13 28 Sept.05 52.84 89% 8.35

OSHD3 Study on Emerging Diseases MIC 31 Dec. 13 3 Nov. 09 0.58 100% 4.25

OSHD3 Export of Health Services MIC 31 Dec. 12 10 Sept.09 0.53 25% 4.32

OSHD2 Study on the Development of Cultural Industries MIC 31 Dec. 13 22 Nov. 10 0.27 15% 3.19

ORNA Humanitarian Assistance on theLibyan Border SRF 31 Dec. 11 11 Mar. 11 0.65 100% 2.90

Governance and Reforms

OSGE2 Preparatory Study on the Com-mercial Law Strengthening Project MIC 31 Dec. 13 24-sept-10 0.32 16% 3.36

OITC E-government and Open government MIC TBC 20 Dec. 12 0.68 0% 1.12

ESTA2 Statistical Capacity Building Programme II (SCB II) MIC 31 Dec. 14 30 Mar. 11 0.49 50% 2.84

ORNA Study on Micro-credit SystemEvaluation (BTS) MIC 31 Dec. 12 6 Jan. 10 0.14 0% 4.07

ORNA ITCEQ Support MIC 31 Dec. 11 3 Dec. 09 0.2 90% 4.16

EnergyONEC1 Sanitation Restructuring Project AfDB Public 31 Dec. 13 2 Sep. 09 42.03 78% 4.42



Annex 5

TRENDS IN TUNISIA’S SOVEREIGN RATINGS

Date of modificationMoody’s ratings

Moody’s ratingsscale

Date of modificationof S&P’s ratings

S &P’s ratingsscale

Date of modificationFitch ratings

Fitch ratingsscale

Investment grade

Investmentgrade

Investmentgrade

Aaa AAA AAA

Aa1 / Aa2 / Aa3 AA+ / AA / AA- AA+ / AA / AA-

A1 / A2 / A3 A+ / A / A- A+ / A / A-

Baa1 BBB+ BBB+

17 April 2003 Baa2 21 March 2000 BBB 24 May 2001 BBB

April 199519 Jan. 2011

Baa3Sept. 1995

16 March 2011BBB-

Sept. 19952 March 2011

BBB-

Speculativegrade

Speculativegrade

Speculativegrade

28 Feb. 2013 Ba1 BB+ 11 Dec. 2012 BB+

30 May 2013 Ba2 23 May 2012 BB BB

25 Nov. 2013 Ba3 19 Feb. 2013 BB-30 Oct. 2013

BB-BB-

B1 / B2 / B3 16 Aug. 2013: B B+ / B / B- B+ / B / B-

Caa1/Caa2/Caa3CCC+/CCC/CCC

-CCC

Ca / C CC / C CC / C

SD / D RD / D

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



1. Introduction

On 7 June, the Executive Board of the Interna-

tional Monetary Fund (IMF) approved a 24-

month standby arrangement of an amount

equivalent to SDR 1.146 billion (USD 1.74 billion)

for Tunisia to support its economic reform

programme for the 2013-2015 period intended

to strengthen budgetary and external flexibility

and foster more robust and inclusive growth.

The Executive Board’s decision helped to

ensure the immediate disbursement of USD

150 million. The disbursement of the remaining

amount will span the duration of the programme

and subject to eight reviews. The first review will

take place at end-September. As a reminder,

this is the third loan agreement between Tunisia

and the IMF (the preceding agreements were

concluded in 1964 and 1986).

The main objectives of the IMF-backed

programme are to: (i) strengthen budgetary

and external flexibility (through monetary and

budgetary policies); (ii) lay the foundations for

growth (by addressing the vulnerabilities of the

banking sector, facilitating better composition

of expenditure and implementing an ambitious

structural reform programme that promotes

private sector development and reduces regional

disparities and pervasive State intervention); (iii)

protect vulnerable groups (social assistance

mechanisms and systematic evaluation of the

social impact of proposed reforms). Thus,

they are a continuation of multi-donor budget

support programmes in which the AfDB

participated, thus underscoring the consistency

of the analysis of the various technical and

financial partners and the relevance of the

reforms encouraged.

Annex 6

IMF: USD 1.74 BILLION STANDBY ARRANGEMENT



Annex 7

SIMULATION IN TERMS OF LOANS

PRE-IDENTIFIED PROJECTS (IN GREEN - LOW SCENARIO, IN ORANGE - MEDIANSCENARIO AND IN BLUE - HIGH SCENARIO)

Scenario Maximum Loan inUAM per year

Grant (AT)UAM per year

Triggers

Low 50 13 Level of concentration of Bank lending in NorthAfrica

Political, economic and social situation

Ratings of rating agencies

Median 150 10

High 300 10

TimeHorizon

Scenario Instrument Project Name Amount(UA million)

Department

Pilier - Infrastructure

2014

Low

Sector loanProject to Develop Natural GasTransportation and DistributionNetwork in the Western Region

30-40 ONEC

Sector loan Rural Development Project 22-30 OSAN

Median Sector loan Farm Road Project 40 - 60OITC - OSPM

ifi PPP

2015

Low

Sector loan Projet de pistes agricoles 27-43 OSAN

Sector loan

Concentre Solar Project (under leverage effect and shortterm economic viability condi-tions)

30-50 ONEC

Median

Sector loanRural Drinking Water Supply Programme

30 OWAS

Sector loan Road Project 30-50 OITC

High Sector loan Council Investment Project 75-100 OSHD

Pillar - Governance

2014 High Sector loan Health Service Export Project 68 OSHD

2014 HighBudget support

Budget Support Programme 100-250 OSGE and OSHD

2015 HighBudget upport

Budget Support Programme 100-250 OSGE and OSHD



POVERTY AND UNEMPLOYMENT IN THE REGIONS

Annex 8

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



LIST OF ECONOMIC AND SECTOR STUDIES ON TUNISIA CARRIEDOUT SINCE 2011

Annex 9

Study Title Date of PublicationAfrican Economic Outlook 2013 - Structural Transformation and Natural Resources inAfrica

June 2013

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 Im-plications for a New Libya

November 2012

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 EmergingEconomies: An Application to Egypt and Tunisia

September 2012

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



STATUS OF IMPLEMENTATION OF AfDB BUDGET SUPPORT MEASURES IN 2011 AND 2012

Annex 10

Measures Status of Implementation Remarks

Economic Recovery and Inclusive Development Support Programme - 2012

Lifting the ceiling of the tax on industrial, commercial or professionalestablishments

Implemented.Very satisfactory

TND 60 million collected in2012

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

Adopted. Unsatisfactory

The implementation of theplan has been delayed

Adoption of a decree establishing a national health care accreditationbody and defining its functions and laying down its administrative,scientific and financial organization as well as functioning


The appointment of members has delayed theoperationalization of thisbody

Adoption of a decree establishing a participatory process for theevaluation and review of the administrative procedures governingthe conduct of economic activities


The review is ongoing

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

Adopted. The authority is operational.

Adoption of Decrees No. 2012-890 and No. 2012-891 of 24 July2012 to amend the law relating to venture capital and mutual invest-ment fund companies and relax the terms and conditions of theiroperation

Adopted. Satisfactory

Ongoing

Adoption of a decree to amend and supplement Decree No. 349-2009 of 9 February 2009 establishing National Employment Fundprogrammes and the terms and conditions of their benefit


New employment programme and the reorganization of ANETIare underway

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


The operationalization ofMES has been delayed

Adoption of a note on the publication of public finance-related dataAdopted. Satisfactory

Budget information is published on MF’s website

Approval by the Government of the report on the evaluation of thenational procurement system according to OECD/DAC methodologyas well as the ensuing action plan


The implementation of theAction. Plan is ongoing. Anew procurement code isbeing finalized.

Adoption of a circular issued by the Head of Government outliningthe provisions of Decree-Law No. 2011-41 of 26 May 2011 governingaccess to the administrative documents of public bodies

Adopted, but notapplied.

Some past laws governing the administrationare contradictory andshould be amended.



Governance and Inclusive Development Support Programme 2011

Improvement of targeting quality and extension of the coverage ofthe Needy Families Support Programme

Ongoing Targeting quality is beingimproved

Review of criteria for the allocation of investments to disadvantagedregions

Completed

Besides human development indicators,criteria should be improved

Adoption of a comprehensive programme for the active support ofjob-seekers (AMAL)


Grants have been awarded to 200 000 unemployed

Issuing of a Presidential decree transferring the management of theNational Employment Fund (Fund 21/21) to the Ministry of VocationalTraining and Employment

Completed. Satisfactory

Increased transparency inthe allocation of funds

Adoption of the roadmap on microfinance reformsOngoing. Unsatisfactory

The action plan has beenimplemented; orders relating to accounting andexternal audit standardsshould be issued

Setting up of special delegations with the participation of civil societyin lieu of municipal councils

Completed. Satisfactory

Special delegations have been set up in 236 delegations

Strengthening mechanisms for the evaluation of public services bycitizens

Partly implemented

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

Adoption of a decree-law on access by the public to informationheld 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

Adoption of a decree establishing the National Public ProcurementReform Coordination and Monitoring Committee (NPPCMC)


The Committee managesthe entire public procurement system reform process

Publication of annual Audit Office reports in fullImplemented.Satisfactory

The reports of 2005 2006,2007, 2008, 2009, 2010and 2011 have been published



On 14 January 2011, Tunisian civil society

which, hitherto, was virtually absent from the

national public scene, entered an intense

development phase resulting in the creation

of numerous organizations. This unprecedented

development also gave an opportunity to

technical and financial partners in the country,

including the African Development Bank, to

renew their relationships with this now inevitable

actor in Tunisia. In this context, the dialogue

initiated during the preparation of the previous

I-CSP was consolidated through five work-

thrusts.

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

on “Participatory Governance: How to

Improve Public Service Delivery through

State-Citizen Partnership”. The identification

work initiated after the Revolution gave rise

to genuine literature review. The report was

prepared on the basis of interviews with key

stakeholders (citizens, civil society organizations

(CSOs) and public authorities) and a survey of

256 Tunisian associations in 24 governorates

to analyze the present context of participatory

governance in Tunisia and the capacity of

Tunisian associations. The African Development

Bank now has a genuine qualified database as

well as an accurate assessment of the sector,

its potential and needs. Meetings held during

this exercise also helped the Tunisian civil

society to better understand the role and

operations of the AfDB. The relations developed

have subsequently been maintained.

(ii) Holding of regular meetings with civil

society to discuss issues of common

interest. During the past two years, the AfDB

has sought to involve CSOs in many events

relating to political, financial, economic and

social challenges in North Africa, particularly

monthly conferences organized within the

framework of the North Africa Policy Series. In

fact, besides building their capacity through

the direct dissemination of information from

this research, their contribution to debates

helps to understand certain field realities

which could be reflected in the Bank’s strategy

and operations in North Africa. During these

meetings, the Bank also serves as a catalyst

by promoting dialogue between the public

sector, the world of research and other tech-

nical and financial partners. This dialogue has

been complemented by the organization of

quarterly national conferences (in collaboration

with the administration, in most cases) where

civil society has played a very active role to

share their views with those of institutions,

CIVIL SOCIETY PARTICIPATION IN STRATEGY PREPARATION

Annex 11



including the AfDB (this includes, among

others, a workshop on employment strategy,

the presentation of the findings of the study

on poverty, etc.).

(iii) The participatory approach adopted for

the design of AfDB projects in Tunisia. At

the operational level, the direct involvement of

civil society has been strengthened through:

(i) the consultation of civil society during the

identification and formulation of the Bank’s

operations and (ii) the involvement of civil

society in the evaluation of activities. The best

example of this approach is perhaps the

fruitful exchange of ideas on priority reforms

needed in Tunisia during the preparation of

the 2012 budget support. These discussions

contributed significantly to fine-tuning proposals

and helped to better meet the expectations

of the Tunisian population. This exercise

should be maintained and its mechanisms

institutionalized.

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

partnership involving civil society as an

actor and a beneficiary. Souk At-tanmia is

inspired by the Bank’s reflections on its new

framework of commitment with civil society,

particularly its desire to “involve more CSOs

and beneficiaries in local projects aimed at

reducing poverty with potential large-scale

impacts”. Souk At-tanmia is a partnership

incorporating several dimensions capable of

stimulating development and promoting job

creation. Its main objective is to encourage

and support ideas from a wide range of

participants such as young entrepreneurs or

civil society organizations by providing them

with necessary financing and support. Colla-

boration with TOUENSA, Souk’s partner and

civil society representative, was instrumental

in involving more associations in promoting

entrepreneurship in Tunisia, thus facilitating

contact with the target public thanks to the

close ties established with the population.

TOUENSA facilitated the dissemination of

information and helped candidates to prepare

and submit their applications by establishing

10 focal points and mobilizing a network of

50 associations.

(v) Consultation workshop on the new

interim Country Strategy Paper 2014-2015

and bilateral meetings. The consultation

workshop on the new interim Country Strategy

Paper 2014-2015, which took place on the

Bank’s premises on 24 September 2013 at

the end of the evaluation mission, helped to

reap the benefits of partnership with civil

society developed over the last two years.

Some fifteen participants from various

backgrounds discussed the relevant needs

and priority areas of the I-CSP 2014-2015

in Tunisia with Bank staff. Discussions with

Bank staff and associations helped not

only to promote dialogue and strengthen

diagnosis, but also to increase the visibility

and legibility of the Bank’s action amongst



key opinion relays. The majority of organi-

zations dwelled on the importance of such

meetings while civil society representatives

reiterated their interest in developing a long-

term strong and direct commitment with the

AfDB to achieve tangible impacts. This

workshop completed a series of bilateral

meetings on specific topics such as public-

private partnerships with public and private

sector representatives.

Though the Bank has demonstrated the

capacity to devise a new form of relationship

with Tunisian civil society over the last two

years, efforts are still needed. The identification

of entities should be continuous and progressive

like the changing sector. The frequency of

meetings should not wane and new interactions

could be developed. Special attention could

be paid to regional associations which are

more difficult for the Bank to access.



1. Introduction

The Bank’s Department of Fiduciary Services

carried out an evaluation of the framework

and fiduciary risks in Tunisia (March 2012) as

part of the preparation of the CSP in September

2013.

2. Overview of National Systems and Fiduciary Risks

2.1. Public Finance Management:

the evaluation of Tunisia’s public finance

using PEFA methodology (June 2010)

showed that the Tunisian public finance

management system sufficiently supports the

implementation of fiscal discipline, the strategic

allocation of resources and the provision of

services to citizens. The strengths are the

preparation and strict implementation of the

annual budget, internal controls and checks

and a non-accrual, but reliable accounting

system. However, priority areas remain,

namely: ensuring the efficiency of the entire

budget system through multi-year budget

planning and functional budget classification,

rationalizing internal audit bodies, establi-

shing a modern accounting system that

complies with international standards, impro-

ving time frames for submitting accounts and

strengthening the external audit system.

Thus, performance budgeting (PB) has been

on the drawing board in Tunisia since June

2010. It includes several components,

namely: (1) multi-year budgeting and results-

based management; (2) the review of budget

nomenclature; (3) the reform of the system of

control and accountability of authorizing

officers; (4) the reform of the accounting

system to upgrade it to IPSAS standards and

accrual accounting; and (5) the modernization

of information systems. Several ministries

and cross-cutting departments have tested

the budget system and performance indicators.

It should be noted that in 2012 the Bank’s

PARDI programme supported the adoption

of a decision by the Ministry of Finance

to publish detailed budget information at

end-2012. To date, the implementation of

several performance budgeting components

has been delayed due to the transition

period. Concerning external audits, the Audit

Office is preparing a reform proposal whose

key orientations are a series of legal and

operational measures needed to consolidate

the role of the Audit Office as a constitutional

and legal institution, strengthen the indepen-

PUBLIC FINANCE AND PROCUREMENT MANAGEMENT SYSTEMS: BANK’SRISKS AND FIDUCIARY STRATEGY

Annex 12



dence of the Office and its members and

institute better monitoring by Parliament.

Since the issuing of the Decree of 7 May 2011

authorizing the full publication of the latest

annual reports of the Audit Office, the Office

was reorganized and it recruited 40 new

magistrates. It has also submitted to the

Constituent Assembly a proposal relating to

its status and guarantees of independence for

possible inclusion in the draft Constitution. An

analysis of the Tunisian control and audit

system carried out in 2013 with the assistance

of OECD re-emphasized the need to reform

the audit system.

2.2. Procurement:

Tunisia’s legal and regulatory framework for

procurement is governed by the 17 Decem-

ber 2002 Decree (and subsequent instru-

ments, the last of which dates back to May

2011). The Bank evaluated this framework in

2011 and concluded that its risk was mode-

rate. This evaluation helped to conclude that

all national LCB procedures are compatible

with the Bank’s fiduciary obligations, excep-

ting some differences identified. Although it

guarantees globally acceptable procedures,

the system is characterized by (i) a problem

of efficiency, with long contract cycle time

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

foreign contractors to public procurement; (iii)

a redress and complaint management

system that is not independent; and (iv) a

confused institutional framework, with the

non-separation of some functions which are

incompatible. To address these problems, in

accordance with commitments made within

the framework of PARDI, the Government

carried out an overall evaluation of the procu-

rement system to initiate the structural

reforms necessary for its modernization. The

system was evaluated using the OECD/DAC

methodology (internationally accepted tools)

during the first half of 2012, with AfDB and

World Bank technical support. It gave rise to

a report and an action plan approved by the

Government in August 2012. The implemen-

tation of the actions contained in this plan will

complete the structural reform of the national

procurement system initiated by the Govern-

ment and help to: (i) increase efficiency in

order to reduce delays in the implementation

of contracting cycles; (ii) strengthen

2.3. Summary of fiduciary risks and mitigative measures:

the fiduciary risk as a whole is deemed

moderate, based on the most recent diag-

noses of public finance management and

corruption perception. However, this risk can

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

of external auditing to guarantee its adminis-

trative and financial independence and

professionalism; (ii) ensuring good prospects

for continuing and completing the reform

initiated in 2010 in order to improve budget



management and introduce management by

objectives; (iii) fostering and pursuing the

implementation of the action plan to reform

the public procurement system adopted in

August 2012; (iv) developing the national anti-

corruption strategy and establishing the legal

anti-corruption framework; (v) the willingness

and efforts of TFPs and the Government

to rapidly reach a lasting and satisfactory

consensus on the external auditing of projects

implemented through external financing and

provide the Audit Office with the means to

fulfil this mandate; and (vi) the consideration

by the Tunisian Government of the possibility

of establishing a unified framework for

planning, coordinating and monitoring

reforms related to public finance manage-

ment in order to ensure synergy and better

information dissemination.

3. Bank’s Fiduciary Strategy in Tunisiafor the I-CSP 2013-2014 period

3.1. Recommended level of use of the NationalPublic Finance Management System

In accordance with the provisions of the

Paris Declaration and the Accra Forum, the

Bank’s decision to use the national public

finance management system was examined.

This examination showed a moderate

fiduciary risk, enabling the Bank to maintain

an approach based primarily on national

procedures and systems, while continuing

its support for the reform of the system.

However, the approach could be adapted

and revised during the period. Hence:

Budget support using the entire public

expenditure chain could continue, subject

to the implementation, in the medium term, of

the mitigative measures recommended above

(2.3). The use of budget support resources will

be audited through the examination of

Settlement Laws by the Audit Office, which

laws will be published within the statutory

deadlines. The Bank reserves the right to

request any auditing of the financial flows of

support operations and/or the performance of

programmes it deems necessary.

Public investment projects/programmes

will use most of the existing execution and

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

given to the use of the existing capacity and

resources of public entities, the opening of

project accounts in the Central Bank of Tunisia,

disbursements that are consistent with the

Bank’s procurement rules as well as with

public expenditure authorization and control

rules, the internal auditing of projects by public

entities, systematic inclusion in the ADEB

(budget execution) system and in the local

accounting system of pay masters. Where



the local public system is limited, separate

accounts will be kept in order to have

accounts by financing and by component

and the necessary financial reports. Each

evaluation will propose appropriate measures

to mitigate specific fiduciary risks and justify,

where necessary, the need for alternative

arrangements. Regarding the external auditing

of investment projects/programmes, arran-

gements will continue to be considered

on a case by case basis, pending the

outcome of the dialogue initiated with

Tunisian authorities. For long, project auditing

was entrusted to the General Financial

Controller (GFC). However, given his/her

position, the GFC does not meet INTOSAI’s

criteria for independence of supreme audit

institutions. Thus, it is necessary to extend

ongoing dialogue with the authorities to other

partners and to find solutions to support the

Audit Office and give it the means to perform

its task of ensuring the external auditing of

projects financed by the State and TFPs.

Where independent implementing agencies

that already have a private external auditor

are used, the same auditor will be proposed

for the project.

One of the elements of the Bank’s strategy

in Tunisia is continuous support for the

continuation of the reform of the public

finance management system. This support

could be reflected in increased dialogue with

the authorities to improve consultation with

other TFPs on the one hand and through

assistance for strengthening the capacity and

technical resources of the Audit Office, imple-

menting one or more components of the

reform of Objectives-based Budget Mana-

gement as well as support for the reform of

external auditing, on the other hand.

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

To ensure harmonization, the Bank will

continue to implement its strategy for the

use of the Tunisian national system. This

strategy will be consistent with the chosen

approach to be implemented by the Bank in

its RMCs. It comprises the following distinct

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

of national procedures in the LCBs specified

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

the entire national procurement system,

together with its legal and regulatory frame-

work, institutional framework, purchasing

practices and control and redress mechanism.

Under Phase 1 of its strategy, the Bank will

soon initiate discussions with the Tunisian

Government to carefully examine the major

differences contained in its regulatory frame-

work. Once agreement is reached on the

report submitted to the Tunisian party,

Tunisian procedures may be used for all

LCBs financed by the Bank during the period

covered by this CSP. Phase 2 of the Bank’s



initiative is expected in the medium/long

term. It will entail (according to modalities

to be determined and approved by Bank

authorities) using the entire national system.

This stage, which must be preceded by a

system performance evaluation using the

OECD/DAC methodology, will be feasible

only after the implementation of the Action

Plan activities.

During this CSP period, the Bank will s

upport Tunisia to address the challenges

identified and presented above. Specifically,

the Bank’s procurement operation will seek

to: (i) carry on dialogue with the Government

(to overcome the differences observed

following the evaluation of the national

procedures by the Bank) so as to sign a letter

of understanding for the use of the existing

national procedures for LCBs and (ii) provide

support to revitalize the implementation of

the actions identified and included in the

action plan ensuing from the evaluation of

the national procurement system (using the

OECD/DAC methodology) approved by the

Government.



TABLE OF DETAILED ANALYSIS OF COUNTRY RISKS BY PILLAR

Pillars

Indicators

Risk Factors

Initial

Risk

Mitigative Measures

Residual

Risk

PEFA 201

0, interview

with M

in. F

inance,

DGRE, CGABE,

DGCPR

➢Credibility PI 1-4

➢Com

prehensiveness

PI 5-7

➢Transparency

PI 8-10

➢Policy-based

budgeting PI 11-12

➢Efficacy

(predictability and

monitoring of

implementation)

PI 13-21

➢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

Low

i.Ongoing or planned measures

➢Implementation of a comprehensive objectives-

based 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

Low

PEFA 201

0, interview

with DGCRP and

the

Aud

it Office

➢Comprehensiveness

➢Efficacy

➢Quality

➢Opportunity

➢PI 22-25

➢PI 26-28

examination

➢Reliable management, but not accrual,

accounting: risk relating to the exhaustiveness

and relevance of financial information

➢Still long delays in tabling the Settlement Bill

before the Audit Office

➢Previous reports of the Audit Office were

published in 2011, but their future publication

is not yet guaranteed by instruments

➢The scope of external auditing is inadequate,

but changing

➢Insufficient independence safeguards for the T

unisian Audit Office

➢Limited content of parliamentary scrutiny

➢The auditing of external financing entrusted by

the Government to the GFC which does not

meet all INTOSAI’s criteria: there is still an

audit risk on operations controlled solely by

the GFC

Moderate

Low

1- Budget: Preparation, Execution, Control 2- Financial information and auditing


-Accounting System Reform Project within

the framework of objectives-based budget

management to upgrade to accrual accounting

and comply with IPSAS accounting standards.

Design slowed in 2011

-The deadline for submission of accounts by

the DGCRP has improved; 1.5 years in 2

009 and 2010. The statutory period may

be reduced within the framework of objectives-

based budget management

-Permanent change in the scope of auditing

of the Audit Office (CDC), with a risk-based

approach in the sampling of units. The

capacity building plan for the year is submitted

-New guidelines presented by the Audit Office:



➢Increased delays in submitting project audit reports over

the past three years

Low

Rep

ort o

n the evaluation

of national procurement

proced

ures fo

r LC

Bs

unde

r projects financed

by th

e Bank; CPA

R 200

4;PEFA 201

0 Interviews

with CSM

➢Prohibition of the access (or prerequisites) of foreign

contractors to CBs

➢Uncontrolled participation of public enterprises in CBs

➢The bid opening mechanism contains provisions impeding

transparency

➢Possibility of modifying the content of bids after they have

been opened

➢Possibility of using specific evaluation criteria for local

contractors (fair treatment)

➢The current redress and complaints management me

chanism is not independent (subject to political control)

and is hampered by a conflict of interest (COSEM and

MSC fall under the same authority)

Moderate

Low

-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


➢In the short term, the Bank and Government

should initiate a dialogue to satisfactorily

address the differences that are incompatible

with the Bank’s fiduciary obligations and

contained in the report on the evaluation of

national LCB procedures

➢The Government should take support measures

(training of actors) enabling the smooth

implementation of interim measures which

are the subject of revision of procurement

regulations carried out in May 2011

➢The Government should revitalize and pursue

the implementation of the action plan of the

measures identified through the evaluation of

the national procurement system carried out

using OECD/DAC methodology

3- Procurement



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

Transparency International,

interview with

Min. F

inance, interview

with M

inistry GAC

➢Corruption Perceptions Index 2012, 41/100

(43/100 in 2011)

➢Anti-corruption measures initiated, but to be pursued

Moderate


➢A ministry in charge of Governance and

Corruption Control (at the SG of Government)

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


➢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

Low

PEFA 201

0, interview

with M

in. F

inance

➢Lack of a unified framework for planning, coordination

and monitoring public finance management-related

reforms: risk of low synergy and sequencing and

inadequate dissemination of reforms and monitoring

of their progress (also identified by PEFA 2010)

Moderate


➢Point brought to the attention of the Ministry of

Finance


➢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

Low

Overall assessment of fiduciary risk

Moderate

Low

4- Corruption Adequate Reform Plan andMonitoring



1. Trend. Although debt represented 60% ofGDP on average in the 1990s, the drastic

debt reduction strategy implemented by

Tunisian authorities helped to reduce public

debt ratio to 40.4% of GDP in 2010. This

adjustment mainly concerned external debt

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

of GDP at the end of 2011 after a drastic

budget adjustment accompanied by a mode-

rate current account deficit. The authorities

have also adopted shrewd borrowing policies

by prioritizing recourse to concessional loans

from multilateral development banks and EU

grants rather than borrowing on the interna-

tional market. However, the expansionary

fiscal policy implemented by the Government

after the January 2011 Revolution, coupled

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

current account deficit, has contributed to

increasing the public debt ratio to 44.6% in

late 2011.

In 2012, a return to growth (+3.8%) helped to

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

despite growing budget deficits. However, the

projections made by the IMF within the frame-

work of the preparation of the USD 1.78 billion

standby agreement approved on 7 June 2013

confirmed that the public debt ratio will

increase steadily by 5% in the short term to

attain 49% of GDP by 2015 and decline

again progressively in the medium term to

about 44% in 2018. This expected increase

in the public debt ratio is expected to stem

mainly from an increase in the estimated

budget deficit needed to continue to meet

sustained social demands while providing the

resources required to recapitalize public

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

well as strengthen public enterprises (cost

estimate: 7% of GDP) and the social protection

system. This favourable debt dynamics,

however, calls for the streamlining of public

finance based on an overall deficit reduced

to 2.3% of GDP in 2018 and maintaining

continued real growth rates (4.6% on average)

during the 2013-2018 period as against

3.2% during the 2008-2013 period.

2.Structure and outstanding debt.As at 30 June2013, Tunisia’s nominal outstanding public

debt stood at TND 33.275 billion, as against

TND 31.418 billion in June 2012, representing

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

outstanding public debt during the same

period was 44.5% of GDP, as against 43.8%

of GDP at end-2012. External debt represents

the largest share of public debt. As at 30

Annex 13

MEDIUM- AND LONG-TERM DEBT SUSTAINABILITY ANALYSIS



June 2013, external debt represented

58.1% of total outstanding debt and 41.9%

of domestic debt. Domestic debt is financed

mainly through the issuance of short- and

medium-term treasury bills, while external

debt is financed through borrowings from

multilateral financial institutions (mainly the

African Development Bank and the World

Bank) and from foreign countries (France,

USA and Japan). However, Tunisia’s debt

is mainly in Euros and its current and future

debt servicing is denominated in that currency,

representing 52.3% of the outstanding debt

to be paid at maturity in 2025.

3.Debt sustainability in the medium term. Tunisia’sdebt strategy, which was defined within the

framework of the IMF-backed programme,

presupposes the transfer of the bulk of public

debt to foreign debt. The latter should therefore

increase to 55% of GDP in 2015 as against

29.5% expected in 2013, before declining to

49.2% by 2018 owing to a favourable current

account balance. Sensitivity tests show that

the external debt ratio is resistant to most

negative external shocks, except a major

exchange rate depreciation. The relatively

low level and profile of Tunisia’s debt (low

average interest rate and relatively long

maturity) will, however, enable it to resist

most shocks, excepting a major real

exchange rate depreciation. The external

debt ratio will remain below 58% of GDP in

all scenarios during the projection period.

Thus, a lasting negative shock on growth or

current account would increase the debt ratio

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

average interest rate would have a much

lesser impact. However, a potential significant

real depreciation of 30% of the exchange rate

in 2013 compared to the benchmark would

increase the debt ratio to around 80%

of GDP.

Furthermore, public debt seems to be highly

vulnerable to negative shocks. Public debt

could reach 60% of GDP by 2018 under a

scenario in which public finance management

is streamlined in the medium term. The debt

dynamics is also very sensitive to actions

aimed at maintaining the primary deficit to the

current and historic level. Lastly, over 60%

of public debt is denominated in foreign

currency. An occasional depreciation of 30%

would increase the public debt-to-GDP ratio

in the short term to about 63% and then

decline to 56% by 2018. However, the

dynamics of public debt will resist fairly well

to an interest rate shock and stand at a

sustainable level of 50% in the medium term.

2014-2015 - Tunisia Interim Country Strategy Paper · 4 Tunisia: Interim Country Strategy Paper -...

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