Document of

THE WORLD BANK

FOR OFFICIAL USE ONLY

Report No. P-7489-TUN

REPORT AND RECOMMENDATION

OF THE

PRESIDENT OF THE

INTERNATIONAL BANK FOR RECONSTRUCTION AND DEVELOPMENT

TO THE

EXECUTIVE DIRECTORS

ON A PROPOSED THIRD ECONOMIC COMPETITIVENESS ADJUSTMENT LOAN

OF EURO 281 MILLION (US$252.5 MILLION EQUIVALENT)

TO

THE REPUBLIC OF TUNISIA

November 27, 2001

Finance, Private Sector and InfrastructureMiddle East and North Africa Region

This document has a restricted distribution and may be used by recipients only in the performance oftheir official duties. Its contents may not otherwise be disclosed without World Bank authorization.

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CURRENCY AND EXCHANGE RATE(As of November 26, 2001)

Currency Unit = Tunisian DinarUS$1.00 = 0.68036 Tunisian Dinar

I Tunisian Dinar = 1.4698 US$

FISCAL YEAR

January I - December 31

ABBREVIATIONS AND ACRONYMS

AAEU Association Agreement with the European UnionAfDB African Development BankAFI Agence Fonciere de l'IndustrieANCE Agence Nationale de Certification ElectroniqueANF Agence Nationale des FrequencesAPI Agence de Promotion de l'IndustrieA1'I Agence Tunisienne de l'IntemetBCT Banque Centrale de Tunisie (Central Bank of Tunisia)BDET Banque de Developpement Economique de TunisieBNA Banque Nationale AgricoleBNDT Banque Nationale de Developpement TouristiqueBOT Build-Operate-TransferBTA Bons du Tresor AssimilablesBTCT Bons du Tresor Cessibles i TermeCAS Country Assistance StrategyCIF Cost, Insurance, Freight (included in import costs)CMF Conseil du Marche Financier (Financial Markets Council)CNF Conseil National de la Fiscalite (National Taxation Council)CPI Consumer Price IndexDA Deposit AccountDGA Direction Generale des Assurances (General Directorate of Insurance)DGP Direction Generale de la Privatisation (General Directorate of

Privatization)DS Debt ServiceECAL Economic Competitiveness Adjustment LoanEDI Electronic Data InterchangeEU European UnionFAS Facilite d'Ajustement Structurel (European Union)FDI Foreign Direct InvestmentFSAP Financial Sector Assessment ProgramFSL Fixed-Spread LoanGDI Gross Domestic InvestmentGDP Gross Domestic ProductGI)PMP Gross Domestic Product at Market PriceGNFS Goods and Non-factor ServicesGoT Government of TunisiaGSM Global System MobileIBRD Intemational Bank for Reconstruction and DevelopmentICR Implementation Completion ReportICT Information and Communication TechnologiesIDA International Development Association

FOR OFFICIAL USE ONLY

IMF International Monetary FundINT Instance Nationale des Te1lcommunicationsIPR Intellectual Property RightsISO International Standards OrganizationISPs Internet Service ProvidersLIBOR London Inter-Bank Offered RateMLT Medium and Long TermMTC Ministere des Technologies de la Communication (Ministry of

Communication Technologies)MTPL Motor Third-Party LiabilityNPL Nonperformning LoansOECD Organization for Econonic Cooperation and DevelopmentOED Operation Evaluation DepartmentONH Office National de l'HuilePEs Public EnterprisesPPI Private Participation in InfrastructurePSD Private Sector DevelopmentSICAD Systeme d'Inforrnation et de Conmnunication AdministrativeSINDA Systeme Informnatique des Douanes (Customs Computer System)SMEs Small and Medium EnterprisesSS Social SecuritySTAM Societe Tunisienne d'Acconnage et de ManutentionSTB Societe Tunisienne de BanqueSTICODEVAM Societe Tunisienne Interprofessionnelle de Compensation et de Dep6t

de Valeurs MobilieresTD Tunisian DinarTDO Total Debt OutstandingTDS Total Debt ServiceTFP Total Factor ProductivityTTN Tunisie Trade NetTT Tunisie TelecomUIB Union Internationale de BanqueUS$ U.S. dollarVAT Value added taxV-SAT Very Small Aperture TermrinalWTO World Trade OrganizationXGS Exports of Goods and Services

Vice President: Jean-Louis SarbibCountry Director: Christian DelvoieSector Director: Emrnmanuel ForestierSector Manager: Pedro AlbaTeam Leader: Hamnid Alavi

This document has a restricted distribution and may be used by recipients only in theperformance of their official duties. Its contents may not otherwise be disclosed withoutWorld Bank authorization.

THE REPUBLIC OF TUNISIA

THIRD ECONOMIC COMPETITIVENESS ADJUSTMENT LOAN

TABLE OF CONTENTS

LOAN AND PROGRAM SUMMARY ........................................... i

I. INTRODUCTION .1

II. RECENT ECONOMIC DEVELOPMENT AND PROSPECTS .................................................. 2A. Macroeconomic Background .......................... . .. 2B. Short and Medium Term Prospects and Financing Needs .4

III. THE GOVERNMENT ECONOMIC COMPETITIVENESS PROGRAM .................................................. 7A. Macroeconomic Framework and Measures ............ ...................................... 8B. Private Investment Climate .9C. Financial Sector Development .14D. Information and Communication Technology ...................................... 18

I V. BUILDING ON PREVIOUS OPERATIONS ...................................... 21V. PROPOSED LOAN ...................................... 22

A. Loan Rationale and the CAS ..................................... 22B. Loan Amount, Tranching and Key Actions .23C. Fiscal Impact .25D. Benefits and Risks .26E. Environment and Social Safeguards .27F. Disbursement, Financial Management and Auditing .27G. Cofinancing .28H. Bank Exposure .28

VI. RECOMMENDATION ................. 29

TABLES

Table 1: Selected Macroeconomic Indicators .3Table 2: Financing Plan ................................................ , . , . 6Table 3: Macroeconomic Monitoring Indicators .8Table 4: Telecommunications Performance: Tunisia vs. Other Countries .19

This document has a restricted distribution and may be used by recipients only in the performance oftheir official duties. Its contents may not otherwise be disclosed without World Bank authorization.

ANNEXES

Annex 1 Government's Letter of Development PolicyAnnex Il: Policy Reform MatrixAnnex III: Govemment BudgetAnnex IV: Balance of PaymentAnnex V: Key Exposure IndicatorsAnnex VI: Social IndicatorsAnnex VII: Status of Bank Group OperationsAnnex VIII: Statement of IFC's Held and Disbursed PortfolioAnnex IX: Timetable of Key Processing EventsAnnex X: Tunisia at a Glance

Map: IBRD 24726R

This Report has been prepared by a team comprising Hamid Alavi (Task Team Leader, MNSIF), PedroAlba (Sector Manager, MNSED), Denis Chemillier-Gendreau (consultant), Stephanie Gober (MNSIF),Michelle Keane (MNCO1), Auguste Tano Kouame (LCSPE), and Carlo Maria Rossotto (CITPO). Theteam also included Dominique Bichara (LEGMS), Rafika Chaouali (MNACS), Ingrid Ivins (MNSED),Hala Khattar (FPS), Alexander McPhail (MNSIF), Hovsep Melkonian (LOAGI), J. Keith Rennie(MNSRE), David Satola (LEGPS), and Dimitri Vittas (FSD), who provided important contributions tothe report. Lorenzo Savorelli (BNP Paribas, former Task Team Leader) and Le'ila El-Hafi (CreditLyonnais, former MNSPF team member) were instrumental in the operation's inception. The operationwas prepared jointly with the excellent cooperation of teams from the African Development Bank, underthe direction of Kordje Bedoumra, and the European Union, under the direction of Marco Mazzocchi-Alemanni.

The team also greatly benefited from the guidance of Christian Delvoie (Director, MNCO 1), EmmanuelForestier (Director, MNSIF), Wafik Grais (FSP), Pierre Guislain (Sector Manager, CITPO), Michel Loir(MNSIF), Andrew Stone (PSAFI), and Bjom Wellenius (consultant). Liliane Vert (MNSIF) providedinvaluable assistance in preparation of all loan documents and in every aspect of team support, andNicole Wautiez De Blaye (MNCO1) ensured the rapid and accurate translation of documents fromEnglish into French. The assistance of Fatma Felah (MNCOI) in Tunisia was also very muchappreciated.

THE REPUBLIC OF TUNISIATHIRD ECONOMIC COMPETITIVENESS ADJUSTMENT LOAN (ECAL III)

LOAN AND PROGRAM SUMMARY

Borrower: The Republic of Tunisia.

Amount and Terms: EURO 281 million (US$252.5 million equivalent) customizedcommitment-linked Fixed-Spread Loan (FSL) to be disbursed in onestandard tranche of EURO 144.69 million (US$130 millionequivalent), a capitalized front-end fee of EURO 2.81 million(US$2.5 million equivalent), and three floating tranches of EURO44.5 million (US$40 million equivalent) each. The three floatingtranches are respectively linked to structural reforms to: (a) improvethe private investment climate, (b) further strengthen the financialsector, including insurance, and (c) liberalize the information andcommunication technology sector. The lending rate applicable is6-month LIBOR plus a fixed spread for FSLs denominated inEURO. The loan repayment period will be 16.5 years, including afive-year grace period. Interest and other charges will be payablesemi-annually on May 15 and November 15 of each year. The finalreimbursement date is May 15, 2018.

Loan Description: The proposed loan is the third in a series of policy reform operationsand supports the Government's program to enhance the internationalcompetitiveness of Tunisia's economy. It is aimed at promotingprivate investment, strengthening the financial sector, andliberalizing the information and communication technology sector,while maintaining a stable macroeconomic framework. The loanbuilds on reforms in the real sector initiated under ECAL I and seeksto deepen improvements in performance and efficiency in thefinancial sector supported under ECAL U1.

Benefits: Sound macroeconomic performance and private sectorcompetitiveness are recognized by Tunisia as prerequisites forachieving its ambitious growth, investment, and employment targetsfor 2002-2006. The impact of the policy measures supported by thisloan is expected to be substantial. In particular, the loan will benefitTunisia's public and private sectors through efficiency gains and amore transparent investment climate, with continued disengagementof the State from the economy. It will contribute to the soundnessand transparency of the financial sector, thereby improving access tofinancial services for enterprises and individuals while reducing thecost of these services. The loan will also open thetelecommunications sector to competition and private participation,lowering prices and improving access to service for consumers.

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Risks: A sudden worsening of international economic or security condi.nonscould slow reform and propel short-term macroeconomicstabilization to the top of Tunisia's economic agenda. There is a riskof slow implementation due to the need to consult with labor un3onsto implement certain insurance sector reforms. Finally, the effectiveintroduction of competition in the telecommunications sector maytake more time than projected, in light of the relatively tight financialsituation of most operators worldwide. The operation is not expectedto present any substantial social or environmental risks. Its measuresare not foreseen to require lay-offs or to have a negative impact onincomes or employment of any specific group. Any environmentalissues arising from the sale of government-held shares to privateentities will be addressed in the context of Tunisia's environmentallegislation and will comply with the Bank's safeguard policies.

Risk Mitigation: The risk of a slowdown of the reform program following anunexpected deterioration of the international economic or securityenvironment is limited for the following reasons. First, theauthorities have identified additional macroeconomic stabilizationmeasures to be put in place if needed. Second, Tunisia has anestablished record of commitment to structural reforms. Finally, theproposed loan structure of three floating tranches will allow theGovernment to disburse a specific tranche once reforms have beenimplemented in a single sector, rather than waiting for completion ofall reforms covered by the program. This flexibility will beespecially helpful if faster disbursement is required due to additionalpressures on the country's balance of payments. With regard toreforms in the insurance sector, the Govemment's gradual approachbased on careful, though time-consuming, internal consensus-building presents a risk of delay rather than non-completion of theplanned measures; this risk is also mitigated by the floating tranchestructure. In telecommunications, the authorities' open andtransparent selection process for the second GSM operator representsthe best guarantee to attract sound proposals from qualified bidders.Further incentive to implement the reform program is provided byparallel financing, based on the same policy reform matrix, from theAfrican Development Bank and the European Union.

Estimated Disbursement: The loan will be disbursed in one standard tranche and three floatingtranches. The release of the floating tranches will be conditioned oncontinued satisfactory macroeconomic performance, adequateimplementation of the overall reform program for each sector, and onthe implementation of specific policy measures linked to eachfloating tranche, as specified in the Loan Agreement. The closingdate of the proposed loan will be June 30, 2003.

Co-financing: AfDB: EURO 216 million equivalentEuropean Union: EURO 80 million

Project Identification Number: TN-PE-55815

REPORT AND RECOMMENDATION OF THE PRESIDENT OF THE INTERNATIONALBANK FOR RECONSTRUCTION AND DEVELOPMENT TO

THE EXECUTIVE DIRECTORS ON A PROPOSED THIRD ECONOMICCOMPETITIVENESS ADJUSTMENT LOAN (ECAL III) TO THE REPUBLIC OF TUNISIA

I. INTRODUCTION

1. I submit for your approval the following report and recommendations on a proposedThird Economic Competitiveness Adjustment Loan (ECAL III) to the Republic of Tunisia in anamount of EURO 281 million (US$252.5 million equivalent). The loan supports a reformprogram including actions to improve Tunisia's private investment climate, strengtheningcompetition and corporate governance; reinforce the regulatory and supervisory framework in thefinancial sector, in particular in insurance; and liberalize the telecommunications sector. Theproposed program is largely based on the work of the authorities in preparing the forthcoming10f' five-year development plan and on the recommendations of four recent Bank reports: thePrivate Sector Assessment Update, the Social and Structural Review, the Review of ExternalSustainability, and the Information and Communications Technology Strategy.1

2. The loan supports Tunisia's macroeconomic stability in the face of weakening externalconditions. Tunisia has demonstrated its firm commitment to prudent macroeconomic policiesand has established credibility among international investors and domestic economic agents.Tunisia's external environment, however, has deteriorated recently with export demand, tourism,remittances, and capital inflows all negatively affected by weakening world economicperformance, particularly in Europe. Uncertainties in the external environment could lead toadditional pressures on the balance of payments by increasing financing requirements or bytemporarily raising the cost of borrowing on international markets. In response to thischallenging external environment, the authorities have strengthened their domestic financialpolicies and stand ready to adopt additional measures if necessary.

3. The proposed operation would be the third in a series. The first ECAL (ECAL I)introduced wide-ranging first generation actions aimed at promoting private sector development(PSD); the second ECAL (ECAL II) supported improvements in the soundness, efficiency, andcompetitiveness of the banking system. ECAL III consists of a broad range of second generationmeasures aimed at enhancing PSD, pursuing financial sector reform and expanding it to the non-bank financial sector, and supporting the liberalization of the telecommunications sector.

4. The proposed loan is consistent with the base-case scenario reflected in the Bank GroupCountry Assistance Strategy (CAS) for Tunisia discussed by the Executive Directors on April 27,2000. The proposed loan amount represents a US$100 million increase in the level of adjustmentlending foreseen in the CAS, reflecting a faster pace of reform in some areas identified by theCAS as high-case triggers (financial sector reform and liberalization in the telecommunicationssector). This increase is proposed in response to worsening external economic conditions and aslowdown in tourism and export receipts. Combined adjustment and investment lending levels,however, remain in line with CAS projections. The proposed operation has been prepared incollaboration with the European Union (EU) and the African Development Bank (AfDB) whowill support the Government's program on the basis of a common action matrix with,respectively, a grant of EURO 80 million and loan of EURO 216 million equivalent. In addition,

I Republic of Tunisia. Private Sector Assessment Update: Meeting the Challenge of Globalization, December 14,2000, Report No. 20173-TUN. Republic of Tunisia: Social and Structural Review, March 31, 2000, Report No. 20163-TUN. Republic of Tunisia: Review of External Sustainability in a Changing Environmnent, January 2001 (Green CoverReport). Republic of Tunisia: Information and Communications Technology Strategy Report, October 2001 (Draft).

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the macroeconomic framework and performance indicators for this operation have been definedin close collaboration with the International Monetary Fund (IMF).

II. RECENT ECONoMIc DEVELOPMENT AND PROSPECTS

A. MACROECONOMIC BACKGROUND

5. After successfully implementing stabilization and structural adjustment programs, ' hichbegun in the late 1980s, the authorities have, since the mid-1990s, turned their attention tocreating the conditions needed to integrate the country with the global economy, in particularwith Europe, and rapidly converge toward developed countries' living standards. The strategyhas included securing a WTO membership as of 1994 and signing the Association Agreementwith the European Union (AAEU) in 1995. International financial markets have respondedpositively, and since 1994, Tunisia has consistently improved its access to the sovereign hondmarkets. Sovereign debt has thus become a prominent source of foreign financing, as non-clebtsources of financing remain low. Notwithstanding its strong macroeconomic framework, the costof accessing the sovereign debt market for Tunisia can change with developments in otheremerging market economies or at the global level. For example, after the September 11 th terroristattacks in the U.S., the spreads quoted for Tunisian bonds increased, though to a lesser extent thanfor many other emerging market economies. Similarly, Tunisia's spreads increased after the1997 East Asian financial crisis, causing the authorities to give up borrowing from financialmarkets in 1998 and instead tap their already low international reserves.

6. Historically, Tunisia has mitigated or managed the impacts of external shocks-includingthe mid-1980s oil shock, the Gulf war, the early 1990s economic slowdown in Europe, andl the1997 East Asia crisis-through sound socio-economic policies. This resilience rests in pail onthe fact that external financing for the whole economy is, by and large, mobilized by the publicsector, and that capital inflows and outflows are subject to controls. If the private sector is to playan increasing role in mobilizing external financing, capital flows will be more sensitive toexternal shocks. Going forward, it is therefore critical to preserve the strong macroeconomicframework and ensure a close monitoring of external vulnerabilities.

7. In 2000, economic growth rate, at 4.7 percent, was lower than the average for theprevious five years (5.2 percent) and markedly lower than the 6.1 percent achieved in 1999 (seeTable 1). The somewhat weak outcome for 2000 was largely caused by a contraction inagricultural value-added and to a lesser extent by slower growth in the services sector. Themanufacturing sector continued to grow at a healthy pace, despite the challenge of liberalizationof manufactured imports from the EU and from some partners in the Arab world. Theunemployment rate declined slightly in 2000 thanks to a sizeable increase in job creation outsideagriculture; however, unemployment remains high, at more than 15 percent, consideringTunisia's good record of economic growth and its ambitions for the future.

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Table 1: Selected Macroeconomic IndicatorsActual Estirmate Projection

1990-98 1999 2000 2001 2002 2003 2004

Growth RateGrowth of Real GDPMP 5.0 6.1 4.7 5.2 4.9 5.7 6.0Growth of Real Exports GNFS 4.8 4.7 6.6 9.3 5.4 6.8 7.1

o/w: mnanufacturing exports 12.7 5.7 4.6 15.4 5.8 7.0 7.2Growth of Real Imports GNFS 4.2 3.0 9.6 9.0 4.6 5.8 6.5

o/w: manufacturingimports .. 6.0 11.5 15.5 4.8 5.2 6.1GDP deflator (growth rate) 4.8 3.8 2.4 2.9 3.2 2.7 2.Inflation (CPI Index) 5.1 2.7 2.9 2.5 3.1In % of GDPGross Domestic Savings 23.9 24.6 23.9 24. 24.8 25.3 26.1Gross Domestic Fixed Investment 27.2 25.4 26.3 26.7 26.8 27.1 27.8

udget Deficit l(government and social security) -3.9 -2.6 -3.3 -2.8 -2.3 -2.0 -1.9

Budget Deficit (government) .. .. -3.8 -3.3 -2.8 -2.5 -2.4Public Wage Bill 10.7 11.8 11.7 11.8 11.7 11.5 11.3Current Account Deficit -4.8 -2.1 -4.2 -4.3 -3.8 -3.2 -2.8

oreign Direct nvestnent 2.3 1.6 3.8 1.8 3.8 3.3 3.1Exports GNFS 42.5 42.2 44.0 46.2 46.0 46.2 46.5

o/w: manufacturing exports 18.1 19.4 20. 21.2 21.4 21.7 21.9

Private Investment 2/(% ofGDI) 51.5 52.1 54.0 56.3 55.0 55.6 56.4

Growth of Private Investment 3 5.9 9.9 15.1 14.7 6.0 11.1 13.0External DebtOutstanding Foreign Debt (in % of GDP) 59.2 56.7 54.5 57.4 56.0 51.5 47.5

ExtemalDebtService 4 ' 21.0 17.3 22.1 17.4 16.1 14.5 14.9Forei2n ReservesForeign Reserves in months of imports CIF 2.3 3.2 2.5 2.2 2.9 3.0 3.1Foreign Reserves in months of imports GNFS 2.1 2.9 2.3 2.1 2.7 2.8 2.9

General Assumptions (* used in model):

World Growth (%) 2.9 3.8 1.3 1.6

Indus. Countries Growth (%) 2.8 3.3 0.9 1.0

EU Growth * (%) .. .. 1.5 1.3 3.6

Oil Price * (US$/barrel) 18.1 28.2 25.0 21.0 20.0

World Trade Growth (%) 4.9 13.3 1.0 4.0Notes: not available; "Excluding grants; 2/1992 - 1998; 3'1993 - 1998; 41Exports of Goods and Services;5'Months of Imports of Goods CIF; 6 'Months of Imports of Goods and Non-Factor ServicesSource: Government of Tunisia and World Bank.

8. The current account deficit widened significantly to 4.2 percent of GDP in 2000,compared to 2.1 percent in 1999 and 3.4 percent in 1998. Factors underlying this deteriorationwere partly exogenous. Insufficient rainfall caused a deterioration of the food balance; highenergy prices worked to deteriorate the energy balance; and the appreciation of the dollar vis-a-vis the dinar boosted external debt service and inflated some import bills.2 In addition to theseexogenous factors, imports of equipment goods and raw material by investing firms increasedmarkedly; this, however, bodes well for the future because these investments are likely tocontribute to future exports. On the financing side, foreign direct investment more than doubled

2 It is noteworthy that those exogenous factors may not be short-lived, as insufficient rainfall and high energy pricescontinue to affect the current account deficit adversely in 2001 and may do so again in 2002.

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in 2000, largely due to the successful sale of two state-owned cement companies to foreigninvestors for a total of about US$268 million. Also, Tunisia mobilized the equivalent ofUS$459 million on the Global Samurai bond market in the summer of 2000 at very favorablespreads. However, overall external financing in 2000 fell short of the amount needed to maintaininternational reserves at 3 months of imports, the level achieved in 1999 and originally targetedfor 2000 by the authorities.

9. Overall, Tunisia's economic performance in 2000-and indeed over the past decade orso-has been underpinned by prudent macroeconomic policies. The overall fiscal deficit wasreduced from 6.2 percent of GDP in 1990 to 3.3 percent in 2000.3 The monetary stance has beenprudent, and the exchange rate management fairly flexible. The growth of monetary aggregateshas gradually been brought into line with nominal GDP growth, and inflation declined from anaverage of 4.7 percent during 1992-97 to 2.9 percent during 1998-2000. The Central Bank hasdiscontinued its policy of financing all the liquidity needs of commercial banks, thus encouragingthem to use the inter-bank money market more actively. Since late 2000, the Central Bank hasbeen allowed to undertake open market policy. Thanks to the flexible management of theexchange rate, supported by capital controls, the authorities have managed to prevent a significantreal appreciation of the currency vis-a-vis Tunisia's trade partners.

B. SHORT AND MEDIUM TERM PROSPECTS AND FINANCING NEEDS

10. The prospects for the Tunisian economy presented below are based on the assumptionsabout the global economy contained in the lower part of Table 1. The September 11 terroristattacks in New York and Washington, D.C., have already led to significant revisions in prospectsfor the global economy as well as for Tunisia. If the impacts of the recent events on the worldeconomy were to be worse than currently projected, the prospects for Tunisia would also belowered.

11. Year 2001. Preliminary data suggest that the authorities have been able to maintain asound macroeconomic framework in 2001 despite drought conditions affecting agriculturalproduction and an economic slowdown in Europe and industrialized countries in general. OverallGDP growth is expected to reach 5.2 percent. Both manufacturing (excluding agro-industry) andconstruction are expected to have grown at high rates. Agricultural value-added is expected todecline by 0.5 percent year-to-year, and the weak agricultural season will entail high food importsand low agricultural exports, having a large adverse impact on the trade balance. High oil pricesin the first three quarters have also adversely affected the trade balance, because Tunisia is a netoil importer. These adverse effects will be compounded by the impact of the September 11"'events on fourth quarter tourist arrivals and tourism receipts. Overall, however, these adverseeffects will be offset by the very good performance of tourism and manufactured exports duringthe first three quarters of 200 1,4 and the current account deficit should be similar to the 2000level, at about 4.3 percent of GDP. High international petroleum prices during most of the yearhave created a significant gap between import prices and controlled domestic sale prices, leadingto important budgetary outlays. Although some food prices have been increased, food pricesubsidies and the increase in the wage bill will also represent a weight on the budget. Despitethese pressures, the budget deficit will be approximately 2.8 percent of GDP, lower than the 2000level, largely due to a strong increase in tax revenues.

3 The deficit numbers quoted in the text refer to the consolidated deficit of central government and the socialsecurity funds.4 Tourism receipts increased by 14 percent during January-September 2001 compared to the same period in 2000;manufactured exports increased by more than 19 percent (with exports of mechanical and electrical equipmentsincreasing at a strong 33 percent).

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12. Year 2002. Perspectives for 2002 are not as good. Based on current assumptions oneconomic activity in Europe as well as on agricultural production in Tunisia, overall GDP growthshould reach 4.9 percent in Tunisia in 2002, a significant decrease from the 5.8 percent projectedbefore the September 11t events. Some pressures could arise on the current account deficit.Indeed, although the trade liberalization strategy works to create a more favorable externalenvironment for domestic businesses by providing better access to foreign inputs at world pricesand better access to global technologies through joint ventures, in the short-term it could, ashappened in 2000-2001, lead to higher imports of capital goods and some substitution ofdomestic production for imports. Expected low value-added in the agriculture sector due toinsufficient rainfall (at least up to October 2001) will continue to pull exports downward whilepushing imports upward. The economic slowdown in the world economy, in particular in theEuro zone and with regard to the tourism sector, represent additional challenges for Tunisia in2002.

13. Aware of these challenges, the authorities are pursuing policies that can help contain thecurrent account deficit at about 3.8 percent of GDP in 2002. First, public savings will beincreased by bringing the fiscal deficit-to-GDP ratio down by 0.5 percentage points, to2.3 percent of GDP. This will be achieved through tighter expenditure control and furtherstrengthening of the tax base. At the same time, the authorities will better monitor the finances ofpublic enterprises while ensuring these public enterprises deliver goods and services moreefficiently. In addition, the authorities will create the conditions for improved private savings bystrengthening the insurance sector (and specifically promoting life insurance) and continue effortsto improve loan recovery in the banking sectors.

14. External Financing Needs and Financing Plan. External financing needs for 2001 areestimated at US$1.95 billion (Table 2). With grants estimated at US$56 million, foreign directinvestment at US$364 million, and short-term outflow estimated at US$287 million, borrowingneeds would amount to about US$1.8 billion. In March, Tunisia mobilized the equivalent ofabout US$460 million from the international sovereign bond market at very favorable spreads.Currently, the country continues to enjoy a good rating. However, given uncertainties ininternational financial markets after the September 11 events and in certain emerging markets, theTunisian authorities feel that an additional bond issue in 2001 is not desirable, especially as theMarch issue mobilized an amount already as high as yearly amounts mobilized in the past. Toavoid another dec4ine in the reserves level and coverage after that of 2000, the authorities aremaking every effort to ensure that much of the financing from official sources in the pipeline for2001 is realized. Thus, first tranche disbursements under the proposed operation and relatedparallel financing could contribute about US$229 million (of which about US$132.5 million fromthe IBRD loan and about US$97 million from the related AfDB loan). Additional multilateraland bilateral loans and trade financing and other forms of financing received by the private sectorthroughout the year would amount to about US$724 million and US$400 million, respectively.With this financing plan, the end of year reserves level is expected to be at US$1.7 billion,equivalent to 2.2 months of imports. This low level of reserves is in part due to the postponementof the issuance of the second global system mobile (GSM) license originally planned for 2001.

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Table 2: Financing Plan (in US$ million)1996 1997 1998 1999 2000 2001 2002 2003 2004

Financing needs 1782 1804 1356 2083 1882 1947 2594 2201 2432Current Account Deficit 479 593 675 443 817 866 844 780 756Amortization (including IMF) 907 875 867 951 1347 1104 1075 1071 1298Change in Reserves 397 336 -187 690 -283 -23 676 351 377

Sources 1782 1804 1356 2083 1882 1947 2594 2201 2432MLT Loans and Credits 1380 1359 693 1443 1520 1813 1662 1292 1519Multilateral 504 351 289 536 400 649 695 571 595

of which IBRD 202 127 142 210 136 322 252 202 193Official Bilateral 181 304 169 255 280 303 300 302 273Private Creditors 695 703 235 652 840 861 666 419 651

Short-Term & E&O 96 -4 -117 231 -372 -287 0 0 0Foreign Direct Investment 261 355 697 337 731 364 834 809 813Grants 46 95 82 73 3 56 97 100 100Source: Government of Tunisia and World Bank

15. For 2002, Tunisia's financing needs are projected to amount to about US$2.6 billion as aresult of a fairly large current account deficit and amortization bill, as well as the targeted sizableincrease in reserves so as to be able to attain an import coverage of 3 months by 2003. Thesefinancing needs would be met through a balanced mix of borrowing from the intemationalfinancial markets and multilateral development finance institutions, foreign direct investment, andgrants. Financing from public sources and grants would include all three of the floating tranchesfrom the proposed IBRD loan in a total amount of about US$120 million, about US$97 millionfrom the related AfDB loan, and about US$72 million from the related EU grant. Projectedforeign direct investment includes the sale of a second GSM license to a private telephoneoperator as planned in the program supported by the proposed operation. The end of yearreserves level is expected to reach US$2.4 billion, equivalent to some 2.9 months of imports.

16. There are, however, downside risks to this financing plan. Even though expected lowerinterest rates in developed countries might allow for a lower cost of borrowing, intemationalfinancial markets might demand higher spreads for emerging market borrowing due to possibleuncertainties at the global level. Moreover, if the recession that started in the fourth quarter of2001 in the U.S. were to be prolonged and spread to Europe, Tunisia's growth rate would belower and its current account deficit higher in 2002 as result of lower tourism activities, exports,and possibly workers remittances. Access to intemational financial markets could tighten, andsome FDI projects could be postponed. In such a scenario, the larger current account deficit anddifficulties in accessing intemational financial markets could create a significant financing gap in2002.

17. To respond to such a shock and bridge the financing gap, as described below, theauthorities are committed to implementing short-term adjustment measures and accelerating theimplementation of a number of medium-term structural reforms. The acceleration of structuralreforms in an environment of slow global growth would send a strong signal to investors thatTunisia is a sound alternative to other emerging markets, thus possibly allowing Tunisia to attractlarger amounts of FDI.

18. Medium Term. In the medium term, Tunisia's economic fundamentals are expected toremain strong, and external financing is expected to be forthcoming to help achieve GDP growthin the range of 5.7-6.0 percent during 2003-04. However, given that the current account deficit is

7

relatively high at present and that projected high GDP growth will require somewhat higherprivate investment, the authorities plan to increase their adjustment efforts. These efforts includeincreasing public savings by bringing down the budget deficit to 2.0 percent of GDP or less.Given that the savings rate is likely to increase only slowly, however, the faster GDP growth rateswill have to be underpinned by higher productivity growth so as to ease pressures on the currentaccount balance. Therefore, in addition to measures to improve domestic savings, the authoritieswill continue to implement policies aimed at increasing efficiency, easing the transfer oftechnology, and reducing the cost of doing business in Tunisia.

III. THE GOVERNMENT ECONOMIC COMPETITIVENESS PROGRAM

19. The 10'h Development Plan objectives include achieving an average annual growth rate of5.7 percent during 2002-2006, and a corresponding increase in per capita income of 4.8 percent,compared to 3.9 percent during the 9 Plan.5 To achieve these goals, the Govemment recognizesthe need to intensify reforms to create conditions more conducive to private sector development.An important element of the reform program is the continuing, progressive dismantling of tradebarriers under the AAEU. To be fully effective, the AAEU needs to be complemented bywidespread reform to improve the efficiency of domestic markets and attract foreign investorsand partners.

20. To this end, in September 2000 a commission was put in charge of defining theGovemment strategy for promoting private investment and competitiveness, drawing uponconclusions from the Bank Private Sector Assessment Update Report. The commission held anational conference in November 2000 and prepared an action plan which includes the followingkey components:

(a) Creating a private investment climate that facilitates business startup, operation,and exit and creates opportunities for private participation. The commissionfocused on four key aspects of the private investment climate: (i) investmentpromotion and incentives; (ii) administrative procedures; (iii) laws andregulations relating to corporate govemance; and (iv) privatization and theopening of key sectors to private investment.

(b) Mobilizing finance for private investment by promoting: (i) efficient financialintermediation through a competitive banking sector and a dynamic and deepcapital market; and (ii) reforming the insurance sector, which in the medium tolong-term will be essential to mobilize long-term financial resources for privateinvestment.

(c) Reducing the cost and improving the quality of information and communicationtechnologies, a sector which the commission and the Government have identifiedas critical for a modem and open economy.

The components of this strategy have been incorporated into the Govemment program, which isunderpinned by the maintenance of a stable macroeconomic framework and is being supported bythe ECAL III. The Govemment's program is detailed in the Letter of Development Policy(Annex I), while its most salient features are described in this chapter.

5 This growth objective requires an increase in total factor productivity (TFP) to account for 44 percent ofproduction compared to 36 percent during the 9 th Plan; an increase in export growth to 7 percent p.a. in an increasinglycompetitive environment; and an increase in private investment to account for at least 60 percent of total investment by2006.

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A. MACROECONOMIC FRAMEWORK AND MEASURES

21. This component of the program consists of four sets of measures: (a) maintairing asound and stable macroeconomic framework; (b) integrating information on extemal debt;(c) introducing active debt management techniques for public debt; and (d) creating the ConseilNational de la Fiscalite (CNF) to ensure long-term fiscal sustainability and improve efficiencyand equity.

22. Maintaining a Sound Macroeconomic Framework. With an increasingly liberalizedexternal environment and greater reliance on international financial markets, it is critical topreserve Tunisia's sound macroeconomic framework. In the context of this operation, themacroeconomic framework will be assessed against the indicators set forth in Table 3, selectedfor the role they play in achieving economic competitiveness. The levels indicated in Table 3 arebased on the assumptions indicated in Table 1 above. The assessment of macroeconomicdevelopments in the country as they relate to the loan will benefit from data and other informationthat the authorities will send to the Bank on a quarterly basis. In case of events that jeopardizethe maintenance of a stable macroeconomic framework, or in case of marked deviations from themacroeconomic framework agreed upon and set forth in Table 3, the authorities will initiateconsultations with the Bank and the International Monetary Fund so as to identify the sources ofthe deviations, and design and implement adequate policy responses.

Table 3: Macroeconomic Monitoring n licatorsActual Projection

2000 2001 2002 2003 2004Growth of Real GDPMP 4.7 5.2 4.9 5.7 6.0Growth of Real Exports GNFS 6.6 9.3 5.4 6.8 7.1

o/w: manufacturing exports 4.6 15.4 5.8 7.0 7.2

Inflation (GDP deflator) 2.4 2.9 3.2 2.7 2.7

Gross Domestic Fixed Investment (% of GDP) 26.3 26.7 26.8 27.1 27.8

Budget Deficit (government and social security, % of GDP) -3.3 -2.8 -2.3 -2.0 -1.Budget Deficit (government, % of GDP) -3.8 -3.3 -2.8 -2.5 -2.4

Current Account Deficit (% of GDP) -4.2 -4.3 -3.8 -3.2 -2.8Outstanding Foreign Debt (% of GDP) 54.5 57.4 56.0 51.5 47.5Private Investment (growth rate) 15.1 14.7 6.0 11.1 13.Gross Foreign Reserves (in months of imports CIF) 2.5 2.2 2.9 3.0 3.1

23. Integrating Information on External Debt. A cornerstone of risk management is theadoption of a system for comprehensive information on extemal debt. Following unsuccessfulattempts during the 1990s, the authorities have been able to put in place an integrated andcomputerized debt database in 2001.

24. Introducing Active Debt Management Techniques. The authorities also plan to introduceactive debt management techniques for external and domestic public debt so as to minimize thecost of debt service in the future. The need for active debt management has increased with:(a) the presence of Tunisia in the international financial markets; (b) increasing exposure tochanging borrowing conditions for emerging market economies and exchange rate fluctuations;and (c) increasing dependence on market-determined prices for domestic bonds following therecent reform of the domestic bond market. At the same time, there are better conditions today

9

for active debt management, with the emergence of a secondary market for tradable Governmentdomestic bonds and the deepening of the secondary market for Tunisian debt instruments on theinternational sovereign bond market. Hence, the authorities will design institutional and legalarrangements for active debt management, drawing from the recommendations of a study to belaunched by end-2002.

25. Creation of a National Taxation Council. As envisaged in the Code des Droits etProcedures Fiscaux (2000), a National Taxation Council (Conseil National de la Fiscalite orCNF) has been created (Decree No. 2001-1250 of May 28, 2001) with the aim of continuouslyassessing the tax structure and ensuring its ability to raise revenues in an efficient and equitablemanner. The CNF is a consultative body with broad membership which includes representativesfrom relevant Ministries and other public agencies, professional organizations and associations,and individual experts. Moreover, the president of the CNF can invite any other person whosepresence is deemed useful to deal effectively with the issues on a CNF meeting's agenda. TheCouncil is expected to play an important role in modernizing and reforming Tunisia's tax systemin light of changing economic and social needs.

B. PRIVATE INVESTMENT CLIMATE

B.1 Current Situation

26. Role of the Private Sector.6 The private sector accounts for 63 percent of Tunisia's GDP,a slight increase from 60 percent in 1990. In terms of value added and employment, the privatesector dominates agriculture, fishing, and the bulk of manufacturing but has little participation inmost infrastructure activities. Apart from a few dozen enterprises which employ more than500 workers and belong mostly to the public and financial sectors, the majority of Tunisian firmsare small private units.' An offshore sector was created through special incentives to counter theanti-export bias of the protected domestic economy in the 1970s and 1980s, and although it fueledthe country's strong export performance and facilitated Tunisia's entry into world markets, theoffshore sector has insulated the domestic private sector from pressure to improvecompetitiveness. In fact, the offshore sector has developed very few linkages with the onshoreeconomy. While the private sector's share in GDP and total investment has remained low(51 percent), the sector's contribution to the growth of value-added of non-financial enterpriseshas increased steadily since the mid-1990s.

27. Remaining Constraints. The results of the Private Sector Assessment Update indicatedthat many Tunisian enterprises are apprehensive about market demand and competition. Theyalso face a complex investment incentive regime, taxation and other administrative constraints,difficulties in access to finance (especially for Small and Medium Enterprises, or SMEs), highcost of telecommunications and marine transport, and insufficient supply of industrial land. Inaddition, government involvement in sectors such as telecommunications, transport, and bankingcontinues to inhibit increased private investment.

28. Investment Incentives. The Government has established a generous system of tax andfinancial incentives for business investment for specific activities, priority regions, and certaincategories of entrepreneurs. The most significant beneficiaries of this system have been offshore

6 For more information, refer to the Republic of Tunisia Private Sector Assessment Update: Meeting the Challengeof Globalization, December 14, 2000, Report No. 20173-TUN.7 Out of about 87,000 formal sector firms, only 1,400 employ more than 100 workers. In the industrial sector, firmswith fewer than 20 employees account for almost 60 percent of all active private companies, and companies with fewerthan 250 employees account for more than 94 percent of all companies.

10

enterprises; the Tunisian investment incentive regime needs to be further simplified andstreamlined if it is to encourage private investment in the onshore sector. Tax and financialincentives have had a significant fiscal cost, but their results appear mixed in terms of impact onincreasing private investment. In addition, unless equitable incentives are put in place foronshore and offshore firms, when full implementation of the AAEU lifts remaining barierscurrently protecting onshore enterprises, these enterprises are likely to be at a strongdisadvantage.

29. Administrative Barriers to Business Start-up and Operations. Despite significantprogress in reducing administrative barriers to private sector activity, some rigidities remain,especially for onshore enterprises. These barriers increase transaction costs, discourage local, andforeign private investment, and reduce Tunisia's external competitiveness. The one-stop shop(guichet unique) of the Agence de Promotion de l 'Industrie (API), which was certified ISO 9002in June 2000, has greatly facilitated business registration and startup in the manufacturing sectorby assembling in one place all the general steps required for business startup. Delays occur,however, when a new project requires authorizations. Prior authorizations relating toenvironment, labor, and sectoral regulations are still relatively numerous and also hamperbusiness startups in non-manufacturing sectors.

30. Significant progress in streamlining and improving customs procedures has recently beenmade. The modernization of the Customs' Computer System (Systfme Informatique des Douanesor SINDA), the adoption of normalized and simplified documentation (liasse unique) foradministrative procedures involved in external trade transactions to replace a multiplicity ofdocuments, and the implementation of an electronic data interchange (EDI) system at TunisieTrade Net (TTN) have also been supported by the World Bank' and the EU. To reduce steps andcosts involved in trade transactions, TTN's system now needs to interface with customs, banks,trade forwarders, shipping agents, Ministry of Commerce's systems, and other actors involved intrade transactions. While much progress has been made to develop this interface, the link withcustoms SINDA system remains to be completed.

31. Ports are also a major bottleneck. Goods in Tunisian ports spend up to 18 days instorage. Much of this time is voluntary, as traders use the port as a substitute for inland storage,but retention is sometimes also involuntary, due to administrative procedures or inefficiencies inport services, including restrictive labor practices, and imposes an economic burden. TheGovernment has taken steps to address these bottlenecks, but much remains to be done. TheCode des Ports Maritimes de Commerce (1999), allows for private participation in serviceprovision in all Tunisian ports, but Societe Tunisienne d 'Acconnage et de Manutention (STAM),a public enterprise, still enjoys a monopoly in Rades, where most unitized cargo is received. Thetwo pending and somewhat interrelated issues, namely the lack of competition in Rades and thedockers' monopoly nationwide, are being addressed under the Transport Sector Project.9 T argetdates have been set for privatization of STAM, elimination of the dockers' monopoly, andopening of Rades to competition. Cargo handling will also be reorganized, and new conditionsfor access to the market will be set to facilitate creation of private companies with enough meansto invest in port equipment.

32. Tax procedures constitute an additional administrative constraint. Value added tax(VAT) credit reimbursement procedures are cumbersome, creating liquidity problems forenterprises. Enterprises can get an advance of 15 percent on the amount owed to them. but

The Tunisia Export Development Project (Project 55814, Loan 44750-TUN), in the amount of US$35 millionequivalent, was approved on May 20, 1999.9 Loans 43570-TUN and 43580-TUN (Project 43700) for a total of FRF 300.7 million equivalent, were approved onJune 23, 1998.

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reimbursement can still take up to six months. Long delays also occur for exempted imports, andthere is a lack of clarity in the relationship between enterprises and tax administrators. Tunisianfirms complain about the arbitrary process followed by the tax administration in determining theamount of the tax to which they are subject, and the lack of clarity in ex-post controls and thedetermination of penalties in case of erroneous declarations. These elements make it difficult forthe private sector to carry out advance tax planning. The problems are due in part to themultiplicity of tax regimes and tax procedures and frequent changes in the tax regime, and in partto the tax administration's need to strengthen its capacity to apply the tax regime in a uniformmanner.

33. Access to industrial land is difficult, especially in the area with the most dynamiceconomic growth (northeastern coastal zone). Reasons include: (a) the slow pace of constructionof industrial estates by the Agence Fonciere de l'Industrie (AFI), in part due to lengthy biddingprocedures governing the procurement of engineering consulting services; (b) the scarcity ofundeveloped land classified for industrial use; and (c) difficulties in private developers' access tofinance, as the cumbersome land titling system does not allow them to register the land in time tomake it available as collateral.")

34. Legal and Regulatory Issues. Recent legal and regulatory reforms should be deepened to:

(a) Facilitate company entry, operation, and exit, by (i) incorporating the concept ofcorporate conglomerates in the revised Company Law to regulate a number ofcorporate issues such as minority shareholders rights; (ii) reinforcing creditorrights concerning collateral to facilitate access to finance; (iii) removing limits onforeign direct investment in the offshore sector; (iv) accelerating the revision ofBankruptcy Law and streamlining bankruptcy procedures; (v) introducingexplicitly electronic data transfer and credit card transactions in the CommercialCode; and (vi) regulating franchising and factoring contracts, and updating theCode des Obligations et des Contrats to reflect technological advances incommunications.

(b) Improve enforcement capacity and the judicial system to handle business-relatedissues, through measures such (i) strengthening training of magistrates, judges,court registrars, and court reporters; (ii) improving access to legal information;(iii) completing the reform of commercial arbitration; and (iv) strengtheningindependent competition authorities.

(c) Secure property rights, by updating the law on commercial, industrial andintellectual property.

35. The Government enacted a competition law in 1991 which was amended in 1995 and1999. This law abolished margins on retail prices in 2000 and created a Competition Council.The Council is still developing as an institution and so far has acted on only a very small numberof cases presented by the private sector and the Ministry of Commerce. It will be necessary, inparticular, to include experts in economics and other relevant fields to strengthen the capacity ofthe Council to identify competition issues, make recommendations, and advise the Governmenton any draft legislation related to competition.

36. Public Sector Involvement. Public enterprises (PEs) are present in most economicactivities and dominant in banking, telecommunications, and transport, despite the fact that theGovernment has increasingly been disengaging from economic activity. Many PEs have

10 See the Private Sector Assessment Update for more details.

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performed poorly, with significant adverse impacts on the budget and on the banking sector. TheBank has supported the Government's disengagement efforts since 1987." Under ECAL 1, amore ambitious program of privatization and consolidation was initiated, and by the end of 1998,95 public enterprises (including two large cement companies) had been privatized or liquidated,with cumulative sales proceeds from privatization reaching TD 810 million (aboutUS$735 million at end-1998 exchange rate). Under ECAL II, the settlement of nonperformingbank loans to public and semi-public enterprises amounted to TD 321 million (about US$255million at end-1999 exchange rate) and involved 20 enterprises. Three of those enterprises wereliquidated under that operation, and others were restructured. The General Directorate ofPrivatization (Direction Generale de la Privatisation or DGP) of the Ministry of EconomicDevelopment lacks the resources to fulfill its mandate of monitoring privatized PEs, which maybecome a critical issue as the Government embarks on its policy of granting concessions in theinfrastructure sector. A program to strengthen the DGP is being developed with the EU'ssupport.

B.2. Government Program

37. In order to address the constraints discussed above, the Government will follow a multi-pronged approach for improving the private investment climate.

38. Promoting Private Investment. The authorities intend to carry out an in-depth study ofthe current policy framework and investment incentive regime to identify options to promoteprivate investment.

39. Streamlining Administrative Procedures. The Government is taking the followingactions to eliminate barriers to business startup and operation:

(a) Tax administration. The Government program includes several measures tosimplify tax procedures: (i) the new Code des Droits et Procedures Fiscaur isexpected to become effective on January 1, 2002, improving the transparency ofthe relationship between firms and the tax administration, especially with respectto tax controls; (ii) the VAT management is being streamlined by strengtheningthe information and control system for VAT and accelerating VAT creditreimbursement procedures for exporters to a maximum of 30 days; (iii) theMinistry of Finance is training 2,800 agents in order to improve tax assessmentand collection; and (iv) measures will be adopted to provide incentives andmeans to firms to increase the transparency and accurateness of financialstatements and tax declarations.12

(b) Customs procedures for onshore enterprises. The Government program includesimplementation of the normalized, simplified administrative and tradedocumentation for external trade transactions (liasse unique), reduction in thenumber of customs documents, and implementation of an electronic system forthe payment of customs duties. In addition, customs procedures would besignificantly accelerated by clearing goods before arrival in ports. To reducesteps and costs involved in trade transactions, Tunisie Trade Net's EDI systemwill be interfaced with custom's SINDA.

'I The first Bank-supported program in 1987 focused on restructuring and privatizing small and medium-sized publicenterprises (mainly in textiles, tourism and construction) but was modest, leading to privatization or liquidation of43 small enterprises.12 Standards for tax control will be updated, and the authorities are planning to provide support and incentives toSMEs in order to increase transparency and improve determination of their situation vis-a-vis taxation. The mise aniveau program already provides an incentive to that end, as firms are compelled to provide certified financialstatements to receive subsidies.

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(c) Business startup procedures. The Government has taken steps to streamlinebusiness startup procedures further by eliminating 60 percent of all priorauthorizations. A presidential decree has also established the procedure unique(single procedure) with an interlocuteur unique (single counterpart) for thecreation of individual enterprises in services and industry. Regionalcommissions have been set up to study files that require any prior authorization,therefore speeding up the authorization process. The Government program alsoinvolves extending the one-stop shop to the non-manufacturing sectors.

(d) Access to industrial land. To increase the supply of industrial land, theauthorities have decided to develop new industrial zones, including four zones inthe suburbs of Tunis in 2001.

40. Improving Corporate Governance. Drawing on recommendations from the November2000 conference, the Government is implementing several measure to modernize its regulatoryframework and improve corporate governance and the competitive environment.

(a) Enact updated laws on companies, holding companies, and conglomerates. InNovember 2000, the Code de Commerce was revised, and the Code des SocietesCommerciales (Company Law) was promulgated. The draft law on corporateconglomerates (Loi sur les groupes de societes) was also submitted to theChamber of Deputies recently. This will serve improve corporate governance byproviding a framework for future measures to strengthen minority shareholderrights and defining clear taxation rules for groups. 3 The accounting standardswill, in parallel, be updated to comply with international standards for thetreatment of holding companies and conglomerates.

(b) Design and enforce the legislative framework governing bankruptcy. TheGovernment has recently embarked on a process to revise provisions inbankruptcy law to facilitate exit and protect creditors' rights.

(c) Competition Council. An action plan has been prepared to strengthen theCompetition Council and improve its ability to advise the Government oncompetition issues.14

(d) Public import monopolies. The Government plans to undertake a study to reviewthe functions of import monopolies (which represent some 40 percent ofconsumer expenditures).

41. Privatization. The following steps continue the Government's process of transformingPEs into more financially sound and efficient entities.

13 The Code des Societes Commerciales (a) introduces new rules for the creation, management, transformation, andmergers of companies; (b) puts together all legislative texts relating to securities without any major change;(c) incorporates new concepts such as the Soci&td Unipersonnelle a Responsabilite' LimWite (in order to reduce risks forsole entrepreneurs) and the Groupement d'Intdrdt Economique; and (d) revises the rules governing all socidids decapitaux.14 Key elements of the action plan: (a) financial autonomy of the Council for Competition; (b) restructuring of theGeneral Management for Competition and the services of the Economic Control in order to: (i) introduce missions andstudies relevant to competition, and distinct from active control activities; (ii) establish a specialized body of highlyqualified competence in cases and investigations on competition; (iii) establish a specialized unit to promote growingpublic awareness of the rules and culture of competition, in response to the needs of the operators; (c) extend, inaccordance with the recommendations of the strategic study on commerce, the scope of the activities of the Price andSupplies Observatory relative to the monitoring of the evolution of the market, in addition to monitoring the evolutionof the prices; (d) introduce training programs for personnel working with the competition authorities.

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(a) Opening the capital of major public enterprises. The Government Programincludes opening the capital of at least one large public enterprise to a strategicinvestor.

(b) Allowing private participation in key infrastructure sectors. The Governmentplans to issue at least one large concession by the end of 2002. IMIoreimportantly, the Govemment is currently preparing a private participation ininfrastructure (PPI) strategy with Bank support.

(c) Continued disengagement from the banking sector. In line with its program,supported under ECAL II, to disengage from the banking sector progressively,the Government intends to withdraw fully from two commercial banks, andexamine alternatives for restructuring or privatizing the six development banks.

C. FINANCIAL SECTOR DEVELOPMENT

C.A. Current Situation

42. Banking sector. Financial intermediation in Tunisia is dominated by commercial banks,which are also majority owners of many other financial institutions and assets, including leasingcompanies, mutual funds, and other stock market assets. The Government retains close control ofthe three largest public banks: Banque Nationale Agricole (agriculture), Banque de l'Habitat(housing), and Societe Tunisienne de Banque (SMEs and PEs). Under a recent change inTunisian corporate law, corporations can replace their single board of directors (Conseild'Administration) with a dual board system composed of an executive management board(Directoire), responsible for the day-to-day administration of the bank, and a supervisory board(Conseil de Surveillance), which oversees management. This governance structure is based onsystems used in the EU and could provide more transparent governance of public banks.

43. Banking sector soundness improved in the late 1990s, partly as a result of actionssupported under ECAL II related to PE debt restructuring and tighter prudential controls andsupervision. However, throughout the banking sector, the level of nonperforming loans (NPLs)remains high (20 percent of GDP) compared to international standards and raises the cost offinancial intermediation. A significant percentage of NPLs are secured by real estate, exemptingthem from provisioning requirements under BCT regulation. Although this practice is commonaround the world, it is problematic in Tunisia because the judicial process for real estateforeclosure can take several years, and some banks have been very slow to take action againstnonperforming borrowers whose loans are fully secured by real estate. As a result, a significantamount of banks' assets are not producing income and not available for reinvestment in theprivate sector. In addition, in order to avoid provisioning in the case of default, some banksrequire borrowers to provide real estate collateral as a condition of obtaining even non-real estateloans, creating a barrier to access to financing, especially for SMEs, which are less likely to havesuch assets.

44. Measures are needed to improve banks' lending decisions by encouraging them to relymore on analysis of borrowers' repayment capacity and less on collateral-based lending. In orderto make this change, banks need access to reliable, transparent information on borrowers' credithistories and financial situations. Banks should also be encouraged to act more quickly torepossess real estate collateral, and in cases where foreclosure does not happen within areasonable timeframe, to protect against capital erosion by making additional provisions. Inrecent years, banks have had an improved fiscal incentive to provision adequately becauseprovisions have been tax-deductible up to 75 percent of profits. This deduction was increasedfrom 50 percent to 75 percent under ECAL II.

15

45. Capital markets. In recent years, the role and efficiency of the capital markets have beenenhanced by various policy measures, but Tunisian companies' recourse of to market financethrough equity and bond issues remains limited, despite the offer of strong fiscal incentives(a reduction of the corporate tax rate from 35 percent to 20 percent). The primary constraints tothe development of the capital markets are: the cost of transparency and capital, the impact ofinter-related groups and cross-participations; financial culture; and the lack of specialized,independent operators prepared to promote new products. Of the above, the most important andmost frequently cited constraint seems to be the cost of transparency that a public issue wouldimply.

46. Insurance Sector. Over the past decade, the insurance sector in Tunisia has grown in linewith the economy but remains underdeveloped compared to other countries. A robust insurancesector is vital to the development of a strong financial system because insurance companies areusually the largest institutional investors, stimulating capital markets development by providinglong-term resources for private investment. In addition, insurance companies provide a crucialsocial safety net by protecting individuals and companies against financial losses due to accidentsor other crises.

47. Certain past policies weakened the Tunisian insurance sector. First, regulated premiumson compulsory motor third-party liability (MTPL) insurance were held constant for most of the1990s despite increasing repair costs and court awards, creating operating deficits in theautomobile branch of the sector. Second, one company has been allowed to operate withaccumulated losses exceeding the combined total of its authorized capital and technicalprovisions. This company drives down prices for the whole sector and is the most financiallytroubled in the market. Third, the sector suffers from long settlement delays (an average of nearlytwo years, with five years for MTPL), reflected in the high level of required technical provisions.These delays are partly due to inefficiencies in the judicial system but also reflect inefficientoperations at the company level. Finally, certain companies with significant market share havebeen operating with inadequate capital and provisions. Reform is therefore needed to allow theTunisian insurance sector to fulfill its social safety net function and to build financial depth inorder to stimulate capital market development in a meaningful way.

48. Audits of the insurance companies were completed in early 2001 and show a substantialshortfall in technical provisions for the two state-owned companies (one of which has since beenprivatized) and the financially troubled company referred to above. An analysis of the auditsreveals that the total deficit of troubled companies is TD 160 million (about US$109 million).This exceeds the total capital of the strong insurance companies, meaning that the insurancesector as a whole operates with negative equity of TD 78 million (about US$53 million). Somecorrective measures, such as the appointment of a provisional administrator for the mostfinancially troubled company, have been taken. It is important to note that several privatecompanies do have strong balance sheets and sound prudential ratios.

49. A potentially problematic development for the insurance industry is the decision tomandate the transfer of basic group health insurance to the national social security entities. Thiswould deprive insurance companies of 20 percent of their business, although group healthinsurance is only marginally profitable and the transfer is predicated on alleged social efficiencygrounds. Workers compensation insurance was transferred to the national social security fund in1995, thereby addressing the chronic deficits of this compulsory personal line. Moreover, the taxtreatment of insurance was simplified, with more generous incentives for life insurance.However, a clearer application of fiscal incentives for group contracts is needed to encourage thegrowth of group life insurance.

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C.2. Government Program

50. In order to ensure the availability of adequate financing for private investment, thegovernment is taking action to improve the efficiency of financial intermediation in the baikingsector and capital markets and to strengthen the insurance sector. Tunisia recently participa:ed inthe joint Bank/IMF Financial Sector Assessment Program (FSAP), which should help determinepriority financial sector reform measures in the short and medium term.'5

51. Improving the Efficiency of Financial Intermediation. The Government reform programin the banking sector and capital markets aims to: (a) further strengthen bank soundness, (b)improve the financial sector govemance, (c) improve information available to lenders, and (d)encourage the development of a dynamic capital market.

(a) Continuing Measures to Strengthen Bank Soundness. Under ECAL I[. theGovernment took actions and implemented new laws and regulations to improvethe quality of banks' loan portfolios and strengthen their financial viability, TheGovernment is now planning to reinforce those actions through the followingmeasures:

* Amending the Code of Civil and Commercial Procedures to improve theefficiency of certain judicial procedures related to realizing collateralsecuring nonperforming loans. In addition, the Central Bank of Tunisia(BCT) will conduct a study on the impact of these reforms and if necessary,put in place measures to encourage credit institutions to foreclose -norerapidly on real estate securing NPLs.

* Extending until at least 2006 the tax deductibility of loan loss provisions upto 75 percent of profits, and making this deduction available to all creditinstitutions (banks, leasing companies, and factoring companies). Thisdeduction, although potentially limited by a financial institution'sprofitability, provides a fiscal incentive for banks to provision moreadequately' 6 .

* Relaxing the conditions for writing off NPLs. Under current Tunisian law,banks are only allowed to make tax-deductible write offs of NPLs meeting avery strict set of conditions, leaving many NPLs on the balance sheet foryears after any realistic hope of repayment remains, thus inflating total assetsand distorting the image of banks' financial condition. The GoT is relaxingwrite-off conditions, aligning them more closely with international pract:ces.

(b) Improving Governance of the Financial Sector. The Govemment will put inplace dual board Directoire/Conseil de Surveillance structures at SccieteTunisienne de Banque and Banque Nationale Agricole. This structure couldallow public bank management to become more autonomous and make thegovernment's control of these institutions somewhat more "arm's-length".

15 FSAP missions were conducted in February and May 2001, and the final report is expected to be released to theauthorities in November 2001.16 The tax deduction for loan loss provisions is currently set at 75 percent of banks' profits but is scheduled to revertto the less desirable limit of 50 percent of banks' profits at the end of 2001.

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(c) Improving Information Available to Lenders. The Government is taking thefollowing actions to improve the transparency and reliability of informationabout borrowers which is available to providers of financing:

* Creating a record of individuals' credit histories at the BCT.

* Requiring companies with significant debt to provide audited financialstatements (for companies with total financial sector debt exceeding TD 5million) and to be listed on the stock exchange or be rated (for companieswith total financial sector debt exceeding TD 25 million).

* Tightening risk concentration limits. These measures will limit bankexposure to a single client or group of clients17 and encourage portfoliodiversification and should also encourage large companies to seek financingthrough the capital markets.

(d) Promoting Securities Market Development. The CMF will carry out two studies,one on its own organizational structure and information systems, and the other onhow to reinforce and expand the role of the financial markets in the Tunisianeconomy. The CMF will then develop and implement an action plan based onthe recommendations of the two studies.

52. Strengthening the Insurance Sector. By restructuring the insurance sector, theGovernment can reinforce an important social safety net and create a more dynamic group ofinstitutional investors for the economy. Areas to be strengthened include: legal and institutionalframeworks, auto insurance, life and personal insurance, treatment of financially distressedinsurance companies, and contractual savings mobilization.

(a) Insurance Code. The Government is amending the Insurance Code, as well asaccounting rules, to upgrade the legislative, regulatory, and accountingframework for the insurance sector. Prudential regulations will also be redefinedto bring them more into line with international standards. The proposedamendments include the following measures:

* Modification of the articles of the law relating to minimum capital andestablishment of a solvency margin specific to life insurance;

* Establishment of a list of clear rules for the computation of technicalprovisions (reserves) as well as their coverage by specific assets ("arr&e" ofthe Minister of Finance);

* Introduction of on-site and off-site supervision of insurance companieswithout the requirement of a preliminary authorization (Ordre de Mission) bythe Minister.

(b) Institutional Framework. The General Directorate of Insurance (DirectionGen&rale des Assurances or DGA) has adopted a new organizational structurethat will place strong emphasis on the efficient discharge of its supervisoryfunctions, with a clear separation between the Government's functions as (a)supervisor of the sector and (b) owner of state insurance companies.

17 The total amount of commitments must not exceed (i) five times the bank's net capital, for all clients havingcommitments equal to or greater than 5 percent of the bank's net capital, and (ii) two times the bank's net capital, forall clients having commitments equal to or greater than 15 percent of the bank's net capital.

18

(c) Auto Insurance. Planned measures to improve auto insurance should make thisbranch more efficient and more profitable:

* Implementing a system of settlement of claims based on objective criteria";

* Establishing a system of tariff schedules and increasing auto insurance ratesover the period 2001-2002.

(d) Life and Personal Insurance. New legislation is being adopted to improve thedefinitions, accounting treatment, and calculation rules for various types of lifeand personal insurance. The treatment of fiscal and social charges for groupinsurance rates will also be modified. These measure should ensure moreequitable treatment of the insured and encourage the growth of this insurancebranch.

(e) Treatment of Undercapitalized and Under-reserved Companies. In order toimprove the overall soundness of the sector and to prevent insolvent companiesfrom operating in ways which distort the market, the Government is developingscenarios to restructure the troubled companies.

(f) Contractual Savings Mobilization. In addition to the authorization ofbancassurance, the fiscal treatment of life insurance premia will be clarified.These measures are likely to provide a major boost to the development ofcontractual savings through the promotion of group life insurance policies and thecreation of company pension plans. In the long term, better protection of theinterests of policyholders and members of pension plans will encourage thedevelopment of a long-term annuity market and contribute to the mobilization oflong-term contractual savings.

D. INFORMATION AND COMMUNICATION TECHNOLOGY

D.I. Current Situation

53. The information and communication technologies (ICT) sector is playing an increasinglyimportant role in Tunisia's economic competitiveness, for two main reasons: (a) efficient andcompetitive telecommunications is critical to a modem and open economy, and (b) the ICT sectoritself can serve as an engine of growth and employment generation.'9 During the past two years,Tunisia has made substantial progress in establishing a coherent policy and regulatory frameworkconducive to growth and employment generation in the ICT sector, and the Government hastaken several steps to reform the ICT sector. However, the range, quality, and price of ICTservices could be much more competitive, alleviating a constraint to private sector development(Table 4).

54. Most telecommunications services (local, long distance, and international fixed andcellular voice services) in Tunisia are provided on a monopoly basis by Tunisie Telecom (TT), apublic enterprise with limited financial and operational independence from the Ministry ofCommunication Technologies (Ministere des Technologies de la Communication or MTC). Thelack of competitive pressure has led to delays in service provision and limited service innovation.The monopoly in basic services has affected both the availability and prices of services. TT'smonopoly situation allows it to maximize prices on GSM services and to charge leased-line prices

18 The system would include measures such as the creation of a claims settlement system distinguishing between therules applicable to the driver and to others; the use of specialized doctors to appraise claim-related injuries; and thedefinition of the notion of third party to make it broader, ensure equity among victims, reduce delays in paying claims,and set the rules of interaction between social security and the insured for auto claims and work-related accidents.19 See Republic of Tunisia Information and Communications Technology Strategy Report, October 2001 (Draft).

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that are higher than international benchmarks; this hampers the development of manytelecommunications services, particularly data, internet, and value-added services, and limits thepotential for private or independent networks because private corporations cannot bypass TT.

55. Fixed-line services are well developed, with over one million lines at the end of 2000.This brings fixed line penetration above many regional benchmarks (see Table 4). This networkexpansion is coupled by an increase in productivity (from 105 to 150 lines per employee in thelast two years). Mobile services have grown to more than 370,000 GSM subscribers. However,mobile service penetration (3.7 percent) is low compared to other emerging economies (such asChili, Morocco and Malaysia), which have brought penetration closer to OECD levels. Data andinternet services have been marginally liberalized: TT, through the Agence Tunisienne del'Internet (ATI), operates the backbone network, over which value added, data, and internetservices are offered by a small number of private providers. Bottlenecks in the data segment aredemonstrated by the fact that Tunisia is one of the few countries in which the number of top-levelinternet hosts has decreased in recent years. In addition the absolute number of hosts in thecountry is far from average international levels. In terms of service quality, network reliabilityhas improved, since the fault rate (number of faults per 100 lines per year) has decreased from 60to 27 percent between 1997 and 2001. In fact, other emerging economies (e.g., the Philippines),have brought the fault rate close to OECD standards (4-5 percent). Customer assistance hasimproved, and more than 85 percent of faults are now repaired within 48 hours, according to theMTC.

Table 4: Telecommunications Performance: Tunisia vs. Other Countries

Chile Ireland Malaysia Morocco Morocco Tunisia Tunisia Tunrsia(2000) (2000) (2000) (1998) (2000) (1998) (2000) (Oct.

No. of fixed lines per 21 43 46 4.99 5.26 7.07 8.91100 inhabitants 4'ellular Penetration 27.4 71.96 35.24 0.43 11 0.39 1.4 3. 7*jmobile subs. x 100nhab.) (EMC) .o. of faults per 100 46 5 46 46 NA 60 43 27'

Ixed lines per year4o.of fixed lines per 245 120 150 97 106 105 151 145*

-mployeeumber of PCs per 6.67 40.43 6.88 0.47 3.17 0.87 1.53 NA*

100 inhab.umber of intemet 26.76 172.5 27.03 0.52 0.73 0.16 0.09 NA*

osts per 10,000nhab. (NW) _Source: International Telecommunications Union, Network Wizards 2001 (NW) and EMC World Cellular Database 2001 (EMC), except

*, which is from the Tunisian Ministry of Communication Technologies.

56. To close the gap in sector performance with other emerging economies, there isconsensus from the Government and the private sector that the ICT sector, particularlytelecommunications, should be opened to competition and private participation. This, in turn,will require the deepening of present ICT reforms to ensure:

(a) more regulatory independence for the Instance Nationale desTelecommunications (INT);

(b) a clearer interconnection regime for a competitive multi-operator environment:

(c) communication to investors of a liberalization timetable to signal the sustainedcommitment of the Government to the introduction of competition;

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(d) better enforcement of intellectual property rights (IPR), notwithstanding thepresence of a good legal framework for IPR protection (software as wellcontent);

(e) fewer restrictions on the development and hosting of web activities and thedevelopment of digital content in Tunisia; and

(f) minimized regulation for service provision, especially with respect to newservices which can be provided by the private sector on a fully competitive basis(such as call centers and tele-services).

D.2. Government Program

57. The main axes of the Government's ICT sector reform are: (a) development of a newsector policy, as well as legal and regulatory framework for telecommunications, to encouragecompetition and private participation; (b) introduction of effective competition intelecommunications; and (c) establishment of a regulatory framework for electronic commerce,including certification of electronic transactions.

58. Telecommunications Policy and Legal and Regulatory Framework. The Governmentprogram builds on the progress initiated by the Telecommunications Code (Code desCommunications) of 2000, to encourage effective liberalization of the telecommunications sector.The Code allows for the entry of licensed operators into all market segments (fixed and cellularvoice, data, internet, etc.) in competition with TT. The following implementation regulations forthe Telecommunications Code have been promulgated: (a) interconnection decree; (b) rights ofway decree; (c) telecommunication equipment certification decree; and (d) arrete on numeration.These represent fundamental steps towards creating an adequate regulatory framework fortelecommunication in an open and liberalized environment.

59. By end 2002, the Government also plans to introduce implementing regulations in thefollowing areas: (a) radio frequency planning and regulation and (b) tariff rebalancing and priceregulation, with a view to establishing clear, cost-oriented rules to determine telecommunicationsend-user charges. In parallel, TT is expected to introduce cost accounting by 2003.

60. The Government program also involves increasing the independence of the regulatoryagencies. The Telecommunications Code established a frequency agency (Agence Nationale desFrequences or ANF) under the MTC, as well as TNT, an independent regulatory body fortelecommunications. The INT' s President and commissioners have been appointed. Anamendment to the Code des Communications is expected to be introduced by mid 2002 toincrease TNT's autonomy.

61. Effective Competition in ICT. The Government plans to introduce a second GSMoperator and increase the number of internet service providers (ISPs). The GSM transaction, inparticular, is expected to change the telecommunications landscape. The licensed operator shouldbecome a strong competitor to Tr, as it will: (a) have the possibility to build and lease its ownlong distance infrastructure network, up to the point of interconnection; (b) offer internationalservices to its own clients, as soon as commercial launch date; and (c) have freedom to set prices.In addition, the Government will publish its timetable for sector liberalization, thereby clarifyingits commitment to introduce effective competition in the various segments of the sector in themedium term (2002-2006). By reducing the regulatory and policy risk faced by investors, thepublication of the liberalization calendar should contribute to enhanced revenues from newlicenses.

21

62. Regulatory Framework for Electronic Commerce and Certification of ElectronicTrantsactions. Tunisia is very advanced, compared with other countries in North Africa, in termsof establishment of a regulatory framework for electronic transactions. The Government hasrecently (August 2000) enacted the e-commerce law (Loi relative aux echanges et au commerceelectronique), introducing regulations for digital signature and certification of electronictransactions, and establishing the Agence Nationale de Certification Electronique (ANCE). Theimplementation decrees for the e-commerce law were approved, including the regulation andstandards for the certification of electronic transactions.

IV. BUILDING ON PREVIOUS OPERATIONS

63. The proposed operation is the third in a series of operations aimed at improving theinternational competitiveness of the Tunisian economy following the signing of the AAEU.ECAL I supported a broad liberalization agenda with measures aimed at (a) strengthening themacroeconomic framework in anticipation of forgone trade tax revenue and (b) preparing thedomestic economy for increased competition in local and export markets. ECAL II focused onstrengthening the banking sector to increase its effectiveness in supporting the domesticeconomy, as well as preparing the sector for the future opening of financial services to externalcompetition.20

64. The Bank's evaluation of ECAL I21 indicates that Tunisia made considerableimprovements in macroeconomic performance during 1996-1997, allowing the country to borrowon the U.S. dollar Euromarket for the first time in 1997. Progress on tariff reduction was alsosignificant, and Tunisia achieved AAEU ratification in 1997. The Government's disengagementprogram resulted in the sale of about 60 firms, including two large cement producers whichbrought a total price of over US$400 million. However, although OED evaluators agreed thatprogress had been made in privatization, they stated that it was not clear that the "state's role incommercial sectors had been substantially reduced". Despite ECAL I's success, two technicalwaivers and one partial waiver were required in order to make the release of the second tranchepossible, and little progress was made in reforming the shipping and telecommunications sectors.The post evaluations highlighted the need for more focused adjustment lending, complementedby technical assistance and grounded in solid economic and sector work, as well as the need tocollaborate more closely with other key development partners.

65. ECAL II was more narrowly targeted at upgrading the performance of the financial sectorand of the banking sector in particular. In addition to the settlement of public and semi-publicenterprises' NPLs, which composed a significant part of the overall reduction of NPLs from 1997to 1999, the authorities privatized, liquidated, or restructured many PEs so as to prevent therecurrence of significant bad debt in that sector. Legal and regulatory reforms made under theECAL II program also supported modernization of the financial sector. The longer term impactsof ECAL II have yet to be assessed, but preliminary evaluations indicate that, coupled with theaccompanying analytical work carried out in the context of the Private Sector Assessment

20 ECAL I (Loan Nos. 40690 and 40691) was a 2-tranche operation of USS75 million with parallel financing ofUS$120 million by the EU. The loan was approved on July 25, 1996, made effective on December 6, 1996, and closedon June 30, 1998. ECAL II (Loan 44610) was a 2-tranche operation of US$159 million, approved on April 20, 1999,with parallel financing consisting of a grant of EURO 80 million from the EU and a loan of US$140 million from theAiDB.21 For more information, see the ECAL I Implementation Completion Report dated 12-29-98 (Report No. 18752)and the OED Project Evaluation Report dated 6-23-99.

Update, the operation substantially increased the BorTower's overall understanding of, andproactivity in, strengthening the banking sector.

66. Lessons drawn from both prior operations have been incorporated into the proposedECAL III. First, underlying work (including a Private Sector Assessment Update, an ICTStrategy, and a Structural and Social Sector Review) has provided the analytical foundation and asolid basis for internal consensus-building within Tunisia and has been integrated into thepreparation of ECAL III. Second, a targeted sectoral approach has been chosen for each floatingtranche. Finally, coordination efforts with other donors have led to the use of a common matrixof policy measures with the EU and AfDB. In sum, the preparation of a coordinated, focused,and analytically well-supported operation has strengthened the Bank's dialogue with theBorrower and its development partners, especially with regard to reforms in thetelecommunications and insurance sectors.

V. PROPOSED LOAN

A. LOAN RATIONALE AND THE CAS

67. The 2000-02 CAS recognizes that further and bolder refonns are needed to strengthenTunisia's external competitiveness and macroeconomic framework. In this regard, the programof refonns supported by the proposed loan are essential steps for the Government to meet itsgrowth and employment targets over the 1 0"' Plan period while completing the implementation ofthe AAEU. Thus, in line with the CAS, ECAL III will support refonns to: (i) enhance the privateinvestment climate by improving the business environment and corporate governance anddeveloping private sector participation in infrastructure via concessions and further privatizationof state enterprises; (ii) deepen Tunisia's financial sector by further strengthening bankingregulation, accelerating the development of capital markets, and reforming the insurance sector;(iii) improve ICT regulation and private provision of telecommunications services; and (iv)strengthen further the macroeconomic framework and management.

68. While support from the Bank and co-financiers for these reforms represents only about10 percent of Tunisia's external financing needs, it is expected to give a positive signal tofinancial markets and foreign investors. This signal is especially important in a context where thecountly's balance of payments continues to be vulnerable to structural changes and shocks in theexternal environment. Under the assumption that there will not be a major unforeseen downturnin the existing extemal environment or a significant tightening in the country's access tointernational financial markets, Tunisia's financing needs for the next two years, though relativelyimportant, are likely to be met without major difficulties. In 2001, out of a total financing needestimated at US$1.95 billion, the proposed loan will directly contribute about US$132.5 million(through its first tranche), and parallel financing from the AfDB will contribute about anadditional US$97 million. In 2002, out of a total financing need projected at US$2.6 billion, theproposed loan is likely to contribute US$120 million, and parallel financing from the AfDB andthe European Union will contribute about US$97 million and US$72 million equivalentrespectively. With the proposed loan, the IBRD lending portfolio will be in line the base caselending scenario outlined in the CAS.

69. As per the CAS, a temporary tightening of extemal financial markets or a slow-down inexport receipts due to regional or global uncertainty would warTant a high lending scenario. Ifindeed the September 1 lt' telTorist attacks and their aftermath were to have dire consequences onthe global economy, the financing needs of Tunisia would likely be higher, and more importantly,

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the ability of the country to mobilize financing from private international financial markets wouldlikely be much curtailed, possibly requiring additional lending from the Bank. Thus far, Tunisiahas weathered external shocks (the Gulf War, instability in neighboring countries, severedroughts, tightening of financial markets following the East Asia crisis) reasonably well.However, global and regional uncertainties, combined with Tunisia's rather strong dependence ontourism receipts and workers' remittances, mean that for the foreseeable future it would beimportant for the Bank and other donors to increase assistance levels in the face of an externalshock. In such a situation, the Bank may positively consider a request from the authorities totemporarily increase its lending to the levels foreseen under the high lending case. In doing so,the Bank would coordinate with the IMF to ensure that an appropriate macroeconomic frameworkand required macroeconomic policy adjustments are in place.

B. LOAN AMOUNT, TRANCHING AND KEY ACTIONS

70. In response to the above challenges and higher uncertainty that Tunisia has to face in theinternational environment, the operation design has been revised to strengthen macroeconomicconditionality, increase the amount of the loan as compared to the CAS projection, and offertranching arrangements that provide more flexibility for Tunisia to access Bank funds. Theproposed loan, in the amount of EURO 281 million (US$252.5 million equivalent), will be madeto the Republic of Tunisia in the form of an adjustment loan to be disbursed in one standard firsttranche of EURO 144.69 million (US$130 million equivalent), a capitalized front-end fee ofEURO 2.81 million (US$2.5 million equivalent), and three equal floating tranches of EURO 44.5million (US$40 million equivalent), linked to reforms, respectively, in the areas of privateinvestment climate, financial sector, and information and communication technologies. Theproposed structure is designed to allow the Tunisians more flexibility in acceleratingimplementation of the reform program in selected areas (telecommunications may be the bestcandidate), thus giving the Government the possibility to disburse the loan more quickly, ifneeded.

71. First Tranche. The Govemment has carried out a series of actions which constitute thebasis for the disbursement of the first tranche of US$130 million equivalent expected to takeplace at end-December 2001. These measures are detailed in Annex II, and some key actions arehighlighted below.

(a) Macroeconomicframework. The Government has:

* Maintained a stable macroeconomic framework, meeting the indicators set out in Table 3.

* Put in place a unified, computerized database on foreign public and private debt.

* Published the Decree establishing the CNF.

(b) Private Investment Climate. The Government has:

* Prepared the terms of reference for a study on promotion of and incentives for privateinvestment.

* Submitted the draft law amending the Code des Droits et des Procedures Fiscaux to theChamber of Deputies.

* Presented the draft Law on Corporate Conglomerates to the Chamber of Deputies.

* Adopted an action plan to reinforce the institutional framework for competition.

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(c) Financial Sector. The Government has:

* Submitted to the Chamber of Deputies draft amendments to the Civil and CommercialProcedures Code relating to loan recoveries.

* Adopted a BCT regulation requiring auditors' certification of financial statements andmandatory rating or stock market listing for all corporations with debt exceedingspecified limits.

* Launched studies on (i) the development of capital markets and (ii) the organization andinformation systems of the CMF.

* Submitted a draft law amending the Insurance Code to the Chamber of Deputies.

* Increased auto insurance rates (civil responsibility) by at least 8 percent.

* Presented technically acceptable restructuring scenarios, which exclude all prior use ofresources from the Guarantee Fund, for the most troubled insurance company in theTunisian market.

(d) Information and Communication Technologies. The Govemment has:

* Adopted key implementation regulations for the new Telecommunications Code.

* Adopted the Law conceming exchanges and electronic commerce.

* Launched an international bidding process for the granting of a second GSM license,including the selection of an investment bank of intemational reputation to assist theauthorities in granting this license.

72. Floating Tranches. The release of each of the three floating tranches would beconditioned on: (i) the maintenance of a stable macro-economic framework, which will bemonitored based on the performance indicators outlined in Table 3 ;22 (ii) progress on theimplementation of reforms in each of the three areas of the program; and (iii) the followingspecific actions linked to each tranche and covenanted in the Loan Agreement:

(a) Private Investment Climate.* Finalization of the study on private sector investment promotion and incentives and

adoption of an action plan based on the recommendations of the study.

* Adoption of regulations required for the implementation of the Code des Droits et desProcedures Fiscaux.

* Adoption of regulations required for the implementation of the Company Law andpublication of new accounting standards relating to the consolidation of financialstatements and the treatrnent of corporate conglomerates.

* Offering for sale, through a competitive and transparent bidding process, of all publicshares in UIB and Banque du Sud.

* Offering for sale, through a competitive and transparent bidding process, of at least 25percent of shares in one large public enterprise to a strategic investor.

* Finalization of a study on the reform of public import monopolies.

22 The evaluation of macroeconomic developments in the country as they relate to the loan will benefit from data andother information that the authorities will send to the Bank on a quarterly basis. In case of marked deviations from themacroeconomic framework agreed upon with the Borrower, the Bank, in consultation with the IMF, will initiatediscussions with the Tunisian authorities in order to identify the causes of deviations and the most appropriate policyresponses.

25

(b) Financial Sector.

* Finalization of a study on foreclosure of real estate collateral and adoption of any newnecessary measures to accelerate the recovery of loans and the foreclosure of real estatecollateral by credit institutions.

* Putting in place the human resources and equipment necessary for the DGA to exerciseits supervisory function, in accordance with the Action Plan.

* Adoption of a regulation providing for a 3 percent increase in auto insurance premiumrates, and adoption of a medium-term action plan with the objective of eliminating thedeficit of the automobile branch of the insurance sector.

* Submission to the Chamber of Deputies of draft amendments to Laws 60-21 and 62-23with the objective of revising the system of indemnification in automobile insurance.

* Launching of the restructuring of the most troubled insurance company; agreementbetween the DGA and three undercapitalized, under-provisioned insurance companies oncorrective plans to meet capital and provisioning requirements.

(c) Telecommunications and Information Technology.

* Adoption and publication of a liberalization timetable, for the period of 2002-2006;selection of an investment bank with a view to launching the bidding process for at leastone V-SAT license.

* Submission to the Chamber of Deputies of a draft law amending the TelecommunicationsCode to strengthen the autonomy of INT.

* Granting of the second GSM license through a competitive and transparent biddingprocess; publication of a standard interconnection offer.

C. FISCAL IMPACT

73. The medium to long-term fiscal impact of the measures supported by the loan is likely tobe positive and large. Most importantly, the loan will contribute to the medium to long-termobjective of improving the competitiveness of the Tunisian economy and will help Tunisian firmsexpand more easily and more rapidly, generating larger profits and thus more fiscal revenues inthe form of corporate taxes. The measures envisaged in the operation will also contribute tohigher economic growth and higher personal incomes and will therefore expand the income taxbase.

74. Regarding the short-term fiscal impact, the measures included in the policy reform matrixsupported by the operation can be divided in three broad categories:

* The first category is made up of measures which entail a small short-term fiscal costeither due to increased expenditures required to improve the efficiency of theAdministration, or reduced fiscal revenues so as to reduce counterproductive taxation.Such measures include the creation of the CNF, the establishment of an interface betweenTunisia Trade Net and SINDA, acceleration of the reimbursement of VAT credits tofirms, extension to 2006 of the fiscal deduction for loan loss provision up to 75 percent ofprofits, reduction of the time required before a NPL can be written off, institutionalstrengthening of the DGA, fiscal deductions for group insurance, and the creation of theINT and ANF. It is important to stress that the medium to long-term positive fiscalimpact of all these measures is likely to outweigh the short-term fiscal cost.

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* The second category includes measures that entail generally significant short-termpositive fiscal impacts as they would generate important revenues for the governmentbudget. This category includes the sale of a second GSM license, privatization of banks(UIB and Banque du Sud), opening of the capital of a large public enterprise, andissuance of a data transmission license (V-SAT).

* The third category includes measures which entail no direct fiscal impact but either helpreduce contingent liabilities (and thus reduce the risk that fiscal expenditures mayincrease in the future on account of risks born by the Government budget) or improvetransparency and market efficiency. These measures include the improvement ofinformation on external debt and the adoption of an active debt management strategy,implementation of a new fiscal code, adoption of a new company law, adoption of a newlaw and new accounting rules for groups and conglomerates, creation of a credit historydatabase to facilitate credit checks, the requirement that companies should have auditedfinancial statements and be publicly traded or have a rating if their debt exceeds a certainthreshold, and the adoption of a new credit concentration ratio.

D. BENEFITS AND RISKS

75. The benefits of the proposed loan include: (a) enhancement of Tunisia's prospects tomeet its ambitious growth, investment, and employment targets for the 10i Development Planperiod (2002-2006) by accelerating its competitiveness program while maintaining a prudentlevel of foreign exchange reserves in an uncertain external environment; (b) development of amore transparent private investment climate, with continued state disengagement from theeconomy; and (c) improvement of the efficiency of the financial and telecommunications sectors.The combined effect of the above will have a positive impact on private sector competitivenessand economic growth, thus contributing to employment generation and poverty alleviation. t^Jtherbenefits expected to accrue to citizens will include improved access to financial products such asinsurance, and a greater range of telecommunication services.

76. There are, however, risks to the proposed operation. A sudden worsening of internationaleconomic or security conditions could slow reform and propel short-term macroeconomicstabilization to the top of Tunisia's economic agenda. There is a risk of slow implementation dueto the need to consult with labor unions to implement certain insurance sector reforms. Finally,the effective introduction of competition in the telecommunications sector may take more timethan projected, in light of the relatively tight financial situation of most operators worldwide.

77. Several actions are being considered to reduce the potential risks facing the operation.The Bank and the authorities recognize that additional financing may be required from the Bankand other sources to alleviate the potential macroeconomic effects and social impacts of furtherexternal shocks in 2002. Moreover, the risk of a slowdown in the reform program following anunexpected deterioration of the international economic or security environment is limited for thefollowing reasons. First, the authorities have identified additional macroeconomic stabilizationmeasures to be put in place if needed. Second, Tunisia has an established record of commitmentto structural reforms. Finally, the proposed loan structure of three floating tranches will allow theGovernment to disburse a specific tranche once reforms have been implemented in a singlesector, rather than waiting for completion of all reforms covered by the program. This flexibilitywill be especially helpful if faster disbursement is required due to additional pressures on thecountry's balance of payments. Further incentive to implement the reform program is providedby parallel financing, based on the same policy reform matrix, from the AfDB and the EU. Inaddition, to reduce the social impact of competitive pressures, the authorities are launching anemployment study, with support from the Bank, to look into avenues for increasing theeconomy's employment generation capacity even in the face of increased external competition.

27

With regard to reforms in the insurance sector, the Government's gradual approach based oncareful, though time-consuming, intemal consensus-building presents a risk of delay rather thannon-completion of the planned measures; this risk is also mitigated by the floating tranchestructure. In telecommunications, the authorities' open and transparent selection process for thesecond GSM operator represents the best guarantee to attract sound proposals from qualifiedbidders.

E. ENVIRONMENT AND SOCIAL SAFEGUARDS

78. Environment. Tunisia's legal and environmental regulatory framework for environmentis strong. In the context of any privatization activities under the loan, the authorities haveundertaken to (i) screen PEs which are being sold to determine past environmental liabilities and(ii) assign responsibility for those liabilities and define the measures needed to tackle them, inaccordance with regulations in force in Tunisia. The Ministere de l'Environnement et del'Amenagement du Territoire is responsible for the enforcement of these measures and for theenforcement of environmental legislation once a privatization has taken place.

79. Social Safeguards. No social safeguard issues are expected to arise from this operation,but the foreseen compulsory increase in motor vehicle insurance premiums will have an impacton the costs incurred by the insured. However, as measures proposed in the insurance sector arelikely to result in the offering of improved products and services to consumers by companiesunder stronger competitive pressure, insured individuals are also likely to benefit from speediersettlement of insurance claims, and reforms should result in a net gain in this area. The directimpact of the reforms on employment cannot be calculated at this stage. The Government,however, is undertaking a study with the support of the Bank to identify sources of employmentgrowth. Tunisia's past handling of changes in employment patterns has been prudent, sensitive,and aimed at minimizing hardships, and no major negative social impacts are expected as a resultof the operation.

F. DISBURSEMENT, FINANCIAL MANAGEMENT AND AUDITING

80. The disbursement of funds under ECAL III will follow the Bank's simplifieddisbursement procedures for structural adjustment operations. The proceeds of the loan in theamount of EURO 281 million (US$252.5 equivalent) will be disbursed in one standard firsttranche of EURO 144.69 million (US$130 million equivalent), a capitalized front-end fee ofEURO 2.81 million (US$2.5 million equivalent), and three equal floating tranches ofEURO 44.5 million (US$40 million equivalent) against satisfactory implementation of theadjustment program in specific areas. In accordance with the Operational Directive on theSimplification of Disbursement Rules under Structural Adjustment and Sectoral AdjustmentLoans (February 8, 1996), disbursement will not be linked to any specific purchases, and noprocurement requirements will be needed. Upon notification by the Bank of the effectiveness ofthe loan, the proceeds of the first tranche will be deposited by IBRD in an deposit account (DA)opened at the Central Bank of Tunisia (BCT) at the request of the Borrower. The Borrower willopen and maintain a DA in the BCT to receive the proceeds of the adjustment loan and willcomply with the contractual provisions of the Loan Agreement and related documents.Subsequent tranches will be deposited in the same account once the agreed conditions are met. If,after deposit in this account, the proceeds of the loan are used for ineligible purposes as defined inthe Loan Agreement, the Bank will require the Borrower to (a) either return the amount to theaccount for future use for eligible purposes or (b) refund the amount directly to IBRD, in whichcase the Bank will cancel an equivalent amount from the loan.

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81. The administration of the loan will be the responsibility of the Ministry of IntemationalCooperation and Investment, which will ensure that all withdrawals from the DA are for budgetedexpenditures and not for purposes such as military expenditures or for other items on the Bank'snegative list. The BCT will maintain records of all transactions under the loan in accordance withbest accounting practices. The Borrower will be required to submit to the Bank regular reports onthe withdrawal of funds in local currency from the DA, producing evidence that the said sum waspaid into a treasury account used to fund budgetary expenditures.

82. Specifically, the borrower will:

* open and maintain a DA in the BCT to receive the proceeds of the adjustment loan;

* comply with the contractual provisions of the Loan Agreement and related documents;

* indicate to the Bank details of the Government bank account to which the local currencyequivalent of the loan proceeds will be credited. This account will be subject to budgetcontrol;

* ensure that all withdrawals from the deposit account are for budgeted expenditures, andnot for purposes such as military expenditures or for other items on the Bank's negativelist;

* submit to the Bank for each tranche, starting with the first tranche of the loan and endingwith the last tranche, a report showing: (i) the receipt of the tranche in question and (ii) itstransfer and deposit in local currency into a treasury account used to fund budgetaryexpenditures. The final report will show that the balance on the DA has been reduced tozero.

83. The Borrower will also appoint independent auditors satisfactory to the Bank to carry outthe loan audits. The audits will be conducted at the end of the first year following thedisbursement of the first tranche, and each ensuing year until the closing date of the loan. Theaudits shall be carried out in accordance with the terms of reference agreed between the Bank andthe Borrower. The audit will certify that funds disbursed have been received by the BCT and aresubject to its normal policies and controls, and that the local currency equivalent of theseproceeds has been paid into an account subject to normal budgetary policies, procedures andcontrols. The closing date of the proposed loan will be June 30, 2003.

G. COFINANCING

90. The loan is being co-financed by an AfDB loan for EURO 216 million equivalent and byEuropean Union grant for EURO 80 million on the basis of the matrix of policy measures foundin Annex II.

H. BANK ExPosuRE

91. The proposed IBRD loan and the related parallel financing would not significantly affectTunisia's debt and exposure indicators. Tunisia's excellent record of servicing its external debtand its solid export receipts allow for a reasonable level of confidence that the proposed loanwould be adequately serviced, without tying down an inordinate share of the country's resources.The debt-to-GDP ratio will increase from 55 percent in 2000 to 57 percent in 2001 due to acombination of market borrowing and acceleration in the disbursement of official loans.However, the ratio is projected to decline during the period 2002-04 (see Annex VI). The debtservice ratio, which increased markedly in 2000 due to the reimbursement of maturing sovereignbonds (the Samurai Bonds II and III), will decline to 16 percent in 2001 and maintain a decliningtrend until 2003, before temporarily increasing in 2004 due further maturing sovereign bonds.

29

92. IBRD's exposure will improve during the period 2001-04. First, the preferred creditors'share in total public debt service is projected to remain fairly high; however, it will be lower thanin previous years (averaging 41.4 percent during 2001-04 compared to 46.5 percent during 1996-2000). Second, good export performance has helped keep the ratio of IBRD debt service toexports receipts at levels far below the indicative 5 percent. In fact, the ratio is projected to bebelow 3 percent during 2001-04. Third, IBRD debt service as a share of public debt service willremain below 20 percent. From an average of 18.9 percent during 1996-2000, the ratio willdecline to an average of 16.2 percent during 2001-04 (this average is higher than the 2000 levelbecause the ratio was exceptionally low that year due to the high debt service to private lendersdue to the repayment of Samurai Bonds as mentioned above). Fourth, IBRD's share in total debtwill average 11.7 percent during 2001-04 down from 12.6 percent during 1996-2000.

VI. RECOMMENDATION

93. I am satisfied that the proposed loan complies with the Articles of Agreement of the Bankand recommend that the Executive Directors approve it.

James D. WolfensohnPresident

by Shengman Zhang

Washington, D.C.November 27, 2001

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Annex IGovernment's Letter of Development Policy

RKPUBLIQUE rUNISlENNELe 211 /Jln 75 N'u. Zool

MQvNSI5vx LE PREsIDENrMME J NANQUE MONDIALEI1*Hf rre4 N.W

Tv'AYfflNG7ON *,fi Z(/EZY

LETTRE SUR LA POLITIQUE DE DEVELOPPEMENT

Monsieur ke Prisident,

1. Depuis It milicu des ann6es 80, la Tunisie a defini comnmeorientation stragiquz la misc en placc d'une economie demarobh modemre t ouvertte

La signaturc dc l'accord d'association avcc l'Unioncurop&enne constituc, i cet 6gard, un cadrc adlquat pourrenforcer la lib6ralisation de I'ccoioniiic LuLisiwinnt etfavoriser son int¢gration dans 1'6conotnie anoLdialc.

Cette libWalisation coniportc, cerics, dcs opporlunittsnouvcllcs A travers I'acc-oisscillelit des 6uhanges etI'6largissemcnt dcs mIarchl6s qu'uill favorise. Elies'accompagnc, cepcndanl, dc d6fis majcurs dus notamrent &l'exacerbation de la concurrcncc ct n6ucssitant des effortssupp1fmentaires pour lc renforoement de la compdtitivit6 del'6co0nomic.

A cet cffet, des rtfornes structurelics d'cnvcrgure ont WtFintroduites ct ont contribu6 A la rtalisation dc bonnesperformances iconomiqums tout en assurant la pr6servaliondes equilibres tant intcmcs qu'cxtcrncs ct en accordant uneattention particuliere a la dienitisioni souiaisI dudwvcloppement.

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Lcs acquis cnregistrts durant la decennic coukec ont peCTTisi la Tunisic du se hisser au rtaig des pays emergents ctd'aspirer i atteindre le niveau des pays dtveloppds dans desd6lais rclativcment raisoniiablcs.

Ccci ntcessitc l'intersification des rtfornies afm d'ameliorerdavantage lit cornp6titivit6 de l'economie tunisicnne etrenforvcr, par la meme, si capacite d'adaptation a uxcbingcments intemes cfl xterncs.

Dans cc contcxte, Ic (ouvermement souhaine obtenir l'appuidcs bailleurs de fonds pour initier un troisiemc programmed'appui i la comp6t1tivit6 dc I'economic (PACE [Il-FAS Ill)ofin dc renforcer les progr^s d&jA r6slisds suite aux rtformcsct ajustements introduits au cours des demitrcs annees dansIc cadre des deux preuiiers programmcs d'anmlioration de lacomp6titivitt ( PACE I - PAS I et PACE 11 - FAS 1T).

Acquis et rhalisatiois des dernitres annEes

2. Au cours des de,nitres annfes, la Tunisie a r4alise des acquisconsid6rablcs dans les doniaines &conomiques et sociaux etce, nonobstant une conjoiucture nationale ct intemationalepeu favorabIe qui s'est manifest6e A travcrs le dtc1enchementdes diycrscs crises finaiiwi&res de par Ic mondc, la flambdedes prix du p$trolv, l'appreciation du dollar ct la persistancedc conditions climatiques dcfavorablcs.

Ccs acquis se refletent A travers lcs resultats suivants:

- La croissance s'est iiatutment acceledie. En cffet, letaux dc croissance moyen durant la ptriode du 1X6"cPlan ( 1997-2001) a dOpasst le seuil dc 5% atteignait5.3%, conservanit ainsi sa tendancc A I'acctl6ration.ParaliIlemcnt, la base de production s'rst diversifidecomme cn t6n6oig e IC raffennissement de la part duscctcur des servyiws et celle des iTidustricsmanufacturirc,s.

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- L'investissemczit a unregistre une evolutionapprtciable. lc taux d'investissement a progresse dc23.2% du PIB cn 1996 d 26.8% en 2001. Cependant,l'investissemcnt priv6, en depit dc I'augmentationenregistrte, n'a pas attcint le niveau prdvu par lc Plan,sa part dans l'investissement global n'ayant pas exctdtcn moycinne 53.2% uontre une prevision de 56% .

- Le courant des exportations s'cst renforct diirant IclX6m* Plan. Le taux d'accroisscmcnt annuel rnoyenpour cettc p6riode s'cst 6levE A 6.6% contrc 6.5%durant Ic VJll plan.

- U,'erploi a connu une fonte impulsion. 1 -s creationsd'ciploi se souil intensifites durant Ic IX'm" Plan. Ellesatteindraicnt 323 rnille emplois contre 320 milleinitialement prdvus, pcrmettwit dc couvrir 92% desdemandes udditionnclles contrc respectivernent 280mille einplis et 89.5% durait Ic Vll"' Plan.

- Lcs 6quilibres financicws unt 0t6 preserves. Le d6ficitcourant s'est limit A 3.5% en moyenne par an durantlo IX6 Plan contre 5.7% pour le VIJl" Plan malgrCI'impact du dnianiaInnmnt des tarifb douaniers, deJ'6volution de l'enviro.nnenent intemational et dc lapersistance dc conditions climatiques dtfavorables,surtout durant los dcux dcrnieres ann6es.

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Ainsi ct gri&e A Ia politique prudente adopt&c enmati6re de financcmcnt cxtericur, les indicateursd'cndettcmcnt ouit W- niaintenus dans des limitestoldrables. Le taux d'ndrAlterment atteindrait 50.2% durcvcnu national disponiibkc brut en 2001 et le coefficientdu servicc de la deetc sc limiterait A 15% des receltescourantes.

- L.a maStrise du dtfiQit budg-laire') s'est poursuiviedurant la p4riode du LX6" Plai. Son niveau a tramen6 d'une moycnne de 3.7% du P1B durant leVJi&e Plan A 2.7% au cours du IX4' Plan grace auxciTorts diployts pour aunOliurer lc rendement de lariscalitd ct rationaliscr leN d6penscs.

- L'inflalion a ctt dgalemcnt maitristc. Le tauxd'inflation moycn poui toutw la p6riode du Planatteindrait 3.2% par an contre 4.91/9 pour le VIl'lPlan et cc, en d6pit des perturbations climatiques et descffcts de 1'augmcntation des prix de certains produitsimportes.

Parallblement & ccs pcrformances sur le plan tconomique etfinancicr, des =quis sociaux appriciables ont Wt enregistres.Outre )'impulsion de l'cmploi, les indicateurs relatifs Atdedutcation, I'crnscignement sup6rieur, la formation

professionnclle, la sante et d'une maniere gtnerale lesconditions dc vie, se sont anfeliorCs.

En cffet, Ic taux de scolarisation pour la tranche d'Age6-24 ans a progress. de 61.7% en 1994 A 68.4% en 2000 et lapart des ctudiajits de Ia trancbe d'Age 20-24 ans a augmenttde 12.5%A21.9%.

(1) Y co4pris don5 P1 rtiiou0S

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Dans Ic domaianc de la Sante, I'espOrance de vie A la naissancea atteint 72.2 ans en 2000 cuntre 71.6 ans en 1996, le taux demortalitM infantile a rtgrcss6 de, 29.7 pour mille A 26.8 pourmillc ct le niombre d'habitants par m6deuin a 6te ramend i1248 eri 2000.

Dcs acquis importants ont U6 6galemcnt enregistrts dansJ'amrnlioration des coziditiozis du vie. Le seuil de pauvrctd ar6gress6 pour se limitcr A 4.2% en 2000 contre 13% en 1980el 6.2% en 1995 et la pan des logcrncnts rudimcntaircs abaissc A 1.2% actuellemcnt conue 8.8% en 1984 et 2.7% en1994. 1 rcvenu par tCLA aUtindrait 2800 dinars en 2001contre 2000 diiars en 1996 ct li ulasse moyenne s'est Mlargiepour repr6sentcr prs dt: X0% de la population.

PolitiquCs et r&foruies sous-tendant les progrtstconomiques et sociaux durant ]es cinq dernitres annues

3-ics acquis probants cnregistr6s par la Tunisie reposcnt sur1'acctl6ration ct l'intensification dcs reformnes entamresdepuis plus d'une deccnnie et notamment i partir de 1996avec la misc on cuvrc de I'auvord d'association avec l'Unionevirop6cnne.

4. Cet elan de rclonnms s'cst focalise sur Ia poursuite de lalibdralisation de I'tconornic A travers, notamment,I'avanccment dans Ic programmre, de drnant61cment des tarifsdouaniers initi6 dans le uadrc de l'accord d'association avec1'Union europrcnne-

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Les cfforts Sc sont 0gaJcment intcnsifids en vuc depromouvoir lcs cxportatiolis avec I1t criation du ConseilSup6ticur de )'Exportation, Ic renforcement des institutions etdcs m&canismes dc promnotion des exportations, la misc cnccuvrc d'un impOltant progranime dc ddveloppemcnt desexportations appuy6 par ia Banque Mondiale ct visantP'inslauration de nouveaux nimcanismcs a meme de rcnforcerIcs capacit6s cxportatrices des ecitieprises, incluant la mise en%uvrc du projet de In liasse uniique l'imrportation et aI'exportation et lc renforcemernt du scuteur du commercelcctronique compte tenu du iiMc qui lui est d6votu pour

laccas ut lc positionneniicnt sur de IiuuvCux marches.

S. I'ar aillcurs, une fbrte irnpulsioni a tlt donnte au rythme desprivatisations avec une diversiriuation des op$rations tout enpr6servant lcs fondciiits qui sous-tcndent la politique deprivatisation en l'occurrcjne la garantie de la viabilite de1'entrcprisc, la transparcxiic des operations et l'adhdsion detoutes lcs paities conccmnes.

Lcs privatisations ont coniccrni, uutrte lsecteur du tourisme,les sectcurs m6caniqucs, cliimiques, ]'agro-alimentaire etplus ricemmcnt des sectcurs importants tels que les secteursdc production des pwoduits de bl=e (ciment, sucre, lait... etc)et financier (assurance el banques).

A cet 6gard et depuis 1987, les privatisations ont concemr156 entrepriscs pour des pruduits de cession de 1490 MDdont 75 cntrcprises pour un produit de 1174 MD ont Wr6alis6s durant la p6riode (1997-2001).

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6. Par ailleurs, un vaste progranire dc mise A nivedu intdgralede l'cconomie ct du sectcur indusiriel visant le renforcementde la comp6titivitt a clE mis en (ruvre.

Ses principales cornposaiitcs sr, r6rdnt i l'adaptation dutissu industriel ct au rcinforuument de son aptitude A laconcurrence, ai reltvceiiiit dcl la capacit6 d'accueil etl'amelioration du rendement du dispositif de formationprofessionnelic, outre la consolidation de l'infrnstructure dcbase. A fin Juillct 2001 plus de 18 00 entreprises ont adhtrc Acc programme.

7. Le cadrc rdglcmentaire ct 1gal a benefici¢, de son cOtd, d'uneattcntion particuliUrc cn vue de sa modcrnisation et sonadaptation au nouveau contcxte national et international.A cut wfiet, plusicurs textes lgislatifs ont dtd revises etmodemists cn plus de la preparation ol la pnumulgation denouveaux tcxtes tels quc le code des suuiitis ornmerciales,le code des proc6durcs vivilcs, Ics textes rclatifs au droitintemational priv6, a la proteti(n de la propriettintellectuelle, aux prix et A la concum;nw.et...c,

8. La p6riode du IXC Pllan a ett marquie, 6galkment, parI'approfondissen;ejit des r6formus financiOres dans l'objevtifd'assurcr un financeiiient idoine aux up6rateurs 6conomiques.Ainsi, les r6formcs ont porte notwnment sur la modemisationct la restuctuwation du secteur bancaire et sur ladynamisation du marchb financier.

I.c programme de modemisation du sectcur bancaire, mis enr,uvrc A partir de 1997, a curnpourt une multitude d'actionsglobales ct cohdrcntes, visant principalement le relcemcnt dc1'efficience dcs op6rations d'inteirmdiation, In consolidationdc I'assise financicre des banques et le renforcement de leurscapacitts institutionnellcs et organisatiunnellcs.

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1cs prineipales actions de cc programmne ollt con:c=6:

- L'amrnagencnt du cadre juridique a travers I'adoptionen juillct 2001 d'une nouvellc loi relative aux6tablisscnments de cr6dit introduisant la notion de bangquuniverselle et favorisant le dhevloppcincit d'un wseteurhancaire mroderne & mene dc repondre iiux exigenecs de1a comp$titivitC.

Plusieurs autres tcxics ont t6 Cgaiemnt claborespermettant l'introduction de nouveaux instruments telsque les societts dc recouvrediient, la titrisation, ladematirialisation dcs titres de crtances,. .ctc.

- l 'amrnioration des piestatioIns en modernisant lcsmoycns de paincllt grAce A la mist en place d'unsystenie de tClcornpcnsation interhancairc, led0veloppcment de la mon6tique, I'elaboration d'unecentrale de donntcs pcnnettant d'optimiscr la gestion durisque, la s6curisation des systbnes inforTnatiques et dutransport de fonds et la r6forie de la formatio>nprofcssionncllc bancaire.

- l.a restructuration du secteur bancaire afin de consolidetles banqucs dc la place et favoriser un meilleutfinancement dc l'Woonornie nationaic. Ues actionsentreprises dans cc sens ont conecm6 la crCation de InBanque Tunisicnnie de SolidaritC avec pour principalobjet Ic financement dec petites entrepriscs ct des micro-projets, lu fusion dc la STB et des deux banques deddWvcoppement I3DET et BNDT, In crCation d'unebanque ttrang&re wrnformmcnt &k l'orientationd'ouverturc sur l'ext6ricur et la preparation des dossicrsdc ccssion des participations publigucs aU capital delPllR t de la Banque de Sud.

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- Ie renforcement de la IegicnenitaLiori prudlntiellc et laconsolidation dc l'assisc financierc des banqucs & traversle respect des standards intcniationaux pr6conis6s par ItComitd de BAIe a I'instar du ratio Cook relatif A lacouvcrturc dcs risqucs.

Dans le menme cadre, la volont¢ des autoriWis d'assinirIQ portefeuille des banques s'est matcrialiscc par la prisrcn charge par Ic budget de i'Etat des citances accruch6essur los entreprises publiques cl para-publiiqum outrcI'introduction de la possibilite de la radiation du bilandcs banques de certaincs categories de cr6ancesclass4es et ce, en plus des incitations fiscales accordcesau titre de la constitution des provisions et dercnforcement des fonds proprcs des banques.

9. Fu dgard au r6le qui lui est d6volu dans le drainage de1'epargile ct sa canalisation vers les sccteurs productifs,d'importantes r0forncs unt 6tt introduites sur Ic marchefinancier. Ainsi, ct apr6s la niodernisation des structures dumarch6 financier, les cfforts ont porte au cours du IXD Plansur la poursuite dc l'adaptationi du cadre r6glementaire, ladotation de la bourse de Tunis de moyens techniques etorganisationnels modcmrs, I'amclioration des diff6rentspararnitres du marcht financicr ct la dynamisation destransactions d'unc manicrc g6niralc.

Dans cc cadre, les mcsures adopt¢cs opt concem6notammcnt l'adoptioin d'un nouveau r6glement gdntral dc laboursc ct l'introduction d'uni nouvcau statut desinter6n6diaircs en bourse, l'ouverture progressivc dc la bourseaux invcstisscurs Otrangcrs et la r6forme du cadre juridiqueet fiscal des OPCVM et l'instauration d'un fonds do garantiedes clients dcs intemi6diaires.

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Des progr6s imiportants ont ¢t6 6galenicmt r6alises cn matitred'turnIiuration de la qualitt de l'infornation financitre et durenforeemeilt de l'inttgritt du marchd en dotant le CMF et labourse des moycns n6ccssaircs A la s6curisation et latransparenCe des transactions cl cc, cn plus dc I'acoeptation dela totalite des titres c0tts A Ia STICODEVAM.

L'activitE de la boursc a connu un nouvel 61an, suite auxmesures priscs cn favcur de la dynamisation des transactions.La loi 99-92 du 17 aout 1999 relative lia relanoc du marchefinancicT a introduit une r6duction du taux de l'impOt de 35% &20% cn faveur des soci6t6s qui procmdent a l'ouverture de Icurcapital et a introduit des mesurts appropri6cs pour facilit:r auxcntrcprises Ic suivi et la r6gulation de leurs actions cotces enbourse ainsi que la cr6ation des comptes d'6pargne cn actions.Par ailleurs, le lancement, au debut de 1999 dcs BTA et desI3TCT a permis de dynamiser le marcht obligataire tout enassurant un mcillcur finaicement au Tr6sor.

10. Le processus dc rnfrnne fiscale s'est poursuivi dans Ic scnsd'unc plus grandc harmonisation des diff6ronts imp8ts et taxcsct pour compenser Ics moins- values d6coulant de In misc cnvigueur du programme de ddmanttlcmcnt des tarifs douanierstout en adoptant un cadre fiscal ad6quat r6pondant auxnouvclics exigences du d6vcloppcmTnet d'unc manicreg6ndrale.

A cet effet, les refonies ont Wte axnes sur 1'61argissceicnt deI'assiette des imip5ts par la limitation dcs :-4inmcs speciaux etla revision des conditions afftrcntes au regime forfaitaire. LosrWformcs relatives A Ia TVA onft concrut Ic rcltvcment d'unpoint du taux normal, la revision & la hausse dc l'impositionde certains produits a l'instar des produits 6ncrgttiqucs, outreI'arnnagement. des taux appliques i certains scrvices li¢snotamment au tourisme et A I'informatique.

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1 cs actions visant I'amclioratioon du rendement de l'imp6t ontt6 mratWrialistcs par 1'augmcntation de l'imp8t minimum sur

le revenu et Ics bentfices, I'6largissemnnt du champd'application de la retenuc a la source ainsi quc le rTelvemcntde I'avance sur )cs socittcs de personnes et l'accroissernentde certaines taxes en plus de l'amnendemcnt des droitsd'cnregistrement et de timbre.

CCes diffcrentes r6fornics ont 4i rTcnforc¢es par laproniulgation du code des droits et proc6durcs fiscau'.clarifiant lcs droits et les obligations des contribuables, lacreation de structures de soutien ct d'encadrement cn matikemfiscale, Ia dtmat6rialisatioii de certaines proc6durcs fiscalcs AI'instar de la declaration fiscale A distance et lc paiCmentClectroniique de l'imp8t cn plus dc la dotation dc1'administration fiscale dcs moycns hurnains et techniquesapproprins.

11. Par ailleurs, des r6fornes importantcs ct dcs programmesd'envergure au plan social ont Bt mis en oeuvTc.

Dans ce cadre, la rtfornic du systcme cducatif s'cstconsolidte par la misc en a:uvre d'importantes ations cn vucd'azncliorer 1'efficacitt inteme du systhmie et par ]A mncmpourvoin le pays en compftences hautement qualifi¢cs.

Ces actions ont concem6, notammentt, la reyision desprograminies scolaires, Ic rcsyclagc ct la formation du corpsenscignant et des cadres p6dagogiquCs, le renforcemcnt dc lafonction d'6valuation, I'introduction et la gdndralisation del'enseignement de l'inforrnatique dans Ics ctablisscmenbdducatifs, la g6niTalisation dc I'acc6s A I'intcrnet,... etc.

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l'asccnt a et¢ mis dans le domaine de 1'enseigerncintsupcricur sur la r6vision des prograiwiies, lc icnforceomitdes etudcs technologiques et l?intcnisification des fili&rcscourtes, la formation des forrnatcurs, Ic rcnforcemcnt do larecherche scientifiquc dans les inlstitutions universitaires, lacrcation de nouveaux pOles universilaires, ... ctc.

Dans Ic domainc dc la formationi professionuel[e, unprogramme de misc i niveau du dispositif nationial deformation profcssionncllc a 4tt instaur6 afui de satisfaire lcshesoins de l'appareil de production dans les d6lais requis touten assurant la reconversion de la iain-d'o:uvre et larcallocation du facteur travail ver-s les secteurs les plusrentables.

I Z. La strat6gie de d6veloppcment social adoptoe par la Tunisie atrtit, 6galcment, & 1'enracincncnt dcs valcurs de solidarit6 etde pr6scrvation de la coh6sion sociale i travers, niotanLuenit,le renforcement des actions financtes dans le cadre du Fondsde Solidarit6 Nationale et l'intensification de 1'assistance auxcouches ics plus demunies cn1 vue de faciliter lcur inI..grationdans lc circuit productif

La promotion de 1'cmploi figurc, de son cOt6, au premierrang des prioritts dc l'action de developpemiient, En effet ctau cours de la periodt du TIX Plan, uie panoplie demesures ont Wtt initiecs afin de promouvoir 1'ernploi clsurtout I'emploi des jCunies et des diplOmies del'cnscignemcnt supCrieur. Elles concerncut, notamnenlt, Iacr6ation de la Banque Tuiisiennc de Solidarite ct duFonds National de l'bmploi 21-21 qui viscntessenticllement le financetiient des petits projets cl lcrenforcement de I'eniployabilitt desjeuncs.

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Programmc cadrc pour Ics cinq ann&es A venir

13, Forte des acquis enregistrts durant la p6riode fcoulke, laTunisic Cntamc son Xi"' Plan de developpement (2002-2006)avec une vision devant conduire A la concr6tisation desaspirations nationalcs ct notamment la rTalisation d'unecroissaince t1ev6e et soutenablc susceptible d'animliorerdavantagc le niveau de vie et de relever les dcfis afind'accddcr au rang de pays ddvclopp6s aprcs avoir atteint celuides pays 6mergents.

La concr6tisation dc ces objcctifi sc fera toutefois dam unenvironnemcnt intemational ct national plus contraignant.

14. L'civiz-omneniciit cconomique internatiolnal sera niarqut parla dtcel¢ratioii du rytlirne de Ia croissance mondiale et par lesincertitudes constcutivvs aux 6venements dii 11 septembre2001 engendrant une contraction de la demande mondialeainsi quc la pcrsistanec dcs tluctuations dcs prix du p6trolc ctdcs fluctuations des taux de changc, surtout Ic cours du dollarminricain. Cco factcurs sc grffeCnt aux pressions ct

contraintk- li&s a l'exaccrbation dc la concujrcncc sur lcsmarch6s cxt6ricurs suite a I'immincnce des 6ch6anocs dcd6mantIctricnt dcs accords multi-fibres.

Dc son c6te, l'cnvirounemcilt titionilS se caract6rise parl'Vavtneneint de la phase finale du d6nianttlemcnt des tarifsdouaniers qui se traduira par une baisse des recettesbudgttaires et aura un impact n6gatif sur Ics paiementsexterieurs ct ce, en plus dc l' intensification de la concurrencesur le march6 intricurT

14

Les pressions antendues sur Ic march6 de 1'emploiconstitucront un facteur supplmentaire & prcndrc cn comptcdu fait que les deaandes additionnclles attcindront leur pointculminant durant lc X& Plan en s'¢lcvant A une moyenneaniiuclle de 80 mille einplois contrc 70 millc pour IcIXm Plan.

1.5. lcs profondes mutations qut connalt hl scEne nationalc ctintcrinatioiale se traduiront par de, nouvelles exigcnccs quimarTqueront la prochaine itape. Trnis priOrit4s guideront notteaction de dtveloppemeint durant la p4riode du Xk' Plan:

1) Le renforccment dc la comp6titivitt de I'&conomie

Le schema de d6veloppement du X' Plan prevoit larcalisation d'un taux dc croissanec dc l'ordre dc 5.7% eniioyentie par an correspondant A ume augmcntation du revcnupar tet; dc 4.8% conitrc 3.9% durtnt Ic 1X Plan.

Cet objectif dc croissanvc n6cessite une amdIioration dc lacontribution de la productivitt glubaic dcs factcurs dcproduction qui devrait atteinidre 44% au cours du X' Plancontre sculement 36% durant le IXc" Plan, undtvcloppeiiient soutdnu de l'exportation qui dcvraitprogresser de 7% par an dans un environncment plusconcurrentiel marqu6 par I'apparition de nouvcauxconcurrents et par l'essoufilement do la compttitivitt prix etIc rclevement dc la part de l'investissemcnt du secteur privEde 55% de l'invcstisserncnt global en 2001 A 60% au moinsen 2006.

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2) La consolidation dcs acquis sociaux

Le devcloppement social occupc une place de choix parmi lespriorit&s du X4"' Plan. I es efforts scront intensifies en vuc devaloriser les rmssources humaines cu cgard A Icur r6lc d6cisifdans l'action dc dtvcloppemcnt.

A cet ctTht ct au dclA dc 1'cflbrt qui sera ddploy6 pourrunforQcr l'invcstisseinent dans le sivoir ct la promotion del'cmploi, l'a;tion sera poursuiviC pour tc renforczment de lacouverture sanitaire et sociale, de la solidaritt nationale, durO8c dc la femme et de Ia fawnille, de la promotion desscctcurs dc la jcunesse et du sport et de la diffusion du bicn1tl d'unc mani6rc g6nirale.

3) 1 a prcscrvation des tquilibrcs globaux

La necessit4 de preserver les 6quilibres globaux est dict6e parI'amroissument des pressions exerc6es sur les paicmcntsexterieurs cn raison de I'accToissement pr6visible dtsimportations dans le cadre de la poursuitc du programme dedtmantelement tarifaire et de la n6cessitc de faire face auxexigences de Ia mise A nivcau dc F'6conomie et dudeveloppement des investissements.

Elle est egalernent impos6e par l'exacerbation de la

concurrence ext6ricure et 1'accroisscment des pressions sur lebudgct dc I'Etat suite A la r6duction des recettes fiscalesd6coulara de 1'avanicenieit dans le programum ded6mant6Ienient tarifaire.

16. jans le but de faire face A ces diff6rents defis et concrttiserIcs objeclifs assignds, Ic Gouvcmcmcnt a pr4par6, sur la basndos oriciltations arretdcs pour Ic X1' PlanQ'), un programmedc rcformes ct souhaite obtenir l'appui dc Ia BanqucMondiale sous forme d'une op6ration A ddoaissemnnt rapide.

(1) Se TdlTr A In nnic d'nricnleitnn du X" Plan ovem I .itic0on d'iiiw uci*i ug

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Ce programme, qui serait uonjoiniteient appuy6 par I'UnionE:uroptenne au moyen d'unc facilite d'ajustemcnt structurclet cofinanc6 par la Banque Africaine de D6vcloppcmcnt,renforcera les progTrs d.jA rtalis.s par les ajustements et Icsrdfonnes introduites au cours de la dcrnitre d6cennic,

Cadre macrn-conomique

17. Le rcnforcement de la gestion macru-6conornique dans unenvironnement en mutation wonstitue pour la Tunisic uncpr6occupation primordialc.

A cet 6gard, les orientations mauro-6conomiques sont axtessur la poursuite d'unt croisswice rapide tout en assurant Iaprtservation des 6quilibres fiiiancicrs tant intcrncsqu'cxtcrnes.

l jes efforts scront intensifi6s afin d'assurer la promotion desexportaLions, de maintenir un niveau ad6quat des reserves dcchange, de dtvelopper l'epargne nationalc a travers lapoursuite de la modemisation du secteur banwaire, ladynanisation du marche boursier et lc renforocment deI'tpargne longuc, notamnment dains lc secteur des assurances.Des effTrLs seront egalcinent dkployes en vuc de rcnforcer lapart du secteur prive dans I'invecstisscment global et depoursuivre une politique budgttaire ax6c sur 1'augmentationdes recettes proprcs et la maitrise des d6penscs publiques.notarnrment par Ic biais du desengagement dc IEtat decertaines activit6b au profit du secteur priv6.

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Lcs objectifs fixes A cC niveau consistlnt A ramcnr Ic dCficitcourant de la halance des paiements dc 4.3% du PIB en 2001a 2.2/% en 2006, maintenit les rdserves de change i un nivcaupemiettant de couvrir trois mois d'iimportation, limiter ledeficit budgetaire & un nivcau nc dCpasswft pas 2% ") du PIBen 2006 et augTnenter Ic taux d'epargne de 24.4% du PNB en2001 A 26.6% en 2006.

L'effort portera, A cct 6gard, sur la misc on vigueur de lanouvelle Joi sur les droits et procdurws fiscaux aveccnotammcnt, la misc cn place du Conscil National dc laFiscalite qui aura la facult¢ d'cngager un progranunc dcreformns dc Ia structure fiscale nationale afin dc renforTcrl'assiette fiscale et d'assurer la flexibilitC et la viahilite fiscaleA moyen et long terme.

Par aillcurs, un systtnic de gestion dynarnique de la dett astdevenu nCcessairc pour un pays comme la Tunisie ayant unepr6sence importante sur les march6s financiers internationauxcu tgard & I'cxpansion d'un Cventail d'instruuments dcfiuaticenient ct A la volatilite croissantc des marclbsfinanciers internationaux.

Ainsi, et outre les actions mn&nes pour In misc en ouwreeffective dc la base do donnecs unifiec ct informatisee sur ladette cxt6ricurc publique ct priv4c, des reformes serontarretCes sur la base des rccommandations dc 1'6tudc qui serarealisec pour dynarniser la gestion dc la dette publique.

Les divcloppenients r6ceits qui onit caract6ris6 la setneinici-iationale auronit cetcs des effets A court tcrme,iotatiunient au nivcau dc Ia balance des paiements du fait dultihisscinerit de I'actiYitt touristique et du ralentissement du

rythme d'exportation dc ccrtains autres secteurs.

(I 1Dons rt rccto= dcs privvision cxchuq.

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La rcprise escompt6e de ln vruissalicc A l'cchelle mondialc aucourant du deuxieme swmstrc 2002 perrncttra Ic retourrapidc a une situation plus favorablc ct patunt, la r4alisationdes objctifs fix6s.

Toutefois, lc Gouvernemcnt dcmeure vigilant face a unedtrioration tventuelte plus wntuic de l'cnvironncmcntinternational. 11 envisage A mct 6gird la mise en cuvre demesures A court teinne sc rappornat A une maStrise plusimportantc des ddpenses budgtlaires et au dtploiementd'efforis considtrables pour la mobilis4ioni des ressourcesapproprifet dans Ic cadre de la coop6ration bilat6rale etmultilat6rale ainsi quc des mesurcs A moycn tcrnne incluantdes rtforrnes structurcilcs teHes que la misc cn cuvrc d'unenouvelic strafgie du tourisnme, unc intervention plus accruedu scteur privd dans ln construction et la gcstion desinfrastructures, l'cxternalisation dc It prustatiol de certainsservices publius pour impliquer davantage Ic secteurpriM ... etc

18.Vans Ic cadre dc cettc opEration d'ajustcmcnlt, lc(Gouvememcnt exmninivra, enl collaboration avec la BanqueMondiale et en concertation avec le FMI, la performancemacro-tconomiqut; sur la base d'un sch6ma actualis6ptriodiquement; l'objectif ttwft d'assurer la p6renniL6 dcsequilibres globaux, de poursuivrc la lib6ralisation dcI'cconomie et son intdgratiovn dans In sphcrc cconomiqucmuiidiale ct dc r6duire lc fardeau dc Ja dette.

Les progris cnregistrts dans la rtalisation dc ccs objectifsscront 6vaIus sur In basc d'indicateurs approprics.

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Le programme de riforme

19. Afin d'assurer In cuuiwr6i~salioui des priorit6s arrEt&cs, leGouvcrncmcnt cst krmniiment ciigage A intcnsificr etaccOldrer davantage le% r6roInics &conomniques et financitrcsau nivcau des quatre pTincipaux axes suivants:

- L'am6lioration des prestationis dc I'administration;- Le d6veloppement du secteur des 16l6communications

et des nouvec)ls tcuhiinulogics de l' information ct de lacommunication ;

- I c renforcement de la comp6titiviti du sectceur privt;- Le consolidation du sccteur financicr ct du sectcur des

assurances.

11 L'amUtiurution des p-estations de I'administration

20. La rtforme dc F'administratiun Luniisicnne, entreprisc dcpuisplusieurs annecs, s'est assignTic comme objectif, outrc lereltvemenl du niveau de la qualit6 des prcstations offertes, dccontribuer umplement i In comp6titiviW globale dcI'dconomic.

Lcs actions de ce programme concenicnt divcrs aspects del'aciivite admitiistrative dont notamnment:

- I a reduction dizs autorisationis administrativcs

La reduction des autorisations adininistrativecs pcrmct desimplifier lts prouddures, d'impulser l'initiative priv6ec td'alltgcr les attributions dc P'Administration afin qu'cllepuisse se consacrcr davantage A la conception des strategiescl dcs politiques et au controle A posteriori.

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Dans ce cadre, 490 autorisatiuns admninistratives accord6espar les diffcrents ministtres ont 6t6 ifcntifi6es et 60% d'entrceelles scront, soit supprim60s bioit reCuplactes par des cahicrsde charges. Cette action a pour Fimaiit6 de consacrer la libcrttcomme principe ct l'autorisation commc exception.

- L'instauration d'un syst6nic de qualitt dans Icsscrviccs publics

Dans le cadre de la poursuite de la misc a niveau deI'Administration, un programmc pilclte a Btt amorce afind'adapter le systlme de quolit6 dans certains scrvices publicsaux nonnes intemationales ISO A l'instar de 1'exp6rience duguichet unique a I'Agence de Promotion de l'lndustrie. Ceprogramme concrne les scrvices publics suivants:

b Centre de Promution des Exportations;+ Agence dc Promotion de l'lnvestissement Ext6ricur;* Agence Tunisicnne de la Coop6ration Tcchnique;o Agence Technique du l ransport Tercstrc;o Rccettes des Financs:*kBureaux de Douane;* Directionis regionales du Tourisme .

-1L developpcment des prestations administratives Adistance

lln intcret de premiCre importaice a 4t4 accordC A vcttedimension eu egard aux oxigences de la socictt deI'information et aux graindes poteitialites d'exploitationqu7offrent Ics nouvelles technolugics d'information ct dccommunication sur le plan de la iriodernisation dc I actionadministrative ct I'am6lioration de la qualit6 des prcstations.

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Dans ce cadre, il a Ftt procd& A la amise en ceuvre du syst6mcd'information et de communiuatiull administiative (SICAD).Cc systEme facilite la vulgarisation des prcstationsadministratives offcrtes par ks services de I'Etat avec descollcctivites locales en se basit sur la micro infornatiqucavcc une banque de donn&cs incorporant pr6s de 11 00prestations de difftrents secteurs d'activitl en pr6vision dc lagineratisation des prestations de serviccs suT IC net et Icsservices vocaux.

21 Le diveloppement du secteur des ttiEcouwuuicatiooset des nouvellcs technologies de l'information et de lacommunication

21. Le sectcur dcs technologies de l'intormation et de lacommunication (NTIC) constitucra l'un des moteurs decroissance iconomique pour la prochaine 6tape cu cgurd A sacontribution a I'augmentation de la valwur ajoul6e ct sonimpact uonsid0rable sur la r6duction du chOmagc et lerenforcemnent dc la competitivitl interne et cxteme de1'economic.

Une strattgie de dtvcloppcment des technologies del'information et de la cornmiunication a 6t6 arrCt6e depuis1997 et un programme de rtfonnes d'cnvcrgurc a ttt cngag6s'articulant autour des trois axe5 suivants:

* La rdforme du cadre rcglementaire du secteur;* L.e devefoppemcnt dr ressourecs lhumaines ad6quatcs;* Le d6veloppemcnt des infrastructures et des scrvices

avec In participation du secteur priv6.

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Ves actions ont dtt entrTpriscs en application de cettestratfgie; ellks se rapportent plus particuliTremcn:.

- A Yctablisscnent d'un cudre r6glemcntaire pour lecommerce tflectronique et la certification destrawsactions 6lctroniques.

La Tunisie a cnregistrt des progres consid&rablcs dans lcdomaint, de la r6glementation du commeTce 6lectronique. L aloi relative aux echanges et au coniunercc 6lectronique a 0t6promulgu6e le 9 aoOt 2000 et a introduit les principes devantrcgir les relatLirns cntre les intervecnaoits dars tout proccssusdc transaction ct de commeruc tlcvtronique. L'AgenceNationale de Certification F.lectronique (ANCO) a W cr6eavec pour mission principale 1e contr8le de I'CxcJcice deltactivity de fbumriture d scvice de certification6lectronique.

L'introduction des principes g6nraux de certificationOIectronique a dtd compl6ttc pa l'iintroduction dc lareglcmentation de 1'activite dc foumLiture des scrviccs decertification et le¢s pructdures y aff6rcntcs.

Par ailleurs et en vue d'offrir de% prcstltions 6lectroniquesdans des conditions optimales tenant coiiipte des sp$cificitisnaturclIes, if a tte procede A l'introduction du e-dinar, aud6veloppement dc Publi-Nets et au lwnceirent de l'initiativcpr6sidcntielle de gen@ralisation du <PC familial>. LeGouvcrnement envisagc de ddvelopper davywtage la diffusionde l'lntcrnet et du commcrce electronique ct de renforcTr ccsactions qlli constituenl un grand acquis pour le pays.

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- Lc dfveloppcmcnt d'une riouvelle politique ctrdglemcntation sectoriellk pouw les NTIC visant Afavoriser la croissance cL li participation privc.

I c Gon)uvcrncment a adopte plwicurs imesures de politiqucpour r6fonncr le secteur des t&l&urnuniications. Le nouvcaucodc des communications (loi du 15 jan vic- 2001) vise, cntrcautre, la libtralisation cffctLivi du secteur destEl6communications. L'intention d'ociroyvr une sccondclicence CsSM et louverture de divern swginciuts du niarchM i taconcurrence par It biais d'operatcurs privts traduisent lavolont6 d'introduire une ct)Iureulcc effective dans lcsecteur.

Eu outre, plusieurs dtcrets d'application et arret6s ont Wadoptcs afin de renforccr Ic cadre rtgIcmcntairc dans lesectcur des commnunications. 11 s'agit, plus pa"iculifrtmentdo l'adoption d'un decrct rclatif aux conditions g6n6ralesd'intcrconnexion, d'un d&crct sur les conditions ct lesproc6dures d'attribution du droit de servitude, d'un d6cret surI'hornologation dt'% 6quipemcIvnth terninaux et d'un arretWportant approbation du plan national dc numWrotation etd'adressage .

Parallelemcnt, des mesures ont W prises pour introduire lacomptahilit4 analytique au nivvau des principaux op*ratcurspublics de telecommunications. D'autres aspects de lar6forme reglcmentaire scraicnt tventulclement envisagesdans Ic moycn terme A I'instur dte l d6frnition dcs obligationset des modes de provision d'accts universel, de laprogrammation ct la rdglemcntation des fitquences radio dur6equilibrage des tarifs et la rtglernintation des prix et dcI'octroi de licences. Par ailleurs, un regime de transition pourdeterminer les charges d'intercrnnixion est en coursdflaboration cn vue d'acctirer In pn.sencc de concurrentscffectifs sur lc marchd.

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DC menme et en vuc dc rdeformcr lc cudre r6glcmcntairc destel1communications le Gouvw-nencmnt cnvisage la cr6ationd'agwices scQtorielles de reigcmnntation.

11 s'agit plus pr6cistment dc La cr6ation de l'Agnrcnationaic des fr6quences s5tUs luiellc du Minist6re desTeOhnologics des Communications eL Pinstance nationakc dest6l1communications (TNT), organc dc r6glcmcntationindependant. LJautonomic finanuierc et op6rationnellc delITNT demoure une prioritc pour la politiquc du(jouvemement dans une perspective A moycn terme.

- L'introduction ct Irc d6vuloppcinent d'unc concurTencceffective dans Ic seocur dcs t6l6comnmunications et dcl'Internct.

Les principales mesures a prendre coDsistent en1'accroisscment du nombre dt, fournisseui-s dc service alInternet, l'initroduction d'un secund opiratcur GSM, l'octroid'une concession, sous forrne de BOT, i titre experimental auprofit d'unc entreprise pour I'instzIlaLioi de reseaux Iocauxd'abonnts dans les zoncs suburbaincs ct ruralcs ainsi quc lamise en vnitc courant 2002 d'au mouis unc licence VSAT.

En ce qui concerrc ies nouvelles licencs, trois licences ISPprivees additionnelles ont ctt otlroy&-s et il cst prevul'introxuction d'un second op6ratcur GSM sur Ic march6dans le cadrc d'un appel d'offirs iniernational ouvert A laconcurrence. Afin de renforcer Ia conicurrence, I'op6rateursera autori.st A construire ct louer sa popre infrastructurelongue distance et a offrir des services internationaux i sapropre clicnerlc.

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- La misc en a:uvrc dc inesures visant & dtvclopper ladiffusion des TIC dans it pays ct a maximiscr leurimpact sur la croissan;e tconomique.

PIaraIIfemCnt i la progression de la lih6ralisation des servicesdes tdlfcommunications et de la reforrne do la r6glcimentationdu secteur, le Gouvemement mcta del plus en plus 1'accentsur les mesures qui maximiseront l'impact de la croissanoctechnologigue sitr la comp6titivit4 des entrcprises et )adiffusion des TIC auprts dcs cntrepriscs tunisienncs et de lapopulation dans son ensombic.

Une plus grande impulsion aux incubateurs tcchnologiques ctaux cyberparcs contribuero A acc6l6rer la croissance dunombre de petites el imoycuines entrcpriscs sptcialis6es entechnologie de pointc qui constitueront lipinc dorsale dufiutur sectcur tunisien dcs TIC. Des activiLds promotionnelicsct de mise en r6seau seront lancfes pour renfbrcar l'image dela Tunisie en tant que r<climat d'affaires favorabIc)> pour lesenitreprises interntionales dcs 'IIC. 1Jc d6vcloppcmcnt dercssources humaines ad6quatcs dons lc cadre de programmespublics et priv6s continuera a etre une prioritt pour le succtsdc la politique du gouverncmcnt.

3/ LC renforcement de Ia compititivit6 du seteur priv6

22. L'ainelioration de la comp6titivitt du sctceur priv6 supposcIc renforcemnent dc Ia concurrenoc, l'impulsion dcI'inyestisserrmcnt priv ci raison dc son Trle dansI'¢largissement de la base de production ct la contribution ala promotion de l'emploi et des exportations, la poursuite duprogrammc dc privatisation et de dtsengagement de l'Etat *lravers, notamment, son elargissement A d'autres secteurs telsquc Peducation, bt %ante cl les proiets d'infrastructurc.

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Dans cc c.adre, kr Gouverneimcnit envisage de mcttrc cn placcles actions suivantcs:

- R6alisation d'une etude et adoption d'un plan d'action Ala lumiWrc dcs recommandations de cette 6tudc pourpromouvoir davantacpc l'iiivestisscment privM ctl'cxportation et d4vclopper les IDE;

- Simplification dcs pructdures douanitres notammentpar le d6marragc du syst6nc de la liasse uniquc etl'acalration du processus de didouanemcnt;

- Amdlioration dc la transparence ct de la flabilitt del'information sur l'entreprise gr&ce, notammcnt, a lamisc cn vigucur de la loi sur les holdings;

-Renforcement dc la concurryncc par Ila r6vision ducadre ltgal et institutionncl dc la concurrence.

Pour ce qui est de la privatisationi et du d6scngagement del'Etat, I'action du Gouvernement portera sur la finalisationdes operations de privatisation des entreprists annoncZespour l'ann6e 2001, l'ouverturt du capiul dc Tuuisie-TelFcompar OP1 i hauteur de 10% ct pour d'aQtrcs entrepriscspubliqucs dont une au moiris au profit d'un partenairesLratcgiquc, Ces ouverturcs viswtt, notamment, ladynamisation du marchc boursier, unc plus grandctransparcnce au niveau de la gestion des cntreprisespubliqucs ct Ic transfert technologiquc. L'action duGouvernemcnt concemera, tgalement. l'ouvcrturc aw profitdu secteur privt de nouvelles activites telles quo le transportinter-urbain, la realisation sous forme de concession de lastation d'4puration de Tunis-Ouest et dc l'a6roport duCentre-Est, la cession d'unc partie des capacites de stockagcdc l'ONH en vue dc favoriscr d4vantage lc stockage ct lacommercialisation par lc secteur privt de I'huile d'olivc.

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Par ailleurs, le Gouvernicnit engagera la r6flcxion surl'intervention des monupoles exernaut dans le sectcur duCommcrce. Ainsi, une eludc scra r6alistc au courant de1'annee 2002.

4/ Riforme du secteur des assurances ct coosolidationdu secteur financicr

23. Lc secteur des assuranues a fait l'objct des le debut desann6cs 90, de refonnes de grande unipleur s'inscrivant dansune dynamique de rcstructuration et de modemisation dusystlmc financier. Ies principales actions menrcs ontconcemr notamnent la promulgation d'uw nouvcau code desassurances cD 1993 en plus du I'ad4ptation du cadrcr6eglenmntairc ct organisationnel.

La p6riodc du IX' Plan a Ctt ma-qu6e par la reformc ducadre liscal du secteur dans lc sCns de I'aIIRgemcnt ct lasimpliIication des taux A cO3W de l'octroi d'avanitages fiscauxA certaines branches et notaynmenL 'c%xoxi6ration des contralsd'assurance-vie. De nouvlles dispimsitions wit 6tt ajouttes aucode des assurances en 1994 ct 1997 introduisantrespcetivement I'assurance on maiWe dc construction etint6rcssant l'itnpulsion dc I'assurancc exportation. Unnouveau cadre comptabi ct de nouvellcs normcs ont Ettdgalement mises en application A partir de I'ann&e 200 1.

Nonobstant ces cfforts, ccrtaines insuffisances subsistentencorv. A eet effet, un progrnTnmc d'action a ft ttabli sur labase des recommnandations d'uic etude ayant pOrt4 sur Iasituation du secteur et ses perspectives de d6veloppemcnt.

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Ce plan d'action scra ax6 sur la imise A nivcau du cadrcjuridique et institutionncl idu secteur, la restructuration ct laconsolidation de ]'assisr Iinanci6te des compagnicsd'assurance en plus dc l amiliuraLion de Icurs mnthodcs dcgcstion inteme et la rfunnic de certaincs branchcssp6citiques.

Certe rIforme permettra I'amrliuriiioii du taux de pn6trationdu sectcur de I'assurance dins lFtwuviijuv nationalc et , parconsdqucnt, le dtveloppeinent dc l6pargne longue,considdrte comme source impurLnlc pout Ie financemcnt desinvestisscments et un moyen de dynaiDisation des marmh6sfinancicrs.

Lcs principales actions A mencr pour Ia p6riodc A venir, tclicsqu' arretdes dans cc progwummie, porteront sur:

- L'am¢tioration des structures dc contrAlc a travCrs lareorganisation de la Direvtiun Gentrale des Assurancesen vue de rcnforw;r 1'autorite dc contrcle ct de ladistinguer de V'autoMit dc dtveloppernent et de la miseA nivcau du sectcur;

- La restructuration des cniipagiiies d'assurancc aprOslcur soumission aux vp&rations d'audit ctI'assainissemcnt des cuumpagieis connaissant dcsdifficuft¢s financiWres;

29

- L'arnendement du udtc des assuiances notamment auniveau du renforcicient dc la r6glcmentationprudenticile, en vue de l'aligner aux normes ctstandards internatinaux A I'itistar du rce6vement duniveau de capital miinimuni, la revision des rtgles decalcul de la marge de solvabilit5 avcc l'instaurationd'une rtgIc propre A ]'assurance-vie et P'6tablisscmentde rEgles pour Ic calcul des provisions tcrhmiques etIcurs couvertures.

S'agissunt des branchcs sptcifiques d'assurancc, P'attentionportera paiculijrcm%-it sur celles sous cxploit6es ouenregistrant. dcs dfIicits structurcls. Les actions envisag6esconcement notamment:

- L'assurancc automobilc: .l s mesures a mettre eneuvre se rapportent esntiellctiient A uin rel6vementdes tarifs de la RC automobile de 8% ct a unc rEformedu syst6rne d'indcmnisation des victimes desaccidents de la circulation visant A r¢tablir l'6quilibrcde In branchc avec une tendance vers la liberalisationprogressive des tarifs.

A cet cffct, un projcl dc loi sera soumis A Ia chambredcs d6putcs distinguant la r6glementation applicableau chauffeur de celle applicabic aux ticrs, instituant unbar&mc d'indemnisation et confiant la missiond'cxpertise aux seuls m6decins experts sp6ciafis6sdims 1'evaluation des ddgSts corporels. Dans I'avenir,les tarifb seront arrEtFs cn fonction de la r6forneengagcc.

21/11/01 13:35 M.C. I. I.E 793271 031

30)

- L'assuraice-vie : les efforts seront ax6s sur Ic&wv1loppcinit de la bancassurance, l'instaurationd'uIi sysSl.ie de caitonnement strict des provisionsd'assurance, la d6finition des contrats groupesd'assurancc-vic et l'octroi de priviltges aux assur4ssur l'autif des compagnies d'assurancc.

Pour ce qui est de la consolidation du sectcur financier,l'objeutif est de promouvoir ull environnemcnt favorable aufinnicvment des PMF par les bangucs et Ics autresintcr-mdiaires financiers.

L'etVort portera, d'aibord, sur 1'aminlioration dc l'informnationsur Ics cntreprises eu 6gard A son importance pour l'octroi duWrEdit, A cc titre, les mesurcs se rapportent & I'instaurationd'un nouvcau ratio de concentration des gros risqucs, A lamisc cn euvrc de nouvelles normes coniptablcs pour lcs ttatsminancicrs consolid6s, l 1'obligationi de pr6senter des comptes

certifids lorsque les engagements dtpassent 5 MD ainsi qu'al'obligation d'avoir tine notation pour toute sociEtf ayant dcscrdances depassant 25 MD.

l'action puricra egaIcineit sur l'assainisserncnt desporiefeuillcs dcs credits. Durant les ann6es 90 des effortssubstanliels de capitulisation et de provisionnemcnt auniveau des hbinques ont 0t6 d6ploy6s. Ces efforts serontrenforces par I'ainElioration du rccouvrement grieccnotamment i I'cntr&e cn vigueur du nouveau code dcsprotdures Oivilcs cl conunerciales, J'assouplisscment dutraitement des provisioz1s et des conditions pour la radiationdes crtanucs clussdes des bilans des banques. Ccs effi)trtsdvvraient conwuurir A edu ire davantagc la part des cr6anccscluss6es dwin lc total des engagements des banques.

21/11/01 13:35 M.C. I. I.E 793271 032

31

Dc meme, la gouvemance dcs banques publiques seraarn6liur& par l'instauration du nouveau modc dc gestionpr6vuc par Ic code des soci6tts commerciales (directoire etconscil de surveillance) et par le transfert de certainespr6rogatives de la tutlcle au conseil de surveillancc.

Paralltlcment, la restructuration et Ic renforcemrent de la partdu secteur prive dans Ic secteur banicaire se poursuivronit.Deux actions de cession des participations publiqucs danus lecapital de I'l.JTB ct de la 1Banque du Sud scront mcnres parIcs autoritcs. lUne rcflcxion sur l'avenir des banques dedtveloppcmcnt miiixtcs scra cntanie en concertation avec lespartenaires concermts pour la reclerche, au cas par cas, desolutions approprides

24. Pour cO qui est du marchl6 financier, deux ttudes seronitrTaMistcs. La premi6re conicernera lc d6veloppcmrnct dumarchc des capitaux afin de preparer uil plan d'action pouraccroltre la cotation sur le marchM boursier local de g-widesentrepriscs de rcnom, d'identifica Its obstacles audcveloppement du marvch obligataire cd de proposcr dessolutions pour developper cc marcIu.

La deuxitme ctudc portera sur lc systcme d'organisation ctd'information du CMF.

21/11/01 13:36 MC. I. I.E 793271 033

32

25. En conclusion, Ic Giouvernement cst d'avis quc Ic programmede rEformcs ditaille dans la pr6senle anmliorcra lacompctitivitd de l'tconomic tunisikonc; il renforceral'engagement du pays cin miatitre de lib6ralisation deI'tconomic ct de modernisatiuin de sccteurs aussi importantsque ceux dcs tlicornmunications, des assurances, desbanques et du traisport et P'acn6lioration dc l'environnementdes aiTaires de maniere gtntrale et intensificra Ia confiancedes march6s internationaux dans J'avenir dc la Tunisie.L'adoption de ce programme serdit largement facilit6e si ladumande en vue d'une op&ratioin a dfcaisscmrnt rapide del'ordre de 250 millions de dollars JS 6tait acceptee par laBanque Mondialc.

Ff3"i WASSI Abddiatif SADDEM

Minlatrit Oe la Ceop#rftiomn MliDtr du DU-doppemeatfu,tcrnation*Ie et de 1eonomiqueI'lIuvct4ticatuC Exsiricur

(Unofficial English Translation of the letter is available on file.The French version of the Policy Reform Matrix in Annex II isattached to the original French letter of development policyon file.)

Annex IIPolicy Reform Matrix

Page 1 of 9

MATRIX OF POLICY REFORM MEASURES

OBJECTIVES 1st TRANCHE MEASURES FLOATING TRANCHE MEASURESOBJECTIVES I 15' TRANCHE MEASURES (X indicates disbursement or "star" conditions)

(Board Conditions) Private Investment Financial Sector Information andClimate Communication

Technology

MACROECONOMIC FRAMEWORK

Maintain a stable 1.1. Meet the performance indicators set 1.2. Meet the performance indicators set out in Table 3. (X)macroeconomicframework out in Table 3.

Strengthen debt management 2.1. Put in place a unified, computerized 2.2. Adopt an action plan for active public debt management.database on foreign public and privatedebt.

Strengthen the tax base and 3. 1. Publish the Decree establishing themedium to long-term fiscal National Taxation Council ("Conseilsustainability National de la Fiscalite").

PRIVATE INVESTMENT CLIMATE

Promote private investment 4.1. Agree on terms of reference for the 4.2. Finalize the study andstudy on promoting private investment. adopt an Action Plan to

promote private investment,based on therecommendations of thestudy. (X)

Improve relations between fiscal 5.1. Submit the Code of Fiscal Rights 5.2. Adopt implementationauthorities and private and Procedures to the Chamber of regulations described in theenterprises Deputies. Code of Fiscal Rights and

Procedures. (X)

Simplify procedures for the 6.1. Reduce, to a maximum of thirty 6.2. Establish the interfacestartup and operation ofprivate days after submission of the exporter's between Tunisia Trade Netenterprises and accelerate the request, delays in the reimbursement of and Customs SINDA.customs clearance process VAT credits.

Annex IIPolicy Reform Matrix

Page 2 of 9

FLOATING TRANCHE MEASURESOBJECTIVES 1st TRANCHE MEASURES (X indicates disbursement or "star" conditions)

(Board Conditions) Private Investment Financial Sector Information andClimate Communication

Technology

7.1. Put in place the system of a single 7.2. Reduce by 60 percentcontact person ("interlocuteur unique") the number of administrativeto authorize the creation of sole authorizations which wereproprietorships. required in 2000 to create

private companies.

Improve the transparency and 8.1. Submit the draft Law on Corporate 8.2. Adopt implementingreliability of information on Conglomerates to the Chamber of regulations for the Companycompanies Deputies. Law. Publish new

accounting standards relatingto the consolidation offinancial statements and thetreatment of corporateconglomerates. (X)

Strengthen institutional 9.1. Adopt an action plan to reinforce the 9.2. Implement the actionframework for competition institutional framework for competition. plan on competition.

Pursue the policy of Government 10.2. Launch thedisengagementfrom the real and intemational biddingfinancial sectors processes to sell all shares

held by govemmentalentities in UIB and Banquedu Sud. (X)

11.2 Open at least 25percent of the capital of onepublic enterprise to astrategic investor. (X)

12.2. Agree on a strategy forprivate participation ininfrastructure.

Annex IIPolicy Reform Matrix

Page 3 of 9

FLOATING TRANCHE MEASURESOBJECTIVES lst TRANCHE MEASURES (X indicates disbursement or "star" conditions)

(Board Conditions) Private Investment Financial Sector Information andClimate Communication

Technology

13.2. Carry out a study onimport monopolies. (X)

FINANCLAL SECTOR

Continue achievements in the financial sector

Strengthen governance of 14. 1. Adopt, at STB and BNA, thepublic banks dual-board management structure

("Directoire et Conseil deSurveillance").

Measures to clean up the 15.1. Submit to the Chamber ofportfolios of credit institutions Deputies a draft amendment, relating toand strengthen provisioning loan recoveries, to the Code of Civilmethods and Commercial Procedures. _

16.1. Extend until 2006 the right ofcredit institutions to take a taxdeduction for loan loss provisions up to

___ ____ 75 percent_of taxable_income.

Annex IIPolicy Reform Matrix

Page 4 of 9

FLOATING TRANCHE MEASURESOBJECTIVES 1st TRANCHE MEASURES (X indicates disbursement or "star" conditions)

(Board Conditions) Private Investment Financial Sector Information and

Climate CommunicationTechnology

17.2. Based on preliminaryresults from theimplementation ofamendments to the Code ofCivil and CommercialProcedures, and on theagreed conclusions of theannual consultation with theIMF (Article IV), (i) carryout a study to evaluate theexpected effects of theabove-referenced newlegislative environment, and(ii) introduce, based on thisstudy, any necessary newactions which wouldaccelerate the recovery ofbank loans and collateralforeclosure. (X)

18. 1. Include in the draft 2002Finance Law an amendment to theCorporate Tax Code relaxing theconditions for writing offnonperforming loans by reducing totwo years the period during which suchloans must have been inactive.

Improve the transparency of 19.2. Put in place a recordborrower information available of individuals' creditto credit institutions histories ("Fichier des

Cridits aux Particuliers") atthe BCT, in accordance withnew statutes.

Annex IIPolicy Reform Matrix

Page 5 of 9

FLOATING TRANCIIE MEASURESOB|JECTIVES 1st TRANCHE MEASURES (X indicates disbursement or "star" conditions)

(Board Conditions) Private Investment Financial Sector Information and

Climate Communication_.___ _ __ _ __ _ __ _ _ _ _Technology

20.1. Adopt BCT regulation onauditors' certification of financialstatements and on mandatory rating orstock market listing for all corporationswith debt exceeding specified limits. .

Risk diversification 2 1.1 . Adopt BCT regulationestablishing a new large riskconcentration ratio.

Strengthen the role of the 22.1. Launch studies (i) on the 22.2. Adopt anfinancial market development of capital markets and (ii) implementation plan for the

on the organization and information accepted and approvedsystems of the Conseil du Marche recommendations based onFinancier (CMF). the two studies on the CMF.

Strengthening the insurance sector with a view to liberalization

Strengthen legalframework and 23.1. Submit to the Chamber ofregulatory supervision Deputies a draft law amending the

Insurance Code.

24.1. Sign the decree separating, at theDirection Generale des Assurances(DGA), the authority of the lineministry [as owner of the stateinsurance companies] from thesupervisory authority.

25.1. Agree on a time-bound Action 25.2. Put in place the humanPlan to strengthen the DGA's human resources and equipmentresources and equipment to exercise its necessary for the DGA tosupervisory functions. exercise its supervisory

functions, in accordance withthe Action Plan. (X)

Annex IIPolicy Reform Matrix

Page 6 of 9

FLOATING TRANCHE MEASURESOBJECTIVES Is TRANCHE MEASURES (X indicates disbursement or "star" conditions)

(Board Conditions) Private Investment Financial Sector Information and

Climate CommunicationTechnology

Eliminate the deficit of the 26.1. Increase automobile insurance 26.2. Increase automobileautomobile branch (civil premiums (civil responsibility) by at insurance premiums (civilresponsibility) least 8 percent. responsibility) by 3 percent

in 2002. Develop a medium-term action plan with theobjective of eliminating thedeficit of the automobileinsurance branch (civilresponsibility). (X)

27.2 Submit to theChamber of Deputies draftamendments to Laws 60-21of 11/30/1960 and 62-23 of8/30/1962 with the objectiveof creating a new system ofindemnification. (X)

Strengthen the life insurance 28.2. Modify the taxbranch treatment and social charges

related to group lifeinsurance premiums byputting in place anexemption which is bothfiscal and linked to socialcharges, up to a pre-established ceiling.

Annex IIPolilcy Refourii Matiix

Page 7 of 9

O TESSt TRANCHE MEASURES FLOATING TRANCHE MEASURESOBJECTIVES I" TRANCHE MEASURES (X indicates disbursement or "star" conditions)

(Board Conditions) Private Investment Financial Sector Information andClimate Communication

Technology

Restructuring of troubled 29.1. Present technically acceptable 29.2. Launch theinsurance companies restructuring scenarios, which exclude restructuring of the most

prior recourse to the resources of the troubled insuranceGuarantee Fund, for the most troubled company; developinsurance company in the market. corrective plans for the

insurance companies whichare under-capitalized andunder-provisioned. (X)

INFORMATION AND COMMUNICATION TECHNOLOGIES

Develop an ICT sectoral policy 30.2. Prepare and publish apromoting private participation medium-term (2001-2006)in this sector liberalization plan for the

ICT sector and select aninvestment bank to supportthe administration ingranting at least one datalicense. (X)

Strengthen the legal and 31.1. Adopt implementation regulationsregulatoryframeworkfor ICT for the new Telecommunications Code:

(i) Decree on interconnection;(ii) Decree on rights of way;(iii) Decree on the approval of telecomequipment;(iv) "Arr&6" on numbering.

Annex 11Policy Reform Matrix

Page 8 of 9

FLOATING TRANCHE MEASURES[ OBJECTIVES l1t TRANCHE MEASURES (X indicates disbursement or "star" conditions)

(Board Conditions) Private Investment Financial Sector Information and

Climate CommunicationTechnology

32.1. Create a National 32.2. Submit to theTelecommunications Agency ["INT"] Chamber of Deputies a draft(independent organization) and a law amending theNational Frequencies Agency (under the Telecommunications Codeauthority of the Ministry of concerning the status andCommunication Technologies). Submit autonomy of INT. (X)to lenders the draft amendment to theTelecommunications Code concerningthe status and autonomy of INT.

33.1. Adopt the Law concerningexchanges and electronic commerce.Adopt implementation regulations forthe Law concerning exchanges andelectronic commerce, including theclauses on the protection of personaldata.

34.1 Publish a decree establishing thefinancial and administrativeorganization and the operating rules forthe national agency in charge ofproviding electronic certificationlicenses.

Introduce effective competition 35.1. Prepare terms and conditions forin telecommunications. providers of electronic certification, and

publish an "arr&e" indicating thetechnical specifications for electroniccertificates.

Annex IIPolicy Reform Matrix

Page 9 of 9

OBJECTIVES lst TRANCHE MEASURES FLOATING TRANCHE MEASURES(X indicates disbursement or "star" conditions)

(Board Conditions) Private Investment Financial Sector Information andClimate Communication

___________________ _ _ _Technology

36.1. Launch (i) an international bidding 36.2. Grant a second GSMprocess for the granting of a second GSM license through alicense and (ii) a consultation for the competitive and transparentselection of an investment bank of bidding process; publish aninternational repute to support the interconnection offer byadministration in the context of this sales Tunisie Telecom,operation. referencing international

standards and approved byINT. (X)

37.1. Prepare terms of reference for the 37.2. Select, following anselection of a consulting firm in charge of international biddingputting in place a cost accounting system process, the consulting firmat Tunisie Telecom. in charge of putting in place

a cost accounting system atTunisie Telecom.

Annex IIIGovernment Budget

Tunisia: Government BudgetEst. Budget

(Millions TD, current) 1999 2000 2001 2002

Total Revenue and Grants 6122.9 6519.7 7084.0 7511.0

Fiscal revenue 5206.7 5676.7 6234.3 6589.0

Non-fiscal revenue 841.6 807.0 749.8 852.0

Grants 74.6 36.0 99.9 70.0

Total ExDenditures and Net Lendine 7004.9 7495.1 7937.9 8315.5

Current Expenditure 4942.0 5250.9 5578.7 5931.0

Wages and salaries 2706.2 3141.0 3410.6 3656.0

Goods and services 441.4 480.9 508.7 521.0

Transfers and subsidies 954.8 741.7 783.3 778.0

Interest payments 839.6 887.3 876.0 976.0

Domestic 390.8 396.0 400.0 419.0

External 448.8 491.3 476.0 557.0

Capital expenditures incl. net lending 2062.9 2244.2 2359.2 2384.5

Capital expenditures 1894.5 2058.7 2202.6 2244.5

Net lending 168.4 185.5 156.6 140.0

Deficit ind. grants and privatization -881.1 -633.2 -803.9 -84.4

Deficit excluding grants and privatization -956.6 -1011.4 -953.8 -874.5

Social Security revenues 1290.2 1424.0 1531.1 1633.4

Social Security expenditures 973.4 1301.4 1385.7 1487.2

Overall deficit incl. SS, excl. grants and privatization -639.8 -888.8 -808.4 -728.3

Financin 956.6 1011.4 953.8 874.5

Privatization receipts 0.9 342.2 50.0 720.1

Grants 74.6 36.0 99.9 70.0

Other sources of financing 881.1 633.2 803.9 84.4

External (net) 345.1 44.5 1198.1 314.0

Drawing 1095.0 1265.7 2215.1 1200.0

Amortization 749.9 1310.2 1017.1 886.0

Domestic (net) 536.0 677.7 -394.1 -229.6

Meno Itens:

GDP at Market Prices (in millions of TD) 24874.6 26676.7 28872.4 31247.5

Percentage share of GDP

Total revenues incl. Grants 24.6 24.4 24.5 24.0

Total expenditures and net lending 28.2 28.1 27.5 26.6

Current expenditures 19.9 19.7 19.3 19.0

Capital expenditures and net lending 8.3 8.4 8.2 7.6

Net lending 0.7 0.7 0.5 0.4

Deficit including grants and privatization -3.5 -2.4 -2.8 -0.3

Deficit excluding grants and privatization -3.8 -3.8 -3.3 -2.8

Overall deficit including SS, excluding grants and privatization -2.6 -3.3 -2.8 -2.3

Annex IVBalance of Payments

Tunisia: Balance of Payments(in millions of USS) 2000 2001 2002 2003 2004Trade balance -2252.6 -2345.7 -2458.7 -272S.3 -3020.Exports 5839.9 6495.2 7090.3 7771.7 8518.

mports, fob 8092.5 8840.9 9549.0 10500.0 11538.on-factor services 1548.0 1593.0 1704.3 1945.0 2196.

Factor services -1000.1 -965.2 -1002.7 -9808 -968.1

Net Transfers 887.3 852.1 913.6 984 2 1036.3Current Account Balance -817.4 -865.8 -843.5 -780 0 -756.Capital and Financial Account Balance 534.6 843.2 1519.2 113 .6 1133.6Borrowing(Public+ Private) 1520.0 1813.4 1662.0 1292.9 1518.9Public Borrowing 680.0 951.9 995.5 873.2 868.Multilateral 400.0 649.4 695.2 57.2 595.IBRD 136.0 322.1 252.4 201.7 192.8o/w ECAL III 132.2 120.0

Other multilateral 264.0 327.4 442.9 36S 6 402.olw ECAL III (AfDB) 95.4 95.4

Bilateral 280.0 302.5 300.3 302.3 273.Private Borrowine 840.0 861.5 666.5 419.7 650.3Commercial banks 519.0 190.5 190.9 36.3 160.Sovereign bonds 0.0 460.0 326.1 307.4 390.Other private 321.0 211.0 149.5 76.) 99.5

Other sources of financing: 361.6 133.6 931.8 909.3 913.1Grants 3.1 56.1 97.5 100.0 100.

o,w ECAL 111 (EU) 71.0

Portfolio andforeign direct investment (net) 730.5 364.4 834.4 809.3 813.1privatization 339.2 0.0 508.7 473 9 476.non-privatization 391.3 364.4 325.7 335 4 336.

Net short term and errors and omissions -372.0 -286.9 0.0 0 0 0.Repayments 1347.0 1103.8 1074.6 1070 6 1298.3Change in reserves (- indicates an increase) 282.8 22.5 -675.7 -350 6 -377.3Memo Items:Current Account Balance/GDP -4.2% -4.3% -3.8% -3.2% -2.80/Real Exports Growth 6.6% 9.3% 5.4% 6.8% 7.10/Real Imports Growth 9.6% 9.0% 4.6% 5.8%4, 6.5/Exports of Goods/GDP 30.0% 32.1% 32.1% 32.0%/(. 32.0/mports of Goods/GDP 41.6% 43.7% 43.3% 43.3% 43.4%Exports GNFS/GDP 44.2% 46.2% 46.0% 46.2/ 46.5/mpcirts GNFS/GDP 47.8% 50.0% 49.5% 49.4°/ 49.6/Reserves in months (cit) 2.5 2.2 2.9 3.0 3.1Reserves in months (fob) 2.3 2.1 2.7 2.8 2.Reserves (millions of US$) 1763.8 1741.2 2416.9 2767.5 3144.8GDP at Market Prices (nillions of US$) 19462.1 20234.4 22074.9 24262.2 26598.1Exchange rate (Dinar/US$) period average 1.37 1.43 1.42 1.40 1.39

Exchange rate (Dinar/US$) end of period 1.39 1.42 1.41 1.39 1.38

Annex VKey Exposure Indicators

Tunisia: Key Exposure IndicatorsIndicator 1996 1997 1998 1999 2000 2001 200' 2003 2004

Total debt outstanding and disbursed (TDO) (US$m)a 11379 11230 10850 11887 10610 11619 12352 12490 12626

Net disbursements (US$m)a 427 605 -219 479 175 710 586 222 221

Total debt service (TDS) (US$m)a 1466 1413 1430 1534 1921 1649 1648 1641 1862

Debt and debt service indicators (%)

TDO/XGSb 126 125 116 122 112 112 109 100 93

TDO/GDP 58 59 55 57 55 57 56 51 47

TDS/XGS 16 16 15 16 20 16 15 13 14

ConcessionalVTDO 25 23 23 22 24 25 25 25 24

IBRD exposure indicators (%)

IBRD DS/public DS (20%) 21.9 20.9 20.2 19.0 12.8 16.2 16.5 17.4 14.8

IBRD DS/public DS - CAS projections ,, ,, ,, ,. 15.7 19.3 19.0 ,. ..

Preferred creditor DS/public DS'(35%) 48.3 49.3 49.0 48.8 36.9 41.0 41.5 43.9 39.2

Preferred creditor DS/public DS- CAS projections ,, ,, ,, ,. 37.5 45.2 44.0 ,.

IBRD DS/XGS (5%) 3.3 3.1 2.9 2.8 2.4 2.5 2.3 2.2 1.9

IBRD DS/XGS - CASprojections ,, ,, ,, ,, 3.0 2.9 2.6 ,.

IBRD TDO (US$m)d 1610 1434 1458 1323 1211 1365 1451 1472 1490

IBRD TDO /Total TDO (%) 14.1 12.8 13.4 11.1 11.4 11.7 11.8 11.8 11.8

IBRD TDO / Total TDO - CAS projections ,, ,, ,, ,, 11.6 10.9 10.3

a. Includes public and publicly guaranteed debt, private nonguaranteed, use of IMF credits and net short-term capital.

b. "XGS" denotes exports of goods and services, including workers' remittances.

c. Preferred creditors are defined as IBRD, IDA, the regional multilateral development banks, the IMF, and the Bank for International Settlements.

d. Includes present value of guarantees.

e. Includes equity and quasi-equity types of both loan and equity instruments.

Annex VISocial Indicators

Tunisia: Social IndicatorsLatest single year Same region/income group

Middle East Lower-1970-75 198045 1993-98 & middle-

North Africa incomePOPULATIONTotal population, mid-year (millions) 5.6 7.3 9.3 285.7 886.5

Growth rate (% annual average) 1.8 2.6 1.2 1.8 0.9Urban population (% of population) 49.9 53.8 64.1 57.4 57.7Total fertility rate (births per wornan) 6.2 4.9 2.2 3.5 2.5

POVERTY(°% ofpopulation)National headcount index .. 19.9

Urban headcount index .. 12.0Rural headcount index .. 29.2

INCOMEGNP per capita (US$) 770 1,160 2,060 2,030 1,740Consumer price index (1995=100) .. 53 111 111 131Food price index (1995=100) .. 54 111

INCOME/CONSUMPTIONDISTRIBUTIONGini indexLowest quintile (% of income or 6.0 ..

consumption)Highest quintile (% of income or 42.0 ..

consumption)

SOCIAL INDICATORSPublic expenditure

Health (% of GDP) .. .. 3.0 .. 3.3Education (% of GNP) 5.2 5.8 7.7 5.2 4.9Social security and welfare (% of 4.4 3.7 5.4

GDP)

Net primary school enrollment rate%o ,7f age group)

Total 76 94 100 87 94Male 89 100 100 91 95Female 62 87 100 84 93

Access to safe water(D/ ofpopulation)

Total .. 89Urban .. 98Rural .. 79

Immunization rate(lo under 12 months)

Measles .. 65 92 88 89DPT .. 70 96 90 89

Child rmalnutrition (% under 5 years) 20 .. 9

Annex VIIStatus of Bank Group Operations

TUNISIA: Status of Bank Group Operations (Operations Portfolio) as of Date 10/22/2001

Closed Projects 102IBRD/IDA *Total Disbursed (Active) 423.90of which has been repaid 45.93

Total Disbursed (Closed) 3,351.00of which has been repaid 2,498.90

Total Disbursed (Active + Closed) 3,774.92of which has been repaid 2,544.86

Total Undisbursed (Active) 546.21Total Undisbursed (Closed) 0.00Total Undisbursed (Active + Closed) 546.21Actve Proiects Last PSR Expected and Actual

Supervision Rating Oriainal Amount in USS Disbursements"Millions

Project 10 Project Name Development. Implementation Fiscal IBRD IDA GRANT Cancel. Undisb. Orig. Frm Rev'dObiectives Progress Year

P005745 2ND EMPL. & TRG. S S 1996 60 22.3 22 3.8P005741 HIGHER EDUC. II S S 1998 80 60.5 30.4P005726 HIGHER EDUCATION S S 1992 75 15.9 22.2 22.2P046832 MUNICIPAL DEV. II S S 1997 80 1.8 6.6P005736 NATURAL RESOURCE MGM S S 1997 26.5 13.9 14.4P005591 OZONE DEPLETING SUBS HS HS 1994 3.8 1.1 -0.9 1.1P005749 RURAL ROADS S S 1995 51.5 1.6 0.4P005743 SECONDARY EDUCATION S S 1995 98.3 9.9 17.4 17.4P005589 SOLAR WATER HEATING S S 1995 7.4 1.4 -1.3P005750 TN-AGRIC. SUPPORT SVCS S S 2001 21.3 21.8 0.5P050418 TN-ASIL2 S S 1998 42 6.9 10.7P048825 TN-CULTURAL HERITAGE S S 2001 17 17.4P055814 TN-EXPORT DEVELOPMENT S S 1999 35 24.7 12.3P050945 TN-Education PAQSET I S S 2000 99 97 0P005731 TN-GREATER TUNIS SEWERAGE S S 1997 60 39.8 21.5P005746 TN-HEALTH SECTOR LOAN S S 1998 50 26.7 24.2P040208 TN-INDUSTRY SUPPORT U U 1996 38.7 6.3 16.8 25.5

INSTITUTIONP035707 TN-WATER SECTOR INVESTMENT S S 2000 103 100.1 -2.1

PROJECTP005680 TN-WATER SUPPLY AND HS S 1995 58 12.2 11.6

SEWERAGEP043700 TRANSPORT SECTOR INV U U 1998 50 18.8 24.3P064082 TRANSPORT SECTOR S S 2001 37.6 38.1 3.4

INVESTMENT PROJECTOverall result Result 1082.9 11.2 6.3 548.7 243.1 44.5

a. Intended disbursements to date minus actual disbursements to date as projected at appraisal.

Annex VIIIStatement of IFC's Held and Disbursed Portfolio

Statement of IFC'sHeld and Disbursed Portfolio

As of September, 2001

IFC Data Warehouse (Amounts in US Dollar Millions)

I I IFC Held lIFC Disbursed lFY Approval Company Loan Equity Quasi Partic Loan Equity Quasi Partic1998/00/01 BIAT 0.00 2.54 0.00 0.00 0.00 2.54 0.00 0.00

1995 Maghreb IM 0.00 0.33 0.00 0.00 0.00 0.33 0.00 0.00Bank

1986/92/98 SITEX 0.00 2.92 0.00 0.00 0.00 2.92 0.00 0.00

1973/75 Sousse/Nord 0.00 0.63 0.00 0.00 0.00 0.63 0.00 0.00

1998 Tuninvest 0.00 4.59 0.00 0.00 0.00 4.59 0.00 0.00

Total Portfolio 0.00 11.01 0.00 0.00 0.00 11.01 0.00 (l.00

Annex IXTimetable of Key Processing Events

TIMETABLE OF KEY PROCESSING EVENTS

Time taken to prepare: 14(identification to negotiations)

Prepared by: Government, World Bank staff, EU, AfDB

Identification mission departure: October 15, 2000

Regional Operation Committee: April 17, 2001

Appraisal mission departure: September 9, 2001

Negotiations: November 12-16, 2001

Board Presentation: December 20, 2001

Planned date of Effectiveness: December 28, 2001

Closing date: June 30, 2003

Annex XTuntisia at a Glance

Page 1 of 2

Tunisia at a glance 11)20/01

M. East Lower-POVERTY and SOCIAL & North middle- __

Tunisia Africa Income Development diamond2000Population, mid-year (millions) 9.6 296 2,046 Life expectancyGNI per capita (Atlas method, US$) 2,090 2,040 1,140GNI (Atlas method, US$ billions) 20.1 602 2,327

Average annual growth, 199440

Population (rl) 1.4 2.0 1.0 G \Labor force (%) 2.5 2.8 1.3 GNI pGross

per 7 primaryMost recent estimate (latest year available, 1994400) capita enrollment

Poverty (% of population below national poverty line) 8Urban population (% oftotalpopulation) 66 59 42 ILife expectancy at birth (years) 73 68 69Infant mortality (per 1,000 live births) 24 44 32Child malnutrition (% of children under 5) 9 . 11 Access to improved water sourceAccess to an improved water source (%6 of population) .. 89 80Illiteracy (% of population age 15+) 29 35 15 .n.Gross primary enrollment (% ofschool-age population) 118 95 114 Tunsia

Male 122 102 116 Lower-middle-income groupFemale . 114 88 114

KEY ECONOMIC RATIOS and LONG-TERM TRENDS

1980 1990 1999 2000 __Economic ratios*

GDP (US$ billions) 8.7 12.3 21.0 19.5Gross domestic investment/GDP 29.4 32.5 26.8 27.4 TradeExports of goods and serviceslGDP 40.2 43.6 42.2 44.0Gross domestic savings/GDP 24.0 25.5 24.6 23.9Gross national savings/GDP .. 27.1 24.6 23.5

Current account balance/GDP -4.3 -5.5 -2.1 -4.2 Domestic netmtInterest payments)GDP 2.6 3.2 2.4 2.5 savings InvestrentTotal debtGDP 40.3 62.4 56.7 54.5 svnTotal debt service/exports 13.9 24.1 15.8 20.2Present value of debt/GDP .. .. 56.2Present value of debVexports .. .. 121.0

Indebtedness1980-90 1990-00 1999 2000 2000-04

(average annual growth)GDP 3.3 4.7 6.1 4.7 6.0 -TunisiaGDP per capita 0.8 3.0 4.7 3.4 4.7 Lower-middle-income groupExports of goods and services 5.6 5.1 4.7 6.6 6.9

STRUCTURE of the ECONOMY1980 1990 1999 2000 Growth of investment and GDP

(% of GDP) 20Agriculture 14.1 15.7 12.9 12.3Industry 31.1 29.8 28.0 28.8 10

Manufacturing 11.8 16.9 17.9 18.2 oServices 54.8 54.5 59.0 58.9 .- 1 5 98 97 98 99 X,

Private consumption 61.5 58.2 59.9 60.5 -20Generalgovemmentconsumption 14.5 16.4 15.5 15.7 GDI --- GDPImports of goods and services 45.6 50.6 44.4 47.6

1980-90 1990-00 1999 2000 Growth of exports and imports (%)(average annual growth)Agriculture 2.8 2.4 11.6 -1.0 Industry 3.1 4.6 5.1 5.2 10

Manufacturing 3.7 5.5 6.2 6.2 sServices 3.5 5.3 5.7 5.3

Private consumption 2.9 4.3 5.8 5.2 o 95 9`7 98 99 00General govemment consumption 3.8 4.1 4.3 4.7 .0

Gross domestic investment -1.8 3.6 4.8 9.1 - Exports 0 IrmportsImports of goods and services 1.7 3.8 3.0 9.6

Note: 2000 data are preliminary estimates.

The diamonds show four key indicators in the country (in bold) compared with its income-group average. If data are missing, the diamond willbe incomplete.

Annex XTunisia at a Glance

Page 2 of 2

Tunisia

PRICES and GOVERNMENT FINANCE

Domestic prices 1980 1990 1999 2000 InflatIlon (%)

(% change) B

Consumer pnces 6.5 2.7 2.9Implicit GDP deflator 12.8 4.5 3.8 2.4 4

Government finance 2(% of GDP, includes current grants) o -Current revenue 28.7 26.4 29.2 29.0 95 9s 97 98 99 00

Current budget balance 8.8 2.3 4.5 4.9 - GDP defator O CPIOverall surplus/deficit 0.9 -4.6 -2.2 -2.9 d

TRADE

(US$ millions) 1980 1990 1999 2000 Export and Import levels (USS mill.)

Total exports (fob) 2,395 3,517 5,873 5,840 000Fuel 1,347 607 420 651 e00_

Agnculture 88 398 667 470 eo * Manufactures 905 1,995 4,058 4,005 s

Total imports (cif) 3,623 5,525 8,481 8,564 4900Food 388 506 557 538 *Fuel and energy 799 487 541 827 1Capital goods 742 1,235 2,233 2,099 o

94 95 98 97 99 99 00Export price index (1995=100) 77 122Import prce index (1995=100) 86 118 El Exports U ImportsTerms of trade (1995 100) 90 103

BALANCE of PAYMENTS1980 1990 1999 2000 Currnt account balance to GDP (%)

(US$ millions)

Exports of goods and services 3,517 5,191 8,793 8,606 1

Imports of goods and services 3,986 5,986 9,248 9,311 94 9 sr, 97 99 99 D 0

Resource balance -469 -795 -455 -705 -1

Net income -293 -497 -890 -941 -2Net current transfers 390 613 902 825

Current account balance -373 -679 -443 -821

Financing items (net) 438 596 1,132 578Changes in net reserves -65 83 -690 243 .:

Memo:Reserves including gold (US$ millions) 599 804 2,272 1,760Conversion rate (DEC, local/US$) 0.4 0.9 1.2 1.4

EXTERNAL DEBT and RESOURCE FLOWS1980 1990 1999 2000

(US$ millions) Composition of 2000 debt (USS mill.)Total debt outstanding and disbursed 3,527 7,690 11,887 10,610

IBRD 269 1,346 1,323 1,211 G 509 A: 1,211IDA 68 59 41 39

Total debt service 544 1,431 1,534 1,921IBRD 37 214 269 229IDA 1 2 2 2

Composition of net resource flows 0 2-183Official grants 26 174 73 3 F: 3,640Official creditors 251 342 138 0Private creditors 102 -197 391 214Foreign direct investment 236 185 337 731Portfolio equity 0 0 0 E: 2.596

World Bank programCommitments 171 29 194 202 A -IBRD E -BilateralDisbursements 52 213 210 136 B -IDA 0-Other multilateral F -PrivatePrncipal repayments 15 112 168 152 C -IMF G -Short-termNet flows 37 100 42 -17Interest payments 23 104 103 80Net transfers 14 -3 -61 -96

Development Economics 11/20101

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