(Adds context, analyst comment)
By Tarek Amara
TUNIS, Sept 24 (Reuters) - Tunisia’s embattled Islamist-led government refocused on the economy on Tuesday, announcing plans to cut expenditure and freeze public salaries to narrow a deficit expected to reach 7.4 percent of GDP this year.
The government on Monday rejected a plan to step down pending elections, deepening a confrontation with secular opponents in a political crisis that is weighing on the economic outlook.
Under pressure from its international lenders to curb fuel and other subsidies and reduce public sector spending, the government said on Tuesday that it was moving ahead with austerity measures.
“The government has begun implementing austerity measures including a 5 percent cut in public spending, after the budget deficit reached 7 percent (of gross domestic product) now,” Finance Minister Elyes Fakhfakh told state radio without giving full details of the cuts.
Officials said last week that Tunisia’s budget deficit should narrow to 6.5 percent of GDP next year from an expected 7.4 percent in 2013, as the government imposes strict new fiscal measures.
“Wages will remain unchanged in 2014, especially since the year 2013 saw a 5 percent rise in wages compared to 2010,” the minister said.
Extra government spending on salaries in the small North African country amounted to 1 billion dinars or around $608.2 million in 2013, officials said last month.
Tunisia, which signed a $1.7 billion standby loan agreement with the International Monetary fund (IMF) in June, is under pressure to speed up economic reforms and subsidy cuts.
Government spending on subsidies has soared to 5.5 billion dinars ($3.4 billion) this year, from 1.5 billion dinars in 2010 before the ouster of former president Zine El Abidine Ben Ali in a revolt that helped spark uprisings across the Arab World.
The government needs to implement more fiscal measures to reduce its deficit, just as social and political upheaval has cut into the country’s foreign currency reserves, exports and foreign investments.
“The government wants to tell the outside world, it is committed to economic reforms, but this may move late and this step might increase social tension in the country,” said Moez Joudi, a local economic analyst.
Subsidy payments to energy-intensive companies will be reduced by 50 percent from Oct. 1, pending a full withdrawal of the subsidy in 2014, Industry Minister Mehdi Jomaa said on Saturday.
New fiscal measures to be introduced in 2014 will include the imposition of a 10 percent tax on exporting companies, which have been exempt from taxes, the government said.
The government expects the economy to grow 4 percent next year after an expected 3.6 percent expansion this year, it said last week.
The country’s secular opposition, angered by two murders of left-wing politicians and emboldened by Egypt’s army-backed ouster of an Islamist president, has held mass protests and insisted the government must resign and allow new elections.
The ruling Islamists’ rejection on Monday of a plan for them to step down pending elections, after cautiously agreeing to it last week, has aggravated the political crisis that threatens the most promising democratic transition to have emerged from the Arab Spring.
Frustrated at the lack of progress, the country’s powerful 800,000-member UGTT union on Sunday threatened to mobilise protests to pressure the government to accept the proposal for it to step down and make way for a caretaker government. ($1 = 1.6441 Tunisian dinars) (Editing by Patrick Markey, Catherine Evans and Susan Fenton)