June 14, 2020 / 9:05 PM / 22 days ago

UPDATE 2-Tunisia's PM decides against relying on more external debt, will freeze salaries

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By Tarek Amara

TUNIS, June 14 (Reuters) - Tunisian Prime Minister Elyes Fakhfakh said on Sunday he had decided against the use of more external debt and that all new expenses that arise for the country would be funded only through internal loans.

He said that he will freeze increases in the wages of public employees because of the critical state of public finances which was worsened by the coronavirus crisis.

This move could spark a conflict with the powerful UGTT Union, which is expected to reject the decision, and could lead to protests and strikes.

Tunisia needs an additional 4.5 billion dinars ($1.6 billion) of loans because of the coronavirus crisis, and the government will seek it from the local market, he added.

“External debt reached dangerous levels and now reached 60% of GDP, compared to 30% in 2013 and I decided not to continue in this way,” Fakhfakh said in interview with Attessia TV.

Tunisia expects the economy to shrink by up to 4.3% this year, the steepest drop since independence in 1956.

Tourism revenues fell by about 50% in the first five months of this year compared to the same period in 2019, as western tourists deserted Tunisia’s hotels and resorts.

“Public finances are very critical and we cannot continue with the approach of increasing wages,” Fakhfakh said.

If the situation continues as it is, the government could be forced to reduce wages, he added.

Tunisia is under pressure from the international lenders to freeze public sector wages — the bill for which doubled to more than 17 billion dinars in 2020 from 7.6 billion in 2010 — as part of measures to reduce its budget deficit.

But the UGTT says the monthly average wage of about $250 is one of the lowest in the world, with high inflation rates which reached 6.3 percent in May. ($1 = 2.8440 Tunisian dinars) (Reporting by Tarek Amara; Editing by Daniel Wallis and Stephen Coates)

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