November 13, 2018 / 5:38 AM / in a month

Tunisia must control wage bill, IMF warns after deal with union

DUBAI (Reuters) - Tunisia must keep its public sector wage bill under control to avoid severe debt problems, a senior International Monetary Fund official warned after the government agreed to raise wages of about 150,000 employees of state companies.

Late last month, Tunisia’s UGTT union canceled a nationwide strike by public sector workers after the government agreed to raise wages and not to sell state companies.

Asked about the IMF’s view of the deal, Jihad Azour, director of the Middle East and Central Asia department at the Fund, said a recent IMF study showed Tunisia’s public sector wage bill was already among the highest in the world, relative to the size of its economy.

“It’s very important for the government to maintain control over current spending and to maintain control over the wage bill,” Azour said in an interview this week.

“This will allow them to achieve the fiscal targets they have set for 2019, and also this will reduce the additional pressures that increasing spending will put on taxpayers.”

Azour said the government needed to run “a very conservative fiscal policy” that would allow it to shrink its budget deficit gradually to levels that would be acceptable for the economy.

The IMF’s opinion is important for Tunisia because it is receiving aid from the Fund that is contingent on its economic reforms. In September, the IMF approved the payment of a $245 million loan tranche to Tunisia under a $2.8 billion program, after talks which local analysts described as difficult.

The government still faces pressure to raise the wages of about 650,000 state employees as unions have threatened a national strike this month if their demands are not met.

Prime Minister Youssef Chahed told parliament on Monday: “We hope that we will soon reach an agreement with UGTT about public sector employees that will improve purchasing power and take into account the financial situation of the country.”

Last month, the IMF urged Tunisia’s central bank to tighten monetary policy further to tackle high inflation, but the central bank decided at the start of this month to keep its key interest rate unchanged at 6.75 percent.

Azour said it was important for Tunisia to fight inflation and maintain an adequate level of foreign reserves, but he also acknowledged that the government faced a complex task in balancing multiple demands, including investing to address social issues and improving the business environment.

“We have to work on several tracks,” he said.

Additional reporting by Tarek Amara in Tunis; Editing by Matthew Mpoke Bigg

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