Tunisia seeks to cut fiscal deficit to 5.5% in 2023, led by economic reforms

TUNIS, Dec 23 (Reuters) - Tunisia expects to reduce its fiscal deficit to 5.5% next year from a forecast 7.7% this year, driven by austerity measures that could pave the way for a final deal with the International Monetary Fund on a rescue package.

The North African country has been in urgent need of international help for months as it grapples with a crisis in public finances that has raised fears it may default on debt and has contributed to shortages of food and fuel, according to government critics.

The Economy Ministry said on Friday that economic growth in 2023 would be 1.8%, compared with 2.5% expected this year.

The country's external borrowing needs next year will increase by 34% to 16 billion dinars ($5.2 billion) while public debt is expected to rise by 44.4% to 20.7 billion dinars.

Tunisia has reached a staff-level agreement with the IMF for a $1.9 billion rescue package in exchange for unpopular reforms, including cutting food and energy subsidies, and overhauling public companies. It aims to reach a final deal in weeks.

The 2023 budget showed that wage bill in the public sector will drop from 15.1% in 2022 to 14% next year, a main reform demanded by the IMF.

The country's trade deficit is expected to shrink by 1.5% next year, to 15.8% of GDP in 2023.

PAINFUL REFORMS

According to next year's budget published by the economy ministry, Tunisia intends to reduce subsidy expenditure by 26.4% to 8.8 billion dinars.

The government is also seeking to raise tax revenue by 12.5% to 40 billion dinars with the rate for some jobs increasing to 19% from 13%.

The powerful UGTT union, with about 1 million members, has said it would reject the finance law if it was passed, adding it could cause a social explosion as Tunisians struggle with poverty and inflation, which hit a record 9.8% last month.

The ministry said it expects inflationary pressure to continue with the start of the reforms, which the union called "very painful".

($1 = 3.1069 Tunisian dinars)

Reporting by Tarek Amara; Editing by Frances Kerry, Kirsten Donovan and Alexander Smith

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