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Tunisia to propose wage, subsidy cuts in IMF talks, document shows

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Tunisia will cut its public sector wage bill and replace subsidies with direct support for the needy, according to a government reform proposal written to support talks with the International Monetary Fund and seen by Reuters.

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The proposal, shown to Reuters by a government source, envisages eliminating all general subsidies by 2024 and cutting the wage bill to 15 percent of GDP by 2022 from 17.4 percent last year, partly through early retirement and reductions in working hours.

A Tunisian government delegation led by the finance minister is starting talks with the IMF this week and will seek $4billion in loans, Prime Minister Hichem Mechichi told Reuters last week.

The IMF has previously called on Tunisia to enact economic reforms to reduce chronic fiscal deficits and a large public sector debt, including by cutting its wage bill, subsidies and transfers to state-owned companies.

Spending cuts are highly sensitive in the young democracy, where growing frustration over the economy and poor public services fueled protests in January, and where powerful labor unions seek to protect workers’ pay.

The reform proposal says the government aims to implement the changes in order to restore “economic equilibrium” and adds that it seeks to do so “without social costs.”

The reforms are broadly in line with ideas laid out by Finance Minister Ali Kooli in an interview with Reuters in January.

The proposals to cut the wage bill specify encouraging voluntary redundancy on 25 percent pay, early retirement packages and offering staff part time work at 50 percent of full pay.

The plan says it is “essential to rethink the pay system in consultation with social partners,” a reference to the labor unions, particularly by establishing rules for salary increases and bonuses that reflect both inflation and performance.

Last week the biggest union, UGTT, which has more than a million members, called for new negotiations on public sector pay.

It signed a general agreement with the government last month on economic reform that was seen as a necessary precursor to talks with the IMF, which are expected to last several weeks.

The proposal to cut subsidies would involve first phasing out food subsidies and then gradually ending subsidies for electricity and petrol, the document showed.

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