Chapter 1

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achieve their intended objectives if the bank management enjoy effective protection rates exceeding 100 percent does not change and if the policy environment does not (Lahouel 1995 and GATT 1994). promote competition. Although modest divestiture 3. The Uruguay Round and the Multifiber agreements (of (through selling some shares to the public) has taken place, which the EU is a signatory) will reduce Tunisia's preferenthe government needs to find core shareholders that can tial access to the EU market for most agricultural products, appoint critical board members, fill senior management and textiles, over the next ten years, as the EU reduces its positions, and run the banks after divestiture. With the tariffs on all industrial products and converts its NTBs for deepening of the financial system, the Government (with its agricultural imports to lower tariffs (see Rutherford, other government partners) needs to either reorient the Rutstrbm, and Tarr and Lahouel 1995). development banks' activities, close some, or link some of 4. These percentages apply to the manufacturing and agrithem up with commercial banks. culture sectors which together account for only about 35 Tunisia's financial sector is becoming increasingly sophis- percent of total GDP Cereal prices, while not officially conticated. Recent reforms have encouraged investors and the trolled, are determined by the state's support price. The development of longer-term financial instruments in the prices of most services and nonmanufacturing goods concreation of SICAVs and in the growth of the stock and bond tinue to be regulated, although price increases in these activmarkets. The preparation of reforms for institutional ities have significantly reduced the underpricing of many investors is also underway. This basis, along with a more goods and services (chapter 2 and Lahouel 1995). active privatization program, will further promote the devel- 5. This section is based on Rama 1995, Hakim 1995, and opment of a modem, diversified financial system. To deepen Azam 1995. and increase the efficiency of the capital markets, the fur- 6. The criteria used to measure unemployment in Tunisia ther liberalization of interest rates, the development of a differ from those commonly used in other countries, and secondary market in Treasury securities, and the establish- they have changed over time, leading to an overestimation ment and functioning of appropriate settlement systems are of the growth rate of the labor force. Since the growth rate aUl necessary. of employment is probably underestimated, the more recent "unofficial" unemployment estimates include a significant Notes upward bias. See Rama 1995. 7. This section draws on Dahlman 1994a, b; Levy 1994; 1. Sources for this section include: Lahouel 1995; GATT and Bell and Pavitt 1992. 1994; IDF Grant Study "Free-Trade Agreement Between 8. The cumbersome regulations governing nonagricultural Tunisia and the European Union" 1995, Rutherford, land titles also pose problems to the functioning of property Rutstrom, Tarr; and Stanton 1994. markets and the ability to use land as collateral for loans. 2. Under its full membership to the GATT and its partici- Less than 5 percent of properties have legal titles. pation in the Uruguay Round, Tunisia enlarged its tariff 9. The Government allows a tax deduction for the full binding coverage from 15 percent to 53 percent of total tar- amount of the investment for new issues of equity, up to a iff lines. All items of agriculture have been bound at tariff maximum of 35 percent of net taxable income provided the rates varying between 25 percent and 200 percent. About equity is held for five years. This represents a huge tax bene- 50 percent of all nonagricultural headings are bound with fit for investors and a loss in tax revenue for the Government. the range of 27 to 43 percent (excluding textiles which At the same time, the tax code does not specify that the benapplies a uniform rate of 90 percent beginning in 1996 and efit is available only to investors of publicly traded stock. declining to 60 percent in 2005. According to the GATT Privately held companies have therefore created subsidiary TPRM, bound tariffs are still very high for agriculture and closed-end mutual funds (SICAFs) to invest in their own textiles, and effective protection rates are much higher than companies and at the same time reap the tax benefit. At a what nominal rates imply. Wearing apparel will continue to minimum, this is a loophole that should be closed. 44 TuNsiS'S GLOBAL INrEGRAnON AND SusTAiABLE DEVELOPMENT STATEGIC CHOICES FOR THE 21sT CENrUmr
<strong>Chapter</strong> 4 Policies for higher growth As a result of the adjustment program and structural reforms the nonmanufacturing sector to GDP growth also rose initiated in 1986, the Tunisian growth performance improved (from -0.09 percent to 0.20 percent), whereas that of the considerably. This chapter analyzes such improvement. First, manufacturing sector slightly increased. The nonmanufacit describes the sectoral contribution to aggregate output turing sector increased its contribution to GDP growth growth. Then, after a brief exposition of the insights and evi- mainly because of the strong recovery in construction and dence provided by the new growth academic literature, it the slowdown of the decline in fuel. quantitatively examines how the enhanced growth perfor- Regarding the sectoral composition of GDP (table 4.2), mance is related to objective measures of various reforms. the respective average shares of the agricultural, manufac- The medium-term outlook section presents moderate and turing, and service sectors were higher during 1987-94 than high growth scenarios and the chapter concludes by propos- in 1983-86, whereas those of the mining, fuel, and coning a further liberalization of trade and the concentration of struction (particularly public works) sectors were lower in government's actions on the provision of public goods as necessary steps to achieve higher sustainable growth in Tunisia. the second period. TABLE 4.1 Growth performance, 1987-94 Contribution to real GDP growth Tunisia's growth performance improved during 1987-94 Agriculture and flshing 1983-86 0.89 1987-94 0.68 with respect to 1984-86. Real GDP grew at an average rate Agriculture 0.86 0.62 of 4.52 percent in the latter period, compared to 2.63 per- Fishing 0.03 0.07 cent corresponding to the previous three years (table 4.1). Industry excludingfuel 1.023 1.6 This improvement was stronger in terms of per capita GDP Manufacturing 0.89 0.92 growth due to a reduction in average population growth from 2.6 percent in 1984-86 to 2.1 percent in 1987-94. This Agmindustry Constructon materials Machinery 0.15 0.08 0.21 -0.02 0.11 0.11 large difference is also due partly to the unusually poor performance during 1984-86 and to the sound macroeconomic Chemicals Textiles Other 0.00 0.28 0.18 0.16 0.40 0.14 management and the program of structural reforms started Nonmanufacturing -0.09 0.20 in 1986. The 1981-86 period is more representative of the Mining (excluding fuel) peno is more o ~~~~~~~~Fel prereform period. Gas and electricity 0.01 -0.22 0.06 -0.03 -0.07 0.07 Except for agriculture and fishing, most sectors in the economy participated in this improvement (table 4. 1.) The Water Const-dion Total services 0.05 0.02 1.35 0.00 0.23 2.02 agricultural sector, including fishing and agroindustry, Transport and communication 0.07 0.36 decreased its contribution to GDP growth from an aver- FTnanal services 0.129 0.2 age of 0.89 percent during 1984-86 to 0.68 percent for Commerce -0.10 0.19 1987-94. On the other hand, the nonagricultural sectors increased their contribution to GDP growth from 1.67 Other Government services Adjustment factr 0.38 0.59 -0.16 0.44 0.59 -0.10 percent to 3.89 percent over the same period. Among the Net indirect taxes -0.40 0.88 nonagricultural sectors, it was the service sector that expe- GDP at market price 2.63 4.52 GDP at market price excluding rienced the highest rise in the contribution to GDP growth agriculture, agroindustry 1.67 3.89 (from 1.35 percent to 2.02 percent). The contribution of So.rce: Data from Ministry of Economic Development and stf calculations. 45
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Public Disclosure Authorized Public
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Copyright i 1996 The International
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Education policies 20 Basic educati
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2.4 Demand for telephone connection
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Acknowledgments The report is a pro
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STIL Soci&e Tunisienne d'Industrial
Page 15 and 16: Executive summary Elements of Tunis
Page 17 and 18: ments and controlling the expansion
Page 19 and 20: Progress in strengthening market fo
Page 21 and 22: investment banking, restructure som
Page 23 and 24: Chapter 1 Macroeconomic policy The
Page 25 and 26: Box .I Monetary policy Instruments,
Page 27 and 28: TALE 1.3 Main monetary Indicators 1
Page 29 and 30: national markets and ensure the sus
Page 31 and 32: domestic production, and inducing a
Page 33 and 34: was actually higher than that for t
Page 35: public banks and enterprises reveal
Page 38 and 39: (10 percent), and Malaysia (12 perc
Page 40 and 41: Infrastructure services: Provision
Page 42 and 43: on a pilot basis and is studying th
Page 44 and 45: or in the public sector. The Bank i
Page 46 and 47: onmental issues and their relation
Page 48 and 49: several industrial zones. Despite t
Page 50 and 51: vocational education more relevant
Page 52 and 53: also showed high effective rates of
Page 54 and 55: try an opportunity to accelerate a
Page 56 and 57: BOX 3.2 Free trade zones: Maximizin
Page 58 and 59: largest share of total employment (
Page 60 and 61: encouraging results and provides us
Page 62 and 63: ill market and to modernize the leg
Page 64 and 65: price/earnings ratio of about 25 in
Page 68 and 69: TABLE 4.2 crisis brought about an 7
Page 70 and 71: costly process of adjustment, the a
Page 72 and 73: ented economy The growth of exports
Page 74 and 75: as a whole, but the related transit
Page 76 and 77: Land degradation and water scarcity
Page 78 and 79: TABLE 5.1 Poky otfecdt Short term M
Page 80 and 81: TABLE 5.2 Complementary reforms (co
Page 82 and 83: IMF (International Monetasy Fund).
Page 84 and 85: Statistical Annex TABLE SA. I Exter
Page 86 and 87: TABLE SA.3 Public sector accounts,
Page 88 and 89: TABLE Sk6 GNP, output, and governme
Page 90 and 91: TABLE SA.8 Money, credit, prices, a
Page 92 and 93: TABLE SA IO Key economic variables,
Page 96: __s~~~~0 I _ 1 , h 5 .*-~. 5~~~ i -
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