Fiscal Reporting

Tunisian practices in the area of fiscal reporting (2013 data) in relation to the Fiscal Transparency Code are mixed. Most practices are basic or satisfactory. In most cases, the information exists but is fragmented among different entities, and the existing analyses are often for internal purposes and not published. Many indicators can be improved in the short term without significant changes to procedures. There are several strengths of Tunisian practices.

• All fiscal reports for the general government^* are centrally prepared within the MoF by the Directorate General of Resources and Balances (DGRE) in accordance with the IMF Special Data Dissemination Standard (SDDS).

• The fiscal statistics present revenues and expenditures using administrative, functional, and economic classifications and are published in the IMF Government Finance Statistics Yearbook.

• A number of in-year reports are produced and published on a monthly, quarterly, or semiannual basis, including in particular the biannual budget execution report, which presents comparisons between approved budget and outturn.

However, there are significant gaps between international good practices and the current situation in Tunisia that call for reforms in a number of areas:

• Fiscal statistics are produced for the general government (representing over 40 percent of GDP), with the exception of extrabudgetary entities, which include the Public Non Administrative Agencies (EPNAs), the Public Administrative Agencies (EPAs), and special funds. These 2621 extrabudgetary entities represent 2.1 percent of GDP (mission estimate).

• Fiscal reporting for the other public sector entities—in particular public corporations, whose budgets represent 38 percent of GDP—is incomplete or nonexistent.

• Reports on the stock of public debt (which represents 48.5 percent of GDP) and the composition of public debt are produced and published on a regular basis, but there is no comprehensive overview of net worth reflected in a balance sheet for either the central government or the general government. The Tunisian public sector’s negative net financial worth is particularly large and represents 86.7 percent of GDP. The total public sector liabilities represent 160.3 percent of GDP while financial assets represent only 73.5 percent of GDP.

• There are no statistics on tax expenditures, the impact of which could be considerable in Tunisia. For example, one estimate places the fiscal impact of VAT exemptions, which is part of tax expenditures, at 0.9 percent of GDP.

This report provides several recommendations to improve the coverage, quality, and dissemination of fiscal reports to further improve fiscal transparency. The principal recommendations are as follows:

• Prepare consolidated reports on the public sector financial position, which should initially include the preparation of a financial balance sheet for which information is available (Recommendation 1.1);

• Reduce the delays in preparation of the annual accounts by complying strictly with the length of the complementary period established by law, improving bank reconciliation procedures, and regulating the timetable for the production of the annual accounts (Recommendation 1.2); and

• Attach a list of tax expenditures and their impact on government revenue as an annex to the draft annual budget law (Recommendation 1.3).

Fiscal Forecasting and Budgeting

Most of the fiscal and budget forecasting practices in Tunisia are considered basic or satisfactory, with a few considered advanced, as regards to the IMF Fiscal Transparency Code. Forecasts are produced over a short-term horizon by competent teams and based on reliable data, although the volatile political and economic environment of recent years has given rise to more pronounced gaps than usual. Significant improvements to the legal and fiscal reporting frameworks are also underway with the preparation of a new draft organic budget law.

However, significant deficiencies related to the coverage and time horizon of fiscal and budget forecasts need to be addressed.

• The main issues in fiscal forecasting relate to the coverage of the central government budget documentation. For example, the budget documentation does not include information on the annual budgets of social protection agencies.

• The forecast horizon for public finances, including those of central government, is limited to one year (particularly during the recent political transition), despite the gradual but still modest development of the Medium-Term Expenditure Framework (MTEF) and program budgeting.

• Although the report presenting the budget law includes numerous qualitative objectives for fiscal policy and sets out priorities and the main fiscal aggregates for the coming year, no explicit numerical targets for the medium-term fiscal policy are formally established.

The principal recommendations to strengthen fiscal forecasting and budgeting are the following:

• Integrate the budgets of social protection funds into the annual budget law by annexing the budgets of the three funds in the budget documentation with an introductory statement discussing, inter alia, the financial relationships between these funds as well as the total direct and indirect support provided by the government (Recommendation 2.1).

• Improve the quality of fiscal forecasts by taking account of, in a comprehensive framework, all interactions between key macroeconomic variables likely to influence the fiscal aggregates and by establishing a procedure for independent evaluation of fiscal forecasts (Recommendation 2.2).

• Formulate an explicit medium-term fiscal policy, which would entail the regular adoption of quantified targets for total revenues and expenditures as well as deficit and debt targets for general government, over a period of no less than three years¹ (Recommendation 2.2).

Fiscal Risks Analysis and Management

Significant fiscal risks have materialized in Tunisia in recent years. For example, the government had to recapitalize two public banks in 2015 and a third recapitalization is now under way. The estimated amount of the recapitalizations is about 647 million Tunisian Dinar (TND) which represents 0.7 percent of GDP. Moreover, the vulnerability of the Tunisian economy to fluctuations in oil prices and the exchange rate entail fiscal risks estimated at TND 78 million (0.3 percent of the central government budget in 2015).

In general, the information related to fiscal risks is fragmented and reported only on a limited basis. There is no consolidated publication of the main risks to public finances or a presentation of a government strategy to address those risks. While certain risks are discussed in the budget documentation and the government guarantees are monitored on an aggregate basis, there is no document to facilitate the monitoring of fiscal risks relating to government holdings in the numerous public corporations, including systemically important banks. Similarly, there is little or no monitoring of policy commitments in respect to the financial sector. The same holds true for commitments in connection with concessions arrangements, although the government plans to develop Public-Private Partnerships (PPPs) of which the government’s obligations should be regularly disclosed and actively managed.

Apart from macroeconomic risks, the Tunisian government is exposed to different risks that could affect fiscal and budget forecasts. These risks include but are not limited to:

• Risks with no direct link to macroeconomic variables but having an impact on overall tax revenues such as the impact of a decline in tourism (related to security risks) on public finances;²

• Risks associated with the management of the government’s assets and liabilities. Risks related to government assets, such as Treasury loans or onlending, could entail significant costs if the loans are not repaid. These risks also include risks related to the government holdings of public corporations and the government’s equity participation;

• Risks associated with the government’s contingent liabilities, in particular guarantees, including external and domestic debt guaranteed by the government (more than 10 percent and 1.4 percent of GDP respectively at end-2014), and the government’s exposure to the financial sector (20 percent of GDP);

• Finally, the medium- to long-term risks associated with the sustainability of the social security system. The public sector social security and pension system (CNRPS) registered a deficit of 0.3 percent of GDP in 2014, and the financing gap is estimated at TND 15.9 billion by 2040 (18 percent of GDP in 2015); and

• Risks associated with public corporations. The lack of transparency in monitoring the financial performance of the 104 public corporations creates considerable fiscal risks for the Tunisian public finances. For example, government subsidies to the 28 largest corporations increased from TND 2.7 billion (4.3 percent of GDP) in 2010 to TND 6.5 billion (9.2 percent of GDP) in 2012, an increase of over 140 percent in two years.

Significant improvements in the analysis and reporting of fiscal risks are needed to better understand and manage them. The following measures are recommended:

• Prepare alternative scenarios of macroeconomic forecasts and expand the sensitivity analysis to reflect interactions between the different macroeconomic variables (Recommendation 3.1).

• Conduct a fiscal sustainability analysis for the medium- and long-term taking account of: (i) the evolution of external debt; (ii) the social security system related to civil service; and (iii) other fiscal pressures (demographic, security related, etc.) (Recommendation 3.2).

• Develop and operationalize a consolidated framework to monitor and analyze fiscal risks affecting the government balance sheet. The framework should build on: (i) a consolidated overview of government’s assets and liabilities; (ii) a closer monitoring of risks associated with guarantees provided by the government; (iii) a closer monitoring of public corporations, in particular public banks; and (iv) a monitoring of policy commitments in respect to the financial sector. (Recommendation 3.3).

The implementation of the reforms already planned by the authorities and recommended in this report, including publishing existing analyses that are prepared for internal management purposes, will significantly improve the areas identified as important by this evaluation, as shown in Table 0.3 below. This would result in considerable improvement in fiscal transparency in Tunisia in the coming years.