* Government to decide strategy on state banks by
* Will set up asset management firm for tourism debt
* New fuel pricing formula to be introduced next year
* Tax reforms may reduce preferences for exports
* Central bank to make exchange rate more flexible
(Adds details of pledged economic reforms, context)
By Andrew Torchia
DUBAI, June 17 Tunisia may spend over a billion
dollars to recapitalise its state-owned banks as the government
struggles to stabilise the economy after the 2011 revolution,
Tunisian authorities have told the International Monetary Fund.
Plans for the rescue operation were described in a letter by
the government to the IMF, which agreed earlier this month to
lend Tunisia $1.74 billion over two years. The letter was
published on Monday.
"A priority of the government will be to implement a series
of measures to mitigate banks' weaknesses that were accumulated
during years of favouritism, inadequate standards and weak
banking supervision," the government said.
Strengthening Tunisia's banks is important to boost the
economy; many businesses, particularly smaller ones, have
reported difficulties in obtaining loans because of the economic
and political instability that followed the revolution.
The North African country is struggling with rising
inflation, a big external deficit and an uncertain outlook since
secular dictator Zine al-Abidine Ben Ali was toppled in the
first "Arab Spring" uprising two years ago.
An audit of the three state-owned banks which dominate the
financial system is to be completed by December, and authorities
aim to decide by mid-September whether to recapitalise or merge
the banks, or reduce the state's holdings in them.
The government is preparing to "mobilise all necessary
resources" to recapitalise the banks in the next two years, a
process which could cost 2.6 percent of economic output or about
$1.1 billion, the letter said.
It also said authorities would address non-performing loans
in the tourism sector, which was hit hard by the revolution as
foreigners stayed away. Loans to troubled tourism businesses
account for over a fifth of the country's non-performing loans.
The government will set up an asset management company to
buy bad tourism assets in exchange for state-guaranteed bonds,
the IMF said.
Tunisia also pledged a range of other reforms, including
changes to its costly and politically sensitive system of energy
subsidies. A new formula for pricing fuel will be launched next
year and leave gasoline close to international prices, it said.
The government said it would reform the tax system inherited
by the pre-revolution government, which has been criticised for
heavily favouring exporters and failing to encourage investment
in the country's poorest regions.
Tunisia will announce by December a timetable for narrowing
the gap between corporate tax rates on the onshore and offshore
sectors, the letter said.
The government hopes these reforms will help it balance
increased social spending in the wake of the revolution with the
need to bring a widening budget deficit under control.
The letter predicted Tunisia's overall fiscal deficit would
drop to 2.5 percent of gross domestic product by 2018, including
bank recapitalisation, from an estimated 7.3 percent this year.
However, this will depend on solid economic growth which
could be slowed by weakness in Europe, to which Tunisia is
heavily exposed, and the approach of Tunisian elections expected
towards the end of this year.
The IMF forecast Tunisia's current account deficit, which
prompted it to seek its IMF loan, would stay high this year at
7.5 percent of GDP, falling to 5.1 percent in 2015.
To help conserve its foreign exchange reserves in the face
of the deficit, the central bank said in the letter that it
would take further steps to make the Tunisian dinar's
exchange rate more flexible.
(Reporting by Andrew Torchia; Editing by Louise Heavens)