Tunisia - Changing the structure of incentives
Ferroni, Marco
This report reviews the results of the reforms initiated in 1986. It focusses on those aspects of the reforms where more policy actions will be needed to produce a structure of economic incentives that better suits the outward looking strategy of the Government and its objective to increase the efficiency of resource allocation. It assesses the results of the trade reform; the effect on investment decisions of fiscal incentives; and the financial incentives. The underlying conclusion is that, although the structure of incentives has changed significantly in the last few years, the need to persevere with structural reforms remains strong, given the country's continued vulnerability to exogenous shocks. Sustained economic growth needs to be supported by more efficient investment as well as by a steady increase in exports. A major constraint to achieving these objectives is the deep-rooted dualism within the industrial sector between wholly exporting firms and firms producing for the domestic market. The continuation of reforms in the trade, fiscal and financial sectors is crucial for unifying the industrial sector, thus allowing the spill-over of efficiency gains from export industries to the whole economy. Such a continuation represents a major challenge for the Tunisian government. More generally, a time-bound, non-discretionary incentive framework capable of correcting market failures without creating distortions and rents is needed.
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