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PROJECT INFORMATION DOCUMENT (PID)
CONCEPT STAGE
Report No.: 75773
Project Name
Region
Sector
Project ID
Borrower(s)
Implementing Agency
Environment Category
Date PID Prepared
Estimated
Date
of
Appraisal Authorization
Estimated ERPA Date
SOCIAL PROTECTION REFORMS SUPPORT PROJECT
MIDDLE EAST AND NORTH AFRICA
MNSHD
P144674
Republic of Tunisia
Ministry of Finance
[ ] A [] B [ X] C [ ] FI [ ] TBD
January 16, 2013
January 24, 2013
I.
Key development issues and rationale for Bank involvement
A.
Country Context
The challenges faced by Tunisia following the January 2011 popular uprising in terms of
high unemployment and regional disparities have called for a new vision of economic
growth and the social contract since 2011. The effectiveness and efficiency of Tunisia´s social
sector expenditures has greater urgency in the context of the economic slowdown and increasing
budget constraints. This project aims to support the preparation of reforms for consumption
subsidies and social security in order to improve the sustainability of the social protection
system.
With the election in October 2011 of a Constituent Assembly, and the formation of a new
interim Government of Tunisia (GOT), Tunisia successfully completed the first phase of its
political transition to a multi-party democracy. In January 2011, the wave of protests that
ended the 23-year rule of President Zine El Abidine Ben Ali, ushered in a new political and
economic era. National elections under the new Constitution are likely to take place between by
the end of 2013.
The most immediate challenge for Tunisia is to ensure economic and social stability, in a
situation where the short-term economic outlook remains uncertain. Economic growth has
started to recover in 2012 but the economic outlook remains uncertain and external financing
needs are expected to remain large in the near term. Gross Domestic Product (GDP) growth is
projected at 2-3 percent in 2012,1 but the pace of recovery will depend on the Government’s
ability to manage the social and political tensions in Tunisia,2 the execution and effects of the
The Government’s own GDP growth target for 2012 is higher at 3.5 percent,
In addition, severe snowfalls and floods affected Tunisia in early 2012 posing an additional challenge to the
government. Social strife increased in January 2012, but has since been at relatively moderate levels.
1
2
large fiscal stimulus, the impact of the increase in international food and fuel prices, and the
extent to which the European recession will affect tourism, exports and Foreign Direct
investment (FDI).
The increased fiscal pressure with lower revenue is increasing the urgency for rationalizing
public spending, including the main component, social expenditure. Social expenditure
accounts for approximately 60 per cent of total public expenditure or an estimated 20 percent of
the Gross Domestic Product (GDP). Similar to other countries in the Middle East and North
Africa (MENA) region, safety net expenditure, a component of total social spending, is
dominated by subsidies in Tunisia that primarily benefit wealthier households.
Overall, given the increasing constraints to both monetary and fiscal policies, the
authorities envisage that the future macroeconomic stance will gradually become more
conservative. The authorities’ Medium Term Fiscal Framework (MTFF) is based on a more
conservative view of public investment spending and also reflects the need to control the wage
bill and to rein in the food and fuel subsidies. Implementing such expenditure against the
backdrop on continuing social pressures and in the run up to the 2013 elections will require
significant efforts by the authorities. This project will support policy reform with a strong
consideration to the economic and social context the country is facing.
B.
Sector and Institutional Context
The interim Government has prepared an interim economic and reforms strategy which
seeks to pave the way for stronger economic growth and job creation, particularly in
lagging regions. A key pillar of this strategy includes Consolidating Social and Human
Development. Under this pillar, the Government aims to strengthen human development
indicators in terms of labor market participation and social disparities in livelihoods, health and
education largely by reinforcing accountability, quality and modernization in the social sectors.
Targeted policies for public expenditures and social transfers can enhance programs for more
effective strategies to improve opportunities for economic participation and mitigate poverty.
Given lagging economic growth, a relatively high informal labor force and growing fiscal
pressure, Tunisia’s consumption subsidy bill and its social security system are considered
unsustainable in the medium-term. While Tunisia was near the middle of MENA countries for
revenue, expenditure and public debt as a percentage of GDP in 2010, there has been a relative
decrease in revenue and increased debt pressure. With less robust GDP and revenue projections,
the imbalance will require the Government of Tunisia (GOT) to increase the efficiency of and/or
reduce expenditure. The ratios of ‘total revenue to total expenditure’ for Tunisia and MENA
averaged approximately 1.0 in 2010, however expenditure in Tunisia is projected to exceed
revenue through at least 2017, whereas MENA countries on average will have
revenue/expenditure ratios are greater or equal to 1.0 over the same time period, indicating
relatively lower fiscal pressure in other MENA countries as compared to Tunisia.
The combination of the large proportion of subsidy spending and its regressivity suggest
that these funds could be reallocated to other expenditure categories that have a more
direct welfare impact and lower fiscal burden. A Tunisia´s social expenditure shows that
pensions and education are the largest components (20 per cent of total public expenditure),
followed by subsidies and health (12.9 and 8.3 each), while social assistance (1.3 percent) and
labor programs (3.9 per cent) are the smallest components. Nearly 3000 million Tunisian dinars
(TND) were spent on fuel, food and transport subsidies, accounting for 4 percent of GDP as of
2012. Of this spending, fuel subsidies account for 1500 million TND and 1200 million TND
goes towards subsidizing food and basic products.
After universal consumption subsidies, the broadest social safety net (SSN) is Tunisia’s
Program National d’Aide Aux Familles Necessiteuses (PNAFN) established in 1986. The
PNAFN provides unconditional cash transfers to approximately 9 percent of the population3
considered “needy” (see “Eligibility Determination” below), or 235,000 households as of end
2012. Beneficiary households receive a cash transfer allocation of 100 TND per month plus
child supplements of 10 DTN for up to three children. More increases are expected, given that
families continue to inscribe themselves onto a waiting list for the program and social pressures
are maintained. 27 percent of the population also receives health care insurance cards through
this program for free or subsidized services, although eligibility criteria are unclear.
Regarding social security, the GOT has initiated analysis on scenarios for reform of the
public pensions and health insurance to address long-term sustainability issues. The public
and private pension schemes are currently considered financially unsustainable. Expected
income flows are not enough to cover expected expenditures and by 2018 the combined deficit is
expected to reach 2 percent of GDP in the absence of reforms. The current pension expenditures
in Tunisia represent around 5 percent of GDP, with a contribution rate of 37 percent of the
working age population.
While the private sector pensions regime (CNSS) faces less deficit, fiscal pressures are
expected to emerge as early as 2014. CNSS has not yet depleted its reserves and not all its
schemes are facing deficits yet. However, they are projected to appear as soon as 2014 and the
accounts will have an uncovered deficit by 2014. The sources to finance these deficits are still
unclear, since the Ministry of Finance is not expecting to have to attend CNSS financing needs.
The national health insurance fund also faces a pending deficit due to rising expenditures,
estimated to amount to 50 million TND by 2015. Health insurance for active workers has
been administered by a single fund since the merging of multiple schemes in 2007, Caisse
Nationale d’Assurance Maladie (CNAM). CNAM financed by mandatory contributions from
employees and public/private employers; the contribution rate is 6.75 percent for employees and
nearly 15 percent for employers. CNAM provides health insurance through social security
contributions for 3.3 million civil and private sector employees in addition to their dependents as
of 2011, which is estimated to account for 80 percent of the population. Nearly 13 percent of the
population remains uninsured as of 2011.
C. Relationship to the Interim Strategy Note
3
According to MOSA (Office of Tunisians Abroad), since February 2011, MoSA has also extended social
assistance benefits to Tunisian nationals fleeing Libya. The assistance includes a one-time cash transfer of 400 TND
per single beneficiary and 600 TND per household. Beneficiaries should provide evidence of hardship and having
resided in Libya for a period of at least 6 months prior to repatriation. More than 50,000 Tunisians fled Libya
between February and August 2011, most of whom remain unemployed.
The proposed operation directly supports the Bank’s interim country strategy. The Bank’s
2013-2014 Interim Strategy Note (ISN) for Tunisia4 responds to the country challenges and
government priorities and is designed to support the transition phase until a new government is
elected under a new constitution. The ISN focuses on three main areas: (i) Laying the Foundation
for Renewed Sustainable Growth and Job Creation, (ii) Promoting Social and Economic
Inclusion, and (iii) Strengthening Governance. By seeking to improve the efficiency of public
expenditure and coverage of social protection schemes, the proposed operation directly supports
pillars (i) and (ii) of Tunisia’s ISN.
The proposed operation is also directly linked to the programmatic Governance, Opportunity and
Jobs (GOJ) Development Policy Loan (DPL) series, a key component of the ISN. The project is
fully consistent with the 2012 DPL by supporting measures to implement a conservative fiscal
framework while addressing social disparities and improving the health sector. The activities
supported by this project, by being fully aligned with the DPL, will facilitate the design and
implementation of reforms agreed among development partners.
II.
Proposed objective(s)
The proposed project development objective (PDO) is to support the preparation of reforms for
consumption subsidies and social security in order to improve the sustainability of the social
protection system.
The project seeks to strengthen the GOT’s capacity to design, manage and execute the reforms in
the following areas: (i) fuel and food subsidies; (ii) the national pension funds; and (iii) the
national health insurance fund.
III.
Preliminary Description
International experience has demonstrated the need to have both accurate analysis of reform
options as well as an effective management of the reform process, including dialogue and
communication. The project will provide technical assistance to strengthen the Government’s
capacity to more rapidly identify, prepare and formulate new regulation in coordination with a
broad array of stakeholders from different ministries and civil society.
The project will thus finance consulting services to provide technical assistance and support to
the Ministry of Finance for the implementation of a national dialogue and reforms plan, which
will liaise with an Economic Reforms Implementation Unit for coordinating the implementation
of high-profile and reforms that involve multiple stakeholders within the Prime Minister’s
Office.
The proposed project has three components: (1) Subsidy Reform; (2) Pension Reform, and (3)
Health Insurance Reform.
4
World Bank (2012). Tunisia Interim Strategy Note. Report No. 67692-TN. Washington DC: World Bank.
Technical assistance will comprise three broad categories:
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IV.
Development of the reform agenda: further refining and developing the Government’s
concept for reform and elaborating a detailed implementation plan and schedule for its
realization, including an analysis of technical and institutional barriers to meeting
objectives and identifying alternative solutions;
Design of reforms: helping to carry out the activities needed to implement the plan,
including the reform of legislation, and
Execution of reforms: including institutional capacity building and information and
communication strategies required to implement the reforms.
Safeguard Policies that might apply
Safeguard Policies Triggered by the Project
Environmental Assessment (OP/BP 4.01)
Natural Habitats (OP/BP 4.04)
Pest Management (OP 4.09)
Physical Cultural Resources (OP/BP 4.11)
Involuntary Resettlement (OP/BP 4.12)
Indigenous Peoples (OP/BP 4.10)
Forests (OP/BP 4.36)
Safety of Dams (OP/BP 4.37)
Projects in Disputed Areas (OP/BP 7.60)*
Projects on International Waterways (OP/BP 7.50)
Piloting the Use of Borrower Systems to Address Environmental
and Social Issues in Bank-Supported Projects (OP/BP 4.00)
V.
Yes
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No
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TBD
Tentative financing
Source:
Carbon Finance
$4.81 ($m.)
Total
VI.
Contact point
Contact:
Title:
Tel:
Fax:
Email:
Location:
VII.
*
Heba El Gazzar
Sr. Economist, Human Development, MNSHH
[email protected]
Tunis
For more information contact:
By supporting the proposed project, the Bank does not intend to prejudice the final determination of the parties' claims on the
disputed areas
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