Tunisia - Current economic position and prospects of Tunisia

RESTRICTED Report No EMA-22a This report was prepared for use within the Bank and its affiliated organizations They do not accept responsibility for its accuracy or completeness The report may not be published nor may it be quoted as representing their views INTERNATIONAL BANK FOR RECONSTRUCTION AND DEVELOPMENT INTERNATIONAL DEVELOPMENT ASSOCIATION CURRENT ECONOMIC POSITION AND PROSPECTS OF TUNISIA May 4, 1970 Europe Middle East and North Africa Department  CURRENCY EQUIVAIENTS 1 dinar - 1.905 US dollars 1 dollar o.525 dinars 1 million dinars a 1,905,000 US dollars 1 million dollars 525,ooo dinars  TABLE OF CONTENTS Page No. BASIC DATA ............................... ...........o.o ...... SUMMARY AND CONCLUSIONS ................. . .............. . i I. CURRENT ECONOMIC DEVELOPMENTS .........1..... ........- 1 Recent Developments. ..... . ... . ......... . ......... . 3 Prospects for 1970 5 ... .. ............. 5 II. ECONOMIC PERFORMANCE ................. 7 Economic Planning .7.... . .................. 7 Population, Labor and Education ......................... 9 Public Enterprise Performance ..........12 Government Finance ...... o.o.*.* *..... . ...... 16 Money and Credit ..... . .................. * ... s18 III. FOREIGN TRADE AND EXTERNAL FINANCE ...................... 19 Commodity Trade ........................................ 19 Services and Current Transfers .......................... 22 Foreign Capital Inflow .. ....... . ..... .... 24 External Reserves .... .. *. . . ... . I.. . ............ 25 External Debt ...25................ * 25 IV. OUTLOOK .....................os............ 26 STATISTICAL APPENDIX MAP This report is based on the findings of a mission which visited Tunisia in January/February 1970. The mission consisted of Messrs. Michael H. Payson (Chief), Bernard A. Schmutz and Diego Hidalgo (General Economists).   BASIC DATA Area 164,000 square kilometers 63,380 square miles Population 1969 1966 1956 Total (millions) 4.94 4.55 3.9h Tunisians (millions) 4.87 4.48 3.60 Rate of growth of Tunisian 1967-69 1957-66 population (after emigration) 2.8 -pa. 2.2% p.a. Gross national product (1969) 597 million dinars Rate of growth /, 196h-67 2.9% p.a. 1968-69 7.0% p.a. Per capita, 1969 U.S. $230 Gross domestic product at factor cost (1969) 533 million dinars Percent sectoral distribution: /2 1969 1967-68 1964-66 Agriculture TT7 16.1 21.4 Mining (incl. oil) 6.0 5.5 2.7 Manufacturing 15.3 1h.7 14.1 Construction 8.1 8.8 9.3 Transport and communications 8.4 9.1 9.1 Others 46.o 45.8 43.h Percent of GDP at market prices 1969 1967-68 196h-66 Gross fixed capital formation 21.7 22.8 25.5 Change in stocks 1.2 -0.8 0.7 Domestic savings 17.5 15.3 14.0 Net factor income and current transfer payments abroad 3.9 3.8 2.4 External deficit on annual account 9.3 10.5 14.6 Net imports of goods and services 5.5 6.7 12.1 1969 Rate of Increase Money and Credit (millions of dinars; 1969- 1967-68 year end) (% p.a.) Total money supply 180.5 8.1 8.1 Time and savings deposits 50.2 1.4 9.1 Bank credit to Government 92.2 4.1 1.8 Other bank credit 235.1 7.6 7.9 /1 GDP at 1966 market prices /2 Based on 1966 price estimates  Rate of Increase Prices 1969 1967-6B 1964-66 Wholesale price. 1.2 3.5 7.0 Cost of living (Tunis) 4.2 2.7 4.9 1969 Rate of Increase General Government (millions 1969 1966-68 Operations of dinars) (%) (% p.a.) Current revenue 175.9 18.9 6.9 Current expenditures 155.4 7.8 12.3 Capital outlays 77.7 -1.4 5.9 1969 Rate of Increase (millions 1969 1967-66 1964-66 External trade of dinars) (% p.a.) (% p.a-) Exports of goods and services 141.5 6.9 7.7 14.3 Imports of goods and services 175.6 15.8 -4.7 13.0 Composition of exports (Percent of exports of goods and services) 1969 1967-68 1964-66 Rock phosphate 7.1 9.8 10.9 Fertilizer 5.7 8.5 6.5 Crude oil 15.5 9.7 1.4 A Olive oil 7.8 7.9 13.0 Citrus 2.0 1.9 2.6 Wine 2.0 3.5 5.4 Wheat - - 2.7 Tourism 17.2 15.8 10.4 Others 42.7 42.9 47.1 1969 1967-68 1965-66 Balance of Payments (average) (average) (US % million) Trade, net -95.3 -86.0 -108.4 Invisible, net -15.6 -25.1 -35-0 Current account, net -110.9 -111.1 -143.4 Public capital inflow, gross 113.9 91.9 78.7 Private capital inflow, gross 63.6 74.4 82.5 Amortization -49.5 55.2 29.1 Increase in reserves, net 17.1 - -11.3 /1 Started in 1966  Foreign exchange position (US $ million) End of 1969 Gross foreign exchange reserves 50.3 (less than 3 months imports) Net foreign exchange reserves -11.2 IMF position Quota 35.0 Drawings 19.3 Bank/IDA operations (end 1969; US $ million) 109.3 External debt (US 5 million) 1969 1968 Total public debt outstanding (end of year) 700.7 625.8 1969 1968 1966-67 (average) Total debt service ratio (percent of exports of goods and services) 25 26 23 Public debt service ratio (percent of exports of goods and services) 21 22 18   SUMMARY AND CONCLUSIONS i. Tunisia's will to develop has been reflected by the high share of resources devoted to investment. However, the scarcity of natural resources, the small size of domestic market, and continuing shortage of managerial and skilled manpower have been major obstacles, and high investment imposed strains on the economy. ii. During 1965-1968, the period of the second Plan, output grew by 3 percent per annum, compared with a projected 6 percent. Unfavorable weather conditions affected agriculture adversely, and shortfalls occurred in mining and manufacturing production. Actual investment was close to target, and shortfalls in savings were offset by higher foreign borrowing and a decline in external reserves. Performance improved in 1968. GDP rose by over 9 percent and savings recovered, despite a sharp deterioration in Government savings. Investment was reduced, and adjusted to domestic resources and to the inflow of foreign public capital. At the same time, institutional re- forms were pushed forward, particularly the creation of cooperatives in traditional activities like agriculture and trade. The decision taken early in 1969 to accelerate further these reforms went beyond financial and manpower constraints. iii. The floods which hit Tunisia in September/October 1969 caused heavy damage. Economic activity and exports were-considerably reduced during the last 3 months of the year. Full recovery of production in mining and manufacturing depends now on the re-establishment of transport facilities. A D 33 million reconstruction program for 1970-1972, which is being pursued, assumes substantial external assistance. iv. Opposition to the speeding of the reforms led to Government changes in the fall of 1969. Policies on structural reform were reversed and eco- nomic authority was dispersed in reaction against the former centralization. The new Government is based on on collective leadership and on the need for a period of stabilization or even retrenchment on the ambitious development goals of the past. While the need for overall economic planning is recog- nized, a greater role is to be left to private initiative. Most agricul- tural production cooperatives working private land were dissolved, trade is being reorganized, and the economic and.financial position of public enterprises, which dominate most activity outside tourism, is being re- examined. v. Real growth of GDP was close to 5 percent in 1969, compared with a projected 7.6 percent. Extreme weather conditions and the floods affected output in agriculture, mining, transport and communications. On the other hand, output of the oil and manufacturing industries was greater than ex- pected despite the floods. Capital formation was less than projected and remained a stable proportion of GDP. The Government reduced its investment outlays and domestic borrowing; this, and the floods contributed to restrain the absorption of external finance. National savings were below expectations and contributed a smaller proportion of investment finance than in 1968. The balance of payments had a D 9 million surplus.  - ii - vi. Agricultural prospects are good, and achievement of the projected 7.7 percent real increase in GDP in 1970 will depend on the re-establishment of activity in mining and manufacturing. and on the ability to implement public investment as scheduled. This investment is projected to increase by 23 percent despite a decline in Government savings. The Government budget gives priority to those investments for whichi foreign financing has been arranged and which have the greatest effect on employment. As total savings are expected to remain almost stable, external financing is to rise further in' proportion of investment; disbursement on external aid already contracted is to accelerate. The balance of payments is expected to have again a surplus. vii. The present economic and financial situation and the importance of the public sector limit the potential release of economic controls. The public sector remains dominant and it is important that the investment pro- gram for the years ahead be re-examined. Investment decisions often lack flexibility, and project preparation gives insufficient attention to economic criteria. Efforts to improve made during the last two years should be con- tinued. New policies also need to be formulated to promote progress in agriculture. Delimitation of responsibilities and better coordination are essential to prevent the present fragmentation in economic authority weaken- ing Government action. viii. Tunisiats population has been growing at about 2.8 percent per annum for several years, and was 4.9 million in 1969. Family planning was initiated in 1962 and substantially expanded, but progress has suffered from insufficient organization and personnel. The Government is willing to ex- pand the program further, and prospects of success are enhanced by a favora- ble environment and the availability of external assistance. ix. Unemployment is a major problem; about 20 percent of the rural labor force and a high proportion of young school leavers are without work. The Government intends to give a special priority to job creation. More attention is to be given to regional development and the labor intensity of projects; efforts initiated in 1969 to promote emigration, including training programs, will be reinforced; the project basis and the training function of work re- lief programs will be strengthened. x. The long term demand for high grade and skilled manpower is being assessed to guide labor and education policies. More information on the labor market, and close coordination of all Government agencies involved, including in ministries responsible for education and project design, are needed. xi. The number of secondary education graduates now greatly exceeds manpower requirements. The educational system and the Plan objectives are being re-examined in the light of employment and financial constraints. Im- provement of vocational training and youth programs is a necessary complement to reforms of the educational system.  - iii - xii. The performance of public enterprises is often disappointing. With the help of the Bank, the Government intends to improve accounting, expand training and re-organize a first group of enterprises. Financial re- organization and, in a few cases, reconversion, are needed. xiii. Investment opportunities in export industries are to be examined by the Government. The promotion of industrial exports, particularly to EEC countries, also requires a sustained marketing effort. This could be asso- ciated with further efforts to attract foreign private investment and to extend cooperation between Tunisian and foreign firms, including sub- contracting. xiv. Government's savings recovered substantially in 1969, but did not reach the pre-1967 level. They are projected to decline in 1970, and will fall substantially short of projections in the four year Plan. The already high tax burden (Government current revenue is over 25 percent of GDP) limits the possibility of expanding revenue by raising taxes, and the major need in budgetary policy is for a much smaller rate of increase in current spending. However, current expenditure is budgeted to rise by over 10 per- cent in 1970, education again accounting for a large proportion of the in- crease. Improvement of the overall fiscal position also depends on more effective financial control of public enterprises and flexibility in invest- ment. Projects submitted for Government's approval since October 1969 show a revival of private investment outside tourism, and the demand for credit from the private sector is likely to rise above expectations. The antici- pated money expansion already exceeds projected real economic growth; the measures taken by the Government should prevent public domestic borrowing from exceeding projections. xv. The total external public debt outstanding by the end of 1969 was about $700 million, equivalent to 60 percent of GDP; the corresponding debt service in 1969 amounted to 21 percent of receipts from commodity ex- ports and non-factor services (respectively 25 percent for the service on total external debt). Interest and amortization payments due on the pres- ent public debt total imply almost the same amount in each of the next few years as in 1969. These commitments limit the scope for further borrowing, especially of medium term credits. They also call for further effort to promote exports, and to raise domestic savings and improve the productivity of capital.   I. CURRENT ECONOMIC DEVELOPMENTS 1. Rainstorms hit Tunisia between September 27 and October 22, 1969. Heavy floods occurred, in particular in northwestern and central Tunisia, and 93 percent of the territory was decreed a disaster area. More than 500 people died, about 50,000 houses were demolished, and direct damage to infrastructure (excluding housing) was roughly estimated at D 27 million. The toll of destruction included 270 km of highway, 25 bridges, and a high proportion of secondary roads; a large portion of the railway network and 20 bridges; irrigation works and livestock; telecommunications; water and sewerage systems in some major cities. Consequently, both production and exports were considerably reduced during the last three months of the year. Preliminary Estimates of Direct flood Damages Million Dinars Railway 5.4 Public Works 5.0 Agriculture 14.5 Irrigation (6.1) Livestock, arboriculture (3.5) Others 2.1 27.0 2. Full recovery of production in mining and manufacturing depends on the re-establishment of transport, especially railways, as production facilities were not too seriously damaged. Emergency work on major rail- way lines should restore capacity during the first half of 1970. Damage to roads will slow down traffic considerably in several regions until re- pair is completed. Agricultural production will also depend on recon- struction although the present soil moisture makes immediate prospects promising. 3. A reconstruction program is being prepared, providing for contri- bution by the Government of about D 5 million per year during 1970-72. External assistance anticipated is D 15 million, of which D 4 million are committed at present. Re-examination of the 1969-1972 Development Plan is to take into account the additional financial needs for reconstruction and coordinate them with other investments. 4. There were also governmental changes in 1969 due to widespread opposition to accelerated institutional reforms. The Government was modi- fied in September, because of the growing opposition to the drive towards cooperatives in agriculture, and again in November after the presidential and parliamentary elections. Policies on organization of production under co- operatives were reversed and economic authority was dispersed in reaction against the former centralization. Until now, the Government has been reviewing the situation and reexamining options.  - 2 - 5. Institutional reforms had been a major part of an active approach to economic development aiming also to modernize Tunisian society. Co- operativization of traditional activities, in particular agriculture, handicraft and trade, was assigned a major role in this effort. The establishment of state-owned enterprises in other sectors was to overcome handicaps set by limited natural resources, a small domestic market and lack of managerial and skilled manpower. The decision early in 1969 to introduce production cooperatives throughout the agricultural sector by the end of the year added to the dissatisfaction resulting already from the poor performance of existing cooperatives. In other sectors, apart from tourism and housing, the privileged position of public enterprises and the reliance of Government policies upon direct intervention and con- trol limited the scope for private initiative. 6. While recognizing the need for economic planning and reforms, the new Government intends to favor individual freedom, to leave a greater role to private initiative, and not to impose reforms as was done in the past. A law of September 20, 1969 reversed policies on agricultural organi- zation and re-affirmed the co-existence of public, cooperative and private farming, and the right of individuals to join or leave cooperatives. Previ- ous re-organization measures introducing cooperatives in handicraft and trade were adjusted and restrictions on individual enterprise to a large extent eased. A recent law permits dissolution of retail trade coopera- tives. The economic and financial position of public enterprises is being re-examined. Special efforts have been started to attract foreign invest- ment for export industries, for which association with the EEC offers most prospects. 7. Private land owners have withdrawn their land from production cooperatives. Organization and management of state land are being reviewed and several alternatives are considered, such as cooperatives grouping the farm labour on large cereal farms, division of some large farms in family units, re-organization in state-farms (agro-combinats), or assignment of land to agricultural schools or research establishments. Service coopera- tives could operate at regional and national levels, in addition to the Government Offices for oil, wine, livestock production and large crops. 8. Release of direct controls and a greater reliance upon market forces in economic policies are to be gradual as the external financial position leaves little scope for adjustment. Financial re-organization of public enterprises has been roughly estimated to require about D 50 million. A re-examination of this additional charge on 1969-1972 financial projections is now being considered. 9. The creation of cooperative farms was causing great additional burden on financial and manpower resources. The change in agricultural policies removes this potential burden, but does nothing to solve the prob- lem of modernizing a backward subsistence farming. Promotion of agriculture will remain difficult to administer efficiently as long as new extension services have not been organized.  - 3 - 10. Coordination of economic and financial affairs, financial control, public bids and statistical services are part of the newly established Prime Minister's Office, as well as the investment budget and transfers to public enterprises under the Secretary of State for Planning. Supervision of mining, industry, transport and trade, and the chairmanship of the in- vestment agreement committees, have been assigned to the Ministry of Eco- nomic Affairs. The preparation of the current budget, treasury operations and Government borrowing remain responsibilities of the Ministry of Finance. Such fragmentation is intended to re-enforce collective leadership and fi- nancial control in a period of austerity and prevent hasty decisions while the economy is being re-organized and eevelopment strategy re-examined. While a period of reflection after the developments of the past few years is probably needed, it is important that the establishment of new adminis- trative structures, the full allocation of responsibilities, and development of working relations do not weaken and delay Government action. Recent Developments 11. The economic budget for 1969, the first year of the Plan, aimed at maintaining a rate of growth close to the high 1968 level while pursuing improvements in resource allocation. Actual results failed to come up to expectations owing largely to unfavorable weather conditions. Gross domestic product at market prices at an estimated V 622 million was 6.8 percent more than in 1968. However, real output grew by less than 5 percent, compared with the 7.6 percent projected. Major short-falls occurred in agriculture, extractive industry, transport and communications. On the other hand the expansion of oil and manufacturing exceeded projections. Output rose by 33 percent in the textile industry where capacity utilization and marketing were improved. The contribution by tourism increased by 12 percent, but fell short of expectations as a result of the floods. Government services were 8.2 percent above the 1968 level and accounted for 38 percent of the real addition to gross domestic product at factor cost. 12. Gross fixed investment in 1969 was less than expected and remained a stable proportion of gross domestic product at 21.8 percent. Floods delayed progress on several projects in agriculture, manufacturing, trans- port and communications. More significant was the postponement of local currency investments of the Central Government in an effort to reduce do- mestic borrowing. This, in additon to the floods and organizational diffi- culties, also set limits to the absorption of external finance. On the other hand, public enterprise investments were increased by 21 percent to a level close to 1967, and well above 1969 projections. Construction of a paper mill in Kasserine and higher outlays in housing were the major con- tributions. Investments in tourism went up by 13.8 percent and slightly exceeded projections, private investment alone rising by over 26 percent. Private investment concentrated in this sector, as total investment by pri- vate enterprises outside agriculture were almost unchanged. The introduction of procedures to speed up the granting of foreign exchange authorizations, the promulgation of an investment code and the holding of an international conference on investment opportunities had little effect outside tourism, and even in that sector the high level of private investment was more the result of a liberal environment, contrasting with the controls prevailing in other sectors.  -4- 13. The allocation of a larger proportion of investment to projects in services in 1969 reflects the Government's difficulties in identifying opportunities for fast yielding projects in agriculture and manufacturing. Lower outlays in the oil sector reflect a slowing of exploration and the absence of any significant discovery whilst production is close to full capacity. Fixed Capital Formation by Sector (in percent of total) Economic Provisional Economic 1967 1968 Budget 1969 Budget 1969 1970 Agriculture 19.0 20.0 21.2 18.4 15.7 Mining 15.3 12.6 6.2 9.4 8.6 Power 5.6 5.0 4.8 4.1 5.0 Manufacturing 10.3 9.2 11.6 10.3 11.2 Transport, Communications 9.1 11.2 12.5 11.5 16.5 Other Services 40.7 42.0 42.7 46.3 40.3 Housing (9.2) (9.9) (9.9) (12.6) (10.0) Tourism (10.3)(10.8) (10.7) (11.6) (9.4) Education (7.3) (7.3) (9.0) (7.6) (6.6) Public administration (6.4) (7.9) (6.3) (7.2) (5.5) Other (7.5) (6.1) (6.8) (7.3) (8.8) Reconstruction -- -- -- -- 2.7 Total 100.0 100.0 100.0 100.0 100.0 Source: Appendix Table 2.5 14. Public consumption was higher than expected. There was a short- fall in private consumption, and real consumption per head is likely to have remained little changed. Stocks were replenished after the 1968 draw down, and domestic demand slightly exceeded projections. The external deficit on trade and services was also higher than expected. Imports came up to projections and increased by 15.8 percent, after a sharp drop in 1968, but the expansion of exports remained at 6.9 percent, instead of 9.6 percent as projected, as a result of poor agricultural production and interruption of phosphate deliveries late in the year. Crude oil and tourism remained the leading components in exports. 15. National savings fell short of the 1969 objective, notwithstanding a 13 percent increase due largely to general Government savings. Savings by public enterprises increased, but improvements in industrial undertak- ings compensated partly for deteriorations in the service sector.  -5- 16. All told, the proportion of investment financed domestically de- clined from 63.5 percent in 1968 to 59.2 percent in 1969. On the other hand, foreign capital inflow was greater than anticipated. Substantial additional public capital transfers included foodstuffs and grants in kind (partly flood emergency relief). Disbursements on public loans rose by 33 percent to close to the high 1967 level, but even so did not come up to ex- pectations. The inflow of private capital was much less than in 1968 al- though the projected reduction did not materialize completely. Additional capital inflow made up for the deterioration on external current account, and the balance of payments experienced a D 9 million surplus. 17. Agricultural production declined by 3 percent in 1969. Drought early in the year affected grain production, which dropped by almost 25 percent. Hard wheat production was 324 thousand metric tons, 20 percent below 1968. The date crop was damaged by rain; the olive crop harvested late in 1969 did not come up to expectations as a result of drought, ex- cessive rains and flood damage to the trees. Wine production was little changed. 18. In recent years, overall agricultural production is likely to have suffered from the poor performances of the cooperatives, discrimination against private farming in credit allocation and subsidies - the major in- strument to promote cooperatives prior to January 1969 - and insufficient price incentives to farmers. The decision in January 1969 to extend pro- ducers'cooperatives throughout agriculture was little implemented as the new policy to abandon this decision was announced before the beginning of the 1969-70 agricultural year. However, the adverse reaction among private farmers resulted in livestock and equipment liquidation. Depletion of the livestock population through sale for domestic slaughter or illegal export may have been as much as 25 percent. Prices dropped until September and then rose again sharply. Additional losses occurred from the floods and imports of sheep from Yugoslavia were needed to meet the shortage. Prospects for 1970 19. Projections for 1970 have been established in the economic and the financial budgets. They anticipate a 7.7 percent real increase in gross do- mestic product at factor cost; and a D 149 million fixed capital formation, or 22.3 percent of GDP. The deficit on external trade and services is ex- pected to rise as a result of a faster expansion of imports than of exports. 20. About half the additional output is to come from services, a large proportion resulting from higher current spending by general Government. Real output is anticipated to increase by 6.2 percent in manufacturing, 11.4 percent in construction and 9.6 percent in transport and communications. Achievement of these objectives will depend on the re-establishment of acti- vity in these sectors. An adjustment of capital outlays may be made neces- sary by the internal financial situation or result from difficulties such as already experienced in the past in mobilizing external finance. Good results anticipated from the on-going agricultural season will come to frui-  tion partly in 1971, and agricultural output is expected to rise by only 6.2 percent in 1970. The 16.8 percent increase projected in tourism is in line with favorable developments in the past. The contribution by the oil sector is to remain stable as full production capacity' is being reached. The extractive industry is to recover to a level slightly above 1968. Major differences compared with the 1969-72 Plan projections are short-falls in extractive industry and manufacturing, and a substantial excess in Govern- ment services. 21. Total fixed capital formation is expected to rise by 10 percent as a result of higher public investment. The Government's program has been fixed at about D 54 million, D 7 million above tihe 1969 level. Greater re- liance upon external resources is anticipated as the Government's current surplus is to decline, and foreign debt amortization and capital transfers to public enterprises to remAin little changed. Tiie-proposed project alloz- cation gives priority to investments with foreign financing and high employ- ment generation, and to infrastructure and reconstruction. A large propor- tion of the additional investment is to take place in transport and communi- cations. D 11 million are to be spent on employment-programs, including for reconstruction works, and total outlays for reconstruction are to amount to D 4 million. An effort was made to restrain local,, currency investments in agriculture and in general public services, including education, health and administrative building, where very few projects' are to'be initiated.. 22. Investments by public enterprises are to increase by 30 percent to D 59 million, and substantial external financing is anticipated. This contribution is likely to have been over estimated. On the other hand, the decline projected in private investment, particularlyin, manufacturing and tourism, may reflect overly pessimistic viewsc. Notwithstanding present con- straints, the Government's favorable attitudettowards:both local and foreign private investment seems to have an immediateincentive'. Projects submitied for Government approval since October 1969 show a revival of private invest- ment in industry. 23. Private consumption is expected to rise faster than in 1969 as a result of the Government decision to reduce prices for basic commodities and extend rent control, which will slow down the overall increase in retail prices. Public consumption is to reflect the sharp increase in current bud- get expenditures. The increase in exports of goods and services should reach the 7 percent target while the expansion of imports will be influenced by the level of domestic investment. 24. National savings may remain stable in 1970. Public enterprises are expected to achieve increases while savings by Government and private. enterprises are to deteriorate. As a result domestic. financing of invest- ment is to decrease further in proportion of gross investment, from 59.2 percent in 1969 to 56.6 percent. External finance is to rise by 5 percent' to D 92.5 million, which is below the Plan target. Disbursements of public loans are expected to be speeded up but private borrowing is to decline. The overall D 6 million balance of payments surplus projected. at present' may be over estimated.  25. Prospects for the 1970-71 agricultural season are favorable. Floods delayed planting in some areas, but the Government made special efforts to expand seasonal credit and allocate equipment. Sowing included land usually left fallow and helicopters were used for seeding wheat in some of the wettest areas. Ample soil moisture should also offset live- stock losses somewhat as grazing and forage conditions improve. Support of the current policy by farmers could be reflected in the overall agricul- tural production. 26. Production is anticipated to increase by 39 percent for hard wheat, to a level still below 1965, and to almost triple for barley, as acreage was expanded to marginal lands. Citrus and olive crops sold early this year still reflect 1969 weather conditions, but the next season appears as prom- ising. Date production is projected to rise back to a normal level in 1970. 27. Low yields associated with traditional farming and the lack of experienced management will remain major problems in agriculture. In the short run priority should be given to improving the use of existing facili- ties in the sector. Large investments have been made in the past, parti- cularly for irrigation and farm mechanization, which are currently under- utilized; therefore, efforts should concentrate on improving production from this capacity, and projects included in the Plan (D 128 million or 21 percent of total) be re-examined. It is also important that new projects be initiated only if additional extension services are available. These services need to be greatly enlarged and strengthened, if possible with foreign technical assistance. More adequate use of price and credit in- centives as an instrument of agricultural policy is also to be achieved. II. ECONOMIC PERFORMANCE Economic Planning 1/ 28. The planning office has been transferred from the Ministry of Finance and National Economy to a Secretariat of State in the Prime Minis- ter's office. It now consists of three branches working closely together. The Directorate of Planning and Research establishes plans, economic bud- gets and short term economic indicators; analyzes current economic situa- tion and prospects; works out planning methods and is undertaking preli- minary work for the fourth plan. The Directorate of Sectoral Programming and Projects is in charge of sector surveys, sectoral development strategy and programming, the supervision of sectoral program implementation. There are separate divisions for agriculture, industry and services, employment and education, social affairs. This Directorate is also responsible for 1/ The Economy of Tunisia (Report DIA - 8, dated August 25, 1969) includes an analysis of the 1969-72 Plan objectives (previous plans covered 1962-64 and 1965-68, respectively).  -8- prograuming and implementing Government's direct investments, and for cap- ital transfers to enterprises and equity participations. However, approval of investment projects is reserved to committees chaired by the representa- tive of the Ministry of Economic Affairs. The Directorate of International Economic Cooperation deals with external relations, including regional eco- nomic integration. 1/ 29. During the 1960's investment decisions were insufficiently re- lated to the shortfall of domestic savings and external public aid below expectations.' Project selection gave insufficient attention to economic criteria and investment yields were comparatively low. However, perform- ance improved in 1968 and both high economic growth and adjustment of in- vestment to savings and foreign public aid were simultaneously achieved. The implementation of the 1969-72 Plan is to be adjusted to current devel- opments through annual economic budgets and investment programs, and greater efforts are being made to improve short term economic indicators. 30. Tunisia's financial position still requires flexibility in invest- ment and more is to be done to improve short term programming. The Govern- ment also intends to re-examine projected investments in 4griculture, mining, industry and transport in the light of more strict economic criteria and the need for flood reconstruction. Both additional financial needs and the larger contribution now expected from private capital may call for a review of financial projections. Alternative investment opportunities, particularly in industry, need to be investigated first by making an inventory of the studies already completed and their major findings. Such information is to guide a more selective procedure of investment approval and the financial reorganization of public enterprises. Economic association with EEC is a new element and raises opportunities for industrial exports and foreign private investment. Priorities in planning also require an assessment of' long term demand for middle and high level manpower, necessary for education development. 31. The new planning organization is well conceived. However, the inter-ministerial allocation of responsibilities in project appraisal and the formulation of sectoral policies still needs to be specified, and a strengthening of planning services in major technical ministries may be needed. Effective coordination between ministries will also be essential. Staff shortage is likely to remain a serious handicap and foreign technical assistance will continue to be needed. 32. Resources projected in the 1970 Central Government investment budget amount to about D 69 million, of which D 39 million are external. Direct investment is to amount to about D 40 million; allocation gives priority to projects with external financing, to employment creation (work 1/ Negotiation with bilateral donors remains the responsibility of the Ministry of Foreign Affairs.  relief programs), payment of arrears (agriculture), reconstruction and pro- ductive services (transport and communications). Few new projects and no major programs were intended to be initiated this year. Population, Labor, and Education 33. The population of Tunisia increased at an annual rate of 2.8 per- cent for several years and was about 4.9 million in 1969. Indicated birth rates averaged 44 per thousand and death rates 16 per thousand. About 46 percent of the population is under 15 years of age. While the number of non-Tunisians declined from about 340 thousand in 1956 to 70 thousand in recent years, emigration of Tunisians has not been important; the total for the ten years 1957-1966 was about 66,000. 34. Continuation of the present birth rate with a reduction in mortali- ty of 5 per thousand over twenty years would result in an 8.4 million popula- tion by 1986, growing at 3.4 percent per annum. On the other hand, a reduc- tion of the birth rate to 35.0 or 28.9 per thousand would result in a population of 7.8 million or 7.3 million, respectively, by 1986, growing at 2.6 or 2 percent per annum. These two projections assume reasonable progress in family planning. 35. Family planning was initiated in 1962 and substantially expanded. However, the program suffered from insufficient organization and shortage of medical and paramedical personnel. The Government is now willing to expand it further, and external technical and financial assistance is anti- cipated. Family planning is recognized as a necessary measure to control labor supply in the long run, and generate higher resources for development, including by slowing down demand for education. The Government intends to appraise further the needs for population planning and the most appropriate measures to be taken in the light of development prospects and priorities. 36. Employment expansion remained below both the rate of economic growth and the increase in working age population during the 1956-66 intercensus period. While additional jobs were created in manufacturing, construction, and services, and a large number of foreigners were replaced, employment in agriculture may have decreased as a result of structural and technical changes. Unemployment and underemployment are now large. The Secretariat of State for Social Affairs and Housing roughly estimated unemployment at about 180,000 on average during the past few years, a level close to 15 percent of the total labor force. Unemployment of men was over 17 percent in rural areas, where 60 percent of the labor force is located, with large differences among regions. Half of the unemployed are under thirty years of age, and include a rapidly growing number of educated school leavers. 37. Measures to increase employment included the promotion of educa- tion and training in general, work relief programs in agricultural areas (LCSD), and work programs for youth (Service Civil; production-training). The role of education was certainly over-estimated. Expansion of employment is a major objective of the 1969-72 Plan, which projects the creation of  - 10 - about 30,000 jobs per year, compared with an average of about 20,000 ourLng 1967-68. The Government now intends to put particular emphasis on this ob- jective. The labor force can be expected to increase more rapidly in the years ahead than in the past few years, and unemployment would increasingly threaten social and economic stability. 38. The large proportion of the labor force in rural areas calls for special attention to be given to agricultural development. In other sectors, large differences exist in the investment per new job; they need to be con- sidered while reviewing development potentials. Branches of industry such as mechanical and electrical, textiles, clothing and leather seem to have comparatively low investment labor ratios. Close cooperation is needed between Government services responsible for employment planning and for project design. 39. Emigration until 1969 was unorganized and averaged only about 6,000 workers per year, going mainly to France. Efforts are now being made to promote and organize it, particularly by the National Service of Voca- tional Training and Employment (OFPE), and emigrants totaled over 9,000 in 1969. France received 5,100 Tunisians and normalized the status of 8,700 workers already in France; Germany had 2,600 workers and other countries,, including Libya, 1,300. France established a recruiting service in Tunis and intends now to receive 6,500 workers per year, slightly more than the past average. Labor agreements were signed with Belgium in 1969 and with Germany in early 1970. Emigration to Libya reached a maximum in 1967 (5,700) and subsequently declined. Emigration is expected to reach 12,000 in 1970, of which 7,100 are expected to go to France (including trainees) and 3,500 to Germany. This latter country has recently established a per- manent recruiting commission in Tunis. 40. It is suitable that manpower training for emigration be expanded. This may even require an adjustment of some youth programs. Financial parti- cipation by foreign countries in this training, such as initiated by France and Germany in 1969 would accelerate emigration. Tunisia also needs to in- crease its promotion efforts abroad and invite further countries to establish recruiting centers in Tunisia. 41. Work relief programs will be needed for many years. The Government intends to integrate them more into economic development by improving their project basis and their training function. The programs provide for about 140,000 workers in the first half of 1970, and give a large place to flood repair. Programs for the young unemployed also need strengthening. Estab- lishment of pilot centers and the initiation of systematic manpower planning at the regional level are now being undertaken with UNDP assistance. Other measures considered include widening the activity of regional employment offices, reexamining retirement systems and reviewing wage structures in order to determine possibilities of altering the supply/demand situation for specific occupations and encouraging labor productivity.  - 11 - 42. Better information on employment and the labor market is a condi- tion for improving manpower planning and policies, and the efforts initiated recently need to be pursued. The various agencies dealing with employment and training (Plan; OFPE; Ministries of Agriculture, Economic Affairs, Education; Institute of Productivity) also need better coordination. 43. Education was expanded considerably during the 1960's. School places were increased by 60 percent in primary education between 1963-69, and by 165 percent in secondary education. About 75 percent of the relevant age group is now enrolled in primary schools, and nearly 21 percent in secon- dary schools. Education accounts for over 20 percent of Government invest- ment (over 7 percent of total domestic fixed investment), and about 30 percent of Government current expenditure. Improved planning is needed to arrive at qualitative and quantitative targets consistent with other priorities. 44. The 1969-72 Plan anticipates a 17 percent increase during four years of primary school enrollments (35,000 per year), a much lower rate than in the past. Various measures are intended to improve quality, in particular a more strict implementation of rules on class repetition. This is also an important condition for raising productivity at the secon- dary level. The Plan anticipates a doubling of enrollments in secondary schools, including vocational education, while higher education enroll- ments are to rise by 35 percent only. Total investment projected in edu- cation by the Plan is D 46 million, of which over half in secondary educa- tion. This amount seems under estimated compared with enrollment targets. 45. Expansion of secondary education is rapidly exceeding manpower requirements. School leavers from the first cycle already face difficulties in finding employment, and a similar situation is likely to develop for school leavers with complete secondary education, 8s indicated by a man- power study undertaken in the Secretariat of State for Planning. The Plan also underestimates the shortage of qualified secondary school teachers and education costs. Implementation of the targets beyond financial resources would reduce the quality of education and prejudice primary and higher edu- cation. Already at present, failure rates are high; technical secondary education is not sufficiently directed to employers' needs and fails to de- velop its full potential; agricultural schools need to be made more relevant to agricultural development. 46. An interministerial committee has been set up to reexamine the educational system and the plan's targets in the light of employment and financial constraints. Measures considered include higher standards for admission into secondary education and changes in programs. Expansion of higher education is to be made more selective, and priority given to second- ary school teacher training, particularly in sciences, and to agricultural engineering. Selection at the end of the first year of university is also being made more severe, and a growing proportion of students are to be dir- ected to a short program, training post-secondary technicians (at present  - 12 - in mechanics, civil engineering, and agriculture) and assistant secondary school teachers. Steps have been initiated to establish a comprehensive plan for the development of Tunis University, which will also help to identify major needs for external assistance to this institution. 47. The National Service of Vocational Training and Employment provides vocational training at various levels (preapprenticeship, apprenticeship, adult training) in nearly one hundred centere throughout the country. rhese centers have served increasingly as work relief programs for school drop- outs and leavers, and have insufficient connection with job creation and replacement, since large numbers of unfilled jobs do not exist. On-the-job training, apprenticeship programs and managerial and foremen training also need to receive more attention; this may require more assistance from the, National Service of Vocational Training and Employment to employers. The reexamination of youth programs is a necessary complement to reforms in education and training. 48. Manpower training for tourism expanded since 1965. While high level manpower still needs to be trained abroad, hotel schools have been created with external assistance to provide low level training, and the new Monastir school now also includes middle level courses. However, manpower requirements in the years ahead will exceed 300 per year with high level and 1,000 with middle level training. Present training efforts need to be strengthened, particularly at the middle level. It is also important that Tunisia receives sufficient assistance for high level training abroad. Public Enterprises 49. During the 196U's, public enterprises have;been a major instrument of economic development and accounted for about 80 percent of total invest- ment by enterprises outside tourism. Only this latter sector has so far at- tracted substantial private capital after efforts had been initiated by the Government. Public enterprises have remained in a dominant position in most of other activities where private investors have been discouraged either by the magnitude of investments required for major projects (mining, metal industry, chemicals), or by direct controls and the facilities granted to the public sector. 50. Many public enterprises had to rely upon subsidies and set a heavy burden for the Government's budget. The creation of enterprises and the Government's approval of projects were often based on insufficient studies, concentrating on technical rather than economic and financial aspects. Dispersion of responsibilities prevented managers devoting sufficient time to their enterprises while the shortage of upper and middle management personnel has been serious. Poor accounting practices, particularly the lack of cost accounting, have undermined financial control, and regulations and policies on pricing and protection have failed to encourage efficiency.  - 13 - 51. At Tunisia's request a Bank mission reviewed the performance of state-owned enterprises (Report EMA-13a, August 31, 1969). In accordance with its recommendations, the Government decided to take immediate measures to improve accounting through the promotion of independent accounting firms and the introduction of independent auditing; to amplify the existing pro- gram of upper and middle management training; and to prepare the reorgani- zation of a first group of 6 to 10 enterprises. 52. The implementation of these measures was delayed by floods and governmental changes. Contacts have been established with foreign auditing firms. The Graduate Business School was opened at the University in Septem- ber and 35 students were admitted to attend a 2 year MBA program. Training at the National Institute of Productivity and Management is being enlarged with external assistance. The Ministry of Economic Affairs is now explor- ing opportunities within public enterprises for foreign private investment or subcontracting, but enterprises to be reorganized must still be selected and major problems remain to be studied. The Government requested Bank help to implement recommendations. 53. The financial structure of many public enterprises is weak, in some cases because a large share of their equity capital had been subscribed but not paid by the Government, obliging them to rely excessively on bank financing, despite large budgetary grants. Improving the working capital position of these enterprises might require D 50 million, which would allow them to transform into long-term debt or equity present high cost bank over- drafts used to finance fixed investment. A reorganization would first imply a substitution of bank lending to enterprises by Government borrowing from the Central Bank, and perhaps external financial assistance. A part of the Government's participation might subsequently be transferred to Government holding companies or to the private sector, including foreign, or converted into long-term debt. The participation of private local or foreign capital in some state-owned enterprises is desirable as further development of several undertakings calls for an expansion or improvement of existing facilities rather than the creation of additional concerns. A financial re-organization of state-owned enterprises is a prerequisite for such parti- cipation. An interministerial committee has been established to study the problem. 54. Savings by public enterprises rose less than investments in 1969, and greater reliance than in the past was put on borrowing, both domestic and foreign. Reduction of transfers from the Government was not as large as anticipated. The increase of savings was short of expectations as deter- ioration in the earnings of undertakings in the service sector, mainly com- merce, offset to some extent the generally better results in mining, power and manufacturing. Even in these sectors, flood damage and the interruption of activity affected a number of enterprises and resulted in a worsening of their working capital position as debt service payments had to be met without sales revenues. However, because of improvements in manufacturing, present conditions for a financial re-organization of some large enterprises are better than a year ago.  - 14 - 55. The excess of investment over savings by public enterprises is projected to increase substantially in 1970 as project implementation is speeded up, more finance is expected from disbursements of external loans, and less transfers from the Government. 56. Mining. The floods damaged large sections of the Sfax-Gafsa rail- way. Traffic was interrupted and then re-established well below capacity. Although facilities in the mines were only slightly affected, production had to be reduced considerably. Rock phosphate production fell from 3.4 million tons in 1968 to 2.6 million in 1969 and resulting losses amounted to D 2.4 million. Damages to the Djerissa iron mine amounted to D 500 thousand. In mining as a whole, recovery to the 1968 production level by mid-1970 as anticipated depends on the re-establishment of transport facil- ities to their pre-flood level of operations. 57. Tunisia's competitive disadvantages in phosphate quality and min- ing conditions are serious handicaps in face of growing international com- petition. However, exhaustion and closure of the Moulares mine in 1971 is to be offset by the opening of two mines at Mrata and El Sehib. Estimated reserves have risen in the last few years, and new markets have been found, mainly in Eastern Europe. Large investments are underway (Gabes port and chemical plant) or planned (Gafsa-Gabes railway), and it is intended to in- crease phosphate production up to 6 million tons by 1974 and possibly 10 million by 1980. Such enlarged production would imply increasing mechani- zation of mining and enrichment of the rock phosphate produced. However, the studies undertaken to determine whether and how it would be economical to mine mechanically and to enrich such large quantities will not be com- pleted before 1971, and the market study to have been completed in November 1969 is not yet available. In these circumstances, not only the investments projected but also those underway call for caution and for an exploration of alternative investment opportunities, including of a more labor-intensive nature. 58. Manufacturing. The 10 percent increase in industrial output in 1969, notwithstanding floods, contrasts with lower rates of expansion in previous years. Textile production rose by 33 percent after having been stable in 1968 and exports of industrial products, particularly steel, pulp and fertilizers, were increased by about 10 percent. Savings by public enterprises improved by D 3.1 million to D 8.5 million and an overall profit was realized for the first time since 1965. SOGITEX (textiles) and EL FOULADH (steel) contributed substantially to this improvement. 59. The position of several enterprises improved because of better management and favorable external factors. SOGITEX's marketing and distri- bution systems were improved, and EL FOULADH benefitted from a sharp rise in local demand for steel, associated with higher investments in construc- tion, and an unexpected increase in export prices to a level close to Tunisia's. Production is now at full capacity and exports at favorable prices have been contracted for 1970. However, both companies still face severe liquidity problems. The national pulp company (SNTC) was granted  - 15 - rescheduling of a foreign loan; it also managed to proceed with the con- struction of the Kasserine paper mill as scheduled in spite of the floods. SIAPE, a fertilizer plant, benefited from the fall in world prices of sulphur, a major raw material, and made profits after three consecutive years of losses. 60. Food processing suffered much from the floods. Every public company had lower savings and profits than in 1968, and profits of the largest private company (Societe Frigorifique de Tunis) also dropped by about 60 percent. Production of basic commodities like sugar, beer and butter was reduced. In the mechanical and electrical sectors, AMS (hard- ware) and SOCOMENA (ship construction and repair) remained in a difficult position. 61. Industrial output in 1970 is expected to increase by about 6.2 percent. The increase in overall profits and savings of public enterprises is likely to continue, although the Government's projection of a doubling in profits and a 50 percent rise in savings seems rather optimistic. Im- provement of SIAPE may be short lived as the company will likely face in- creasing marketing problems and may even have to reconvert its facilities by 1971 to produce the more demanded higher grade superphosphates. EL FOULADH will remain with a heavy debt burden until 1974. In construction materials, the increase of the Libyan production of cement and bricks is likely.to result in the gradual loss of this export market for Tunisia. SNTC's profitability depends on the re-establishment of the Sousse-Kasserine railway, whose interruption has obliged the company to ship production by road at high cost. In the mechanical and electrical industries, the lack of viability of AMS and SOCOMENA is likely to continue. Food processing has been handicaped by a dispersion of production capacity, obsolete equip- ment and high cost of intermediary products, linked with low agricultural yields. In most industrial branches, a review of the prospects for further operations and of investment opportunities is needed. Scope exists for pro- moting industrial exports to the EEC and the efforts initiated to attract foreign skills and private investment to export oriented activities, includ- ing subcontracting, need to be pursued. 62. Other sectors. Profit and savings of other large state-owned enterprises improved during 1969. SHTT (tourism) had much higher profits than anticipated, notwithstanding the floods. The company is handicaped by high financial and depreciation costs due to high investment cost per bed in past hotel investments, and a high proportion of short term borrowing in its capital structure. However, prospects are good, and the company is to be among the public enterprises to be reorganized first. SITEP (crude oil) increased profits and savings as a result of a larger production. STEG (electric power) increased electricity production, and savings were 32 per- cent higher than in 1968; however, the company's debt equity ratio is high, and return on capital is still low. SONEDE's (water supply) savings in- creased substantially to reach D 1.5 million in 1969. Further improvements should be achieved in 1970, with the exception of SITEP as oil production has reached full capacity.  - 16 - Government Finance 63. General Government savings improved substantially in 1969 after a sharp deterioration in 1968, but remained below the 1965-66 level. An effort to reduce domestic and foreign private borrowing limited both total investment and the capacity to absorb external public aid. Gross fixed in- vestment declined and was D 9 million short of projections. On the other hand capital transfers to enterprises were little reduced, as the financial position of public enterprises and the large increase in their investment left little scope for flexibility. Debt amortization payments rose further and accounted for 16 percent of total capital outlays. The overall cash deficit was reduced substantially. External financing was also less than expected and fell slightly as a proportion of capital outlays. While capital grants were higher than expected, short-falls occurred in other finance. General Government Finance 1967-1970 (in millions of dinars) Economic Economic Plan Budget Provisional Budget Projections 1967 1968 1969 1969 1970 1970 Current revenue 143.0 147.9 168.8 175.9 188.3 179.9 Current expenditure 127.7 144.1 149.1 155.4 172.5 157.1 Current surplus 15.3 3.8 19.7 20.5 15.8 22.8 Capital outlays 71.9 79.0 83.5 77.7 83.5 76.5 Overall cash deficit 56.6 75.2 63.8 57.2 67.7 53.7 Domestic borrowing -1.4 24.7 8.2 8.8 6.9 6.1 External financing 57.8 50.5 55.6 48.4 60.8 47.6 Source: Appendix Tables 5.1, 5.2. 64. The low level of savings results mainly from the Government's in- ability to restrain current spending and to adjust it to shortfalls in revenue as current revenue is equivalent to over 25 percent of GDP at market prices. Central Government current revenue rose by 19 percent in 1969 as a result of a 10 percent increase in most direct and indirect tax rates, once-for-all additions due to a change in the timing of pipeline royalties, and the re- placement of a business income tax (patente) by a gross revenue tax (droit d'exercice). Facilities granted to handicrafts and incentives for housing (registration duties on land purchases) had little effect on tax receipts. Changes in the collection system for agricultural taxes improved their yields. 65. Central Government current expenditure rose by 8 percent, compared with 6 percent as projected in the plan. Education, mostly teacher salaries, accounted for 73 percent of the increase. Enrollments during the 1969-70 school year were larger than projected as more girls entered school than  - 17 - anticipated and the Government was not yet ready to implement stricter criteria for school attendance. Interest on public debt rose to D 9.4 mil- lion and accounted for 7.3 percent of total current expenditure (3.1 percent for external debt only). 66. General Government savings are projected to decline by about D 5 million in 1970 and to be substantially short of plan objectives. Further reduction of domestic borrowing is also expected. Nevertheless, capital outlays are expected to increase by D 6 million as a result of higher fixed investment, and consequently external financing is projected to rise by D 12 million. M1ost of the external aid is committed; part of it consists of funds which had been expected to be disbursed last year. However, it is possible that internal financial constraints and difficulties such as those already experienced in the past in organizing external aid disburse- ments will somewhat reduce actual disbursements below projections, even if locally financed projects listed in the 1970 budget are not fully implemented. 67. Central Government current revenue is projected to rise by 7.8 percent in 1970. No important tax measure is to be taken and tax receipts are expected to increase by only 4 percent (18 percent in 1969). The trade monopoly (Office du Commerce) is expected to contribute D 2 million (prev- ious contributions were in the form of deposits with the Treasury), but direct taxes will reflect the impact of floods on private incomes. The increase in revenue from import duties will remain small as most of the additional imports will be investment goods, subject to low duties. No substantial effect is expected from the association with the EEC as the loss of receipts from preferences granted will be balanced by additional receipts on goods previously imported duty free from France. On the other hand an additional D 5.7 million revenue is expected from higher profits by oil companies as a result of the production increase in 1969. 68. Central Government current expenditures are to rise by almost 13 percent to D 139 million, D 12 million over plan projections. This in- cludes D 2.3 million for 1969 arrears and D 2.7 million for items previously in the investment budget (military equipment, vocational training in tourism, Center of Industrial Studies). Education is to account for 37 percent of the residual increase (8.7 percent). The wage bill is to rise by 12 percent. Education expenditures were budgeted on the basis of 1969-70 enrollments and actual spending will depend on the ability of the Government to control enrollment at the various school levels in 1970-71 school year. 69. Limited scope exists for increasing revenue at a higher rate than economic growth. A tax reform and revision of the custom tariff is now contemplated but will not change substantially the overall tax ratio; the main benefit will come from more selectivity in granting exonerations and incentives. Financial control is to be strengthened and Government finance accounting improved in 1970. These efforts, as well as improve- ment in public enterprise control and in the appraisal of the impact of investment projects on current spending need to be pursued. The implemen- tation of investment projects is also intended to be adjusted in relation  - 18 - to changes in the overall financial position of the Government. The fis- cal position is likely to continue to call for careful management, espec- ially as debt service will put an increasing and rigid burden on resources. It is timely that the large and rapidly expanding outlay for education is being considered by an inter-ministerial committee set up to re-examine objectives and policies in this field. Money and Credit 70. Domestic bank credit expanded by 6.6 percent in 1969, a rate higher than in 1968 but lower than anticipated. Total additional credit from the Central Bank was only D 1.8 million and contributed little to in- crease bank resources. On the other hand, the Central Bank and the deposit money banks reduced their foreign liabilities by D 9 million, instead of D 6 million as projected. Special lending funds increased by D 6 million; foreign aid funds alone rose by D 7.5 million and contributed about 25 per- cent of total additional resources. Less public borrowing by the Govern- ment, particularly by deposits with the Treasury, also made more resources available to the banks. Quasi-money changed little, and the 8.1 percent increase in money supply was close to projections and compared with nearly 12 percent in 1968. 71. The Central Bank's domestic assets remained below the ceiling 1/ agreed with IMF, which had been raised by D 8.5 million to D 90.4 million by the end of 1969. Net bank credit to the Government increased by only D 3.6 million, compared with D 6.3 million as budgeted. 72. The expansion of money supply in 1969 (8.1 percent) still exceeded substantially the growth rate of GDP in real terms (4.7 percent). Increased monetization of the economy and widespread price controls only reduced in- flationary effects. While wholesale prices rose little, except for food, the cost of living may have increased by over 4 percent, but information on prices is still very fragmentary. Poor crops, floods and ihigher agricul- tural wages contributed to the pressure on prices. 73. The ceiling on Central Bank's domestic assets is to remain un- changed in 1970. 2/ Foreign lending to both the private and public sectors with maturities of 18 months to 10 years will be limited to D 19 million compared with scheduled repayments of D 21 million (D 4 and D 5 million respectively for loans with maturities of 18 months to 5 years). This D 2 million net repayment compares with D 5 million in 1969; the 1970 ceil- ing on borrowing takes into account financial requirements related to the reconstruction of dwellings destroyed by floods. 1/ Compulsory deposits with the Central Bank are adjusted to neutralize the reductions by deposit money banks of their short-term foreign liabilities. 2/ Ignoring a downward adjustment equivalent to any SDR allocations; these will be used to reduce Government indebtedness to the Central Bank.  - 19 - 74. Domestic bank credit is projected to rise by over 9 percent and credit from the Central Bank by over 13 percent; net foreign liabilities are anticipated to decrease by D 6 million. Special lending funds will add only D 5.5 million to bank resources, and other non-monetary sources, in- cluding quasi-money, D 10.8 million. Therefore, money supply is projected to rise by 11 percent and contribute to 56 percent of additional bank re- sources. Even if the expected disbursements on external aid and increase in foreign assets do not fully materialize, money expansion is likely to remain above real economic growth. 75. Additional bank credit to the Government is projected to amount to D 7.6 million, including D 5 million from the Central Bank. On the other hand, non-bank borrowing, mainly public enterprise deposits with the Treasury, and overall Government domestic borrowing are expected to decline further. Actual credits will depend on the Government's ability to adjust capital outlays if the current budget surplus and external financing are lower than anticipated. Credit to enterprises and households is projected to rise by about 10 percent, a higher rate than in 1969, as a result of higher economic activity and investments. Savings, transfers from the Government and ex- ternal finance will cover only a part of additional investments by public enterprises, and substantial bank lending is likely to be needed. To im- prove foreign exchange reserves and avoid excessive inflationary pressure in 1970 will require restraint and selectiveness in credit. Demand of credit from the private sector will probably be higher than anticipated. III. FOREIGN TRADE AND EXTERNAL FINANCE 76. The balance of payments had a D 9 million surplus in 1969, com- pared with D 6 million in 1968. The current account deficit was larger than anticipated as a result of unfavorable weather and floods, but was offset by additional capital inflow. Larger grants were received, and dis- bursements on public loans were substantially increased. 77. Imports for flood relief and the increase in domestic investment are expected to lead to a larger trade deficit in 1970, but this is again expected to be offset by additional capital inflow, mainly higher disburse- ments on public loans, and a D 6 million balance of payments surplus is an- ticipated. Actual results will depend particularly on the capacity to absorb additional aid, and to control import and domestic credit expansion. Commodity Trade 78. The trade deficit rose by D) 19 million to D 50 million in 1969; exports rose by D 4 million only to D 87 million, while imports (f.o.b.) rose by D 24 million to D 137 million, following a sharp drop in 1968. Total imports were kept in line with the foreign exchange budget, despite stock replenishment and flood relief.  - 20 - 79. Excluding crude oil, exports declined by almost 5 percent. Exports of all agricultural products, except citrus, were below the 1968 figures; olive oil, which accounted for almost half agricultural exports, decreased by D I million. Export of rock phosphates declined from 2.4 million tons in 1968 to 2 million in 1969, while a rise had been anticipated. Flood damage to railways interrupted and subsequently slowed down transport from the mines, but exports in the earlier part of the year were also below pro- jections. Phosphate prices declined further, and export receipts fell by 18 percent. Production and export of superphosphate fertilizer recovered in quantity to a level close to 1967, but receipts were down as prices de- clined and exports included a lower proportion of highly concentrated pro- ducts. Crude oil exports rose by D 8 million to D 22 million and became the leading export, accounting for 25 percent of export earnings. Indus- trial exports, including iron and steel bars, construction materials, paper pulp, textiles and ceramics, rose by over 10 percent. 80. Imports of capital goods remained stable and reflected the short- fall in domestic investment. Intermediate and semi-finished goods rose by 19 percent, as a result of stock replenishment and the expansion of manu- facturing output; energy products included 200,000 tons of crude oil im- ported under US assistance for fuel production (Tunisian crude oil is light). Finished consumer goods rose by D 3.4 million to D 21 million, a higher amount than projected, and foodstuffs, including cereals, by D 7 million to D 30 million. 81. Exports are expected to rise by D 8 million to D 95 million in 1970. This amount remains short of the Plan projection, as minerals are unlikely to reach initial targets. Good crops are expected to generate an exportable surplus of cereals, while exports of animal products, almonds, and preserved vegetables are also expected to increase; and France has increased her import quota for Tunisian wine. On the other hand, exports of olive oil are projected to fall further by D 4 million as a result of the poor 1969-1970 season. Rock phosphate exports are expected to recover to 2.5 million tons, but prices may decline further and additional receipts may fall short of the projected 25 percent increase. A reduction in vol- ume of fertilizer exports is to be offset by higlher prices, as highly con- centrated fertilizers should contribute a larger proportion of the total. Crude oil shipments will change little at about 3 million tons and D 22 million, which is close to the present production capacity. Other exports, including manufactures, are programmed to increase by about 10 percent. 82. Imports (f.o.b.) are anticipated to rise by D 13 million to D 150 million and the trade deficit to increase further by D 5 million to D 55 million. Capital goods will rise by D 9 million; intermediate goods by D 5 million; and foodstuffs will decline by D 3 million. A shortfall in do- mestic investment may reduce actual imports of capital goods below projections, while the increase in other categories will depend on import control and flood relief assistance.  - 21 - 83. Trade with EEC countries formed a larger proportion of exports and imports in 1969 than in the preceding years; the increase among exports was largely due to oil shipments to Italy. Trade with Eastern countries declined in proportion. The greater reliance on bilateral trade in 1968 had resulted from marketing problems for traditional exports. Geographical Distribution of Tunisia's External Trade Trade Balance Exports (%) Imports (%) (D million) 1965-67 1968 1969 1965-67 1968 1969 1969 EEC 52.0 46.2 54.9 52.0 53.8 54.1 -25.1 Of which France (31.2) (23.1)(26.6) (35.2) (33.2)(33.8) (-22.3) Maghreb 6.8 10.0 10.2 1.7 0.8 1.1 7.4/1 USA 2.0 1.8 0.9 19.4 20.4 19.2 -24.9 Eastern countries 10.2 20.7 14.5 9.6 15.3 8.8 1.0/2 Other 29.0 21.3 19.5 17.3 9.7 16.8 -8.4 100.0 100.0 100.0 100.0 100.0 100.0 -50.0 /1 Libya D 6.3 million /2 Bulgaria D 3.6 million 84. The agreement of association with the EEC, presently limited to trade, became effective on September 1, 1969. About 90 percent of Tunisia's industrial exports to the EEC received duty free entrance into the Community, and about half agricultural exports, mainly olive oil, citrus fruits and certain processed food, were granted tariff rebates provided their prices remain above determined levels. 1/ Tunisia granted tariff reductions to EEC countries ranging from 20 to 30 percent of the minimum tariff on about half its import trade and is to establish sub-quotas within existing quotas for imports from the EEC. 2/ The present level of liberalization is also to be maintained. Tariff cuts correspond to 70 percent of the preference which France had on these products, and are to become effective within a three- year period, starting at 50 percent. Preferential trade with France in commodities not included in the association agreement is maintained. 1/ Tariff treatment by the EEC is as follows (based on trade figures for 1966/67): Headings with no duty 56.4% Headings subject to tariff disarmament 23.1% Headings with duties and not subject to tariff disarmament 20.5% 100.0% 2/ Tariff treatment by Tunisia (based on trade figures for 1965/67): Headings with no duty 7.9% Headings subject to tariff reductions 44.8% Headings free of quotas 62.2% Headings subject to subquotas 13.7% Subquotas are defined in terms of value and as a percentage of respective Tunisian imports.  - 22 - 85. The association is largely a substitute for preferential arrange- ments with France; the agreement provides for negotiations on financial and technical assistance, and labor, which could be concluded by the end of the third year. The main immediate effect of the agreement is to provide opportunities for developing and diversifying Tunisia's industrial exports. This requires efforts to penetrate EEC markets other than France, and to promote industrial development through selective policies. Measures to encourage foreign direct, export oriented investment, and cooperation with foreign firms, including in the form of sub-contracting, need to receive particular attention. The Government intends to pursue its inquiries to this effect. Reorganization of public enterprises is.another important step to attract private capital in industry. Measures to promote exports need further investigation; they could include the extention of export credit and the provision of export credit insurance. Tariff reform to pro- vide more selectivity in protection, less reliance-on quotas and harmoniza- tion with other taxes on imports is being considered. Services and Current Transfers 86. The net surplus on non-factor services rose by about D 3 million to D 16 million in 1969 and exceeded projections, although ,tourism receipts fell short of target. Oil pipeline receipts rose as a result of a change in the timing of payments. The deficit on factor services increased further. Interest payments went up by D 1 million; payments on wages.-and salaries., including technical assistance, increased slightly; remittances from Tunisian workers abroad changed little, although these workers were allowed to open savings accounts in convertible dinars. The overall deficit on services and current transfers was D 3 million below 1968 and is expected to rise again to D 11 million in 1970, despite a D 4 million rise in net tourist receipts, as pipeline royalties will fall to their pre-1969 level. 87. Promotion of tourism by the Government came to rely progressively less on direct investment, and more on tax and other incentives to domestic and foreign private investment. Promotional and planning services are provided by a public agency (CGTT), which became In 1969 the Directorate of Tourism in the newly established Ministry of Tourism and Country Planning. Special efforts were also directed to attracting charter parties through major European agencies. Western Europe tourists have accounted for more than 90 percent of tourist nights, Germany, France and the United Kingdom contributing together about 70 percent of the total. The increase in visitor nights and foreign exchange receipts since 1963 averaged almost 40 percent per year. 88. Good prospects of financial returns due to a long operating season, growth in demand and subsequent high rates of occupancy, reasonably low con- struction cost, and poor conditions for private investment in most other sectors fostered a rapid expansion of hotel facilities. The number of beds rose from 4,000 in 1962 to about 3U,000 by the end of 1969, at an average rate of 32 percent per annum. Returns on equity in well managed medium cost units has been between 15 and 25 percent, or even higher, through 1968.  - 23 - 89. Foreign visitors and visitor nights during the first eight months of 1969 were respectively 30 percent and 24 percent over 1968 levels. Floods reduced subsequently tourist operations, especially in Sousse, Monastir and Djerba-Zarzie-Gabes areas. Most hotels in Tunis and Hammamet remained open but tourist traffic in September-December was only half the level during the last four months of 1968, and overall results for 1969 fell short of anticipations. Two reported cases of typhoid fever developed by tourists from the United Kingdom and Germany respectively also made bad publicity. Nevertheless, visitor nights increased by 10 percent to 3.4 million, and foreign exchange receipts by 10 percent to D 24.3 million. Average daily expenditure per tourist rose from D 6.8 to D 7.2, after a decline in the previous years. Tourist NiRhts January-August (1,000) 1968 1969 German 690 680 British 319 319 French 369 565 Other 718 1,032 2,096 2,596 90. Barring new cases of disease, tourist demand will further develop favorably. The promotional campaign undertaken by the Government and Tunisian hotel promoters after the floods was successful and many hotels are already fully booked for the March-October season. Hotel capacity, rather than demand, is likely to continue to be the major constraint to tourist growth in the years ahead. 91. The 1969-1972 Plan provides for D 60 million investment in tourism, mainly for the construction of 40,000 beds. Average construction cost per bed was projected to fall by D 1,000 to D 1,500. Tourist nights were ex- pected to reach 8 million, and foreign exchange receipts D 39 million by 1972, assuming that daily expenditures per tourist would decline from D 7.2 in 1969 to about D 5 in 1972. Additional capacity realized in 1969 and pro- jected in 1970 (6,100 and 8,150 beds, respectively) are short of Plan targets, and the average cost per bed is likely to remain higher than expected. There- fore, the actual number of tourist nights may be lower than anticipated. On the other hand, the expected decline in daily expenditure is probably too conservative. 92. Authorities should further amplify efforts to remove constraints on the expansion of capacity, such as insufficient infrastructure, partic- ularly water supply and sewerage facilities, and the shortage of trained hotel staff. Services responsible for pre-investment work in the Directorate of Tourism need to be strengthened, if possible with foreign technical assistance. Lack of equity funds for hotel investment is a major bottleneck.  - 24 - Often existing hotels are already in a tight financial position and need to increase their equity. A larger proportion of domestic private capital than in the past is now likely to be invested in other sectors. It is thus doubt- ful whether foreign private investments in the next few years will be suffi- cient to keep capacity in line with the growth in demand. 93. COFITOUR's commitments in 1969, since the creation of the holding company in June, have been only D 1.5 million, while resources amount to D 20 million for a four-year period. Financing policy has been exces- sively restrictive up to now and it is to be hoped that the company will be in a position to play its full potential role in tourism development in Tunisia as soon as the ongoing study of tourist demand is completed. This implies, in particular, that the company provide equity financing to exist- ing profitable hotels to strengthen their financial structure. Government's efforts to explore and promote foreign investment, including under joint foreign/Tunisian financing, also need to be pursued actively. Foreign Capital Inflow 94. Gross foreign capital inflow increased by D 10 million to D 88 million in 1969. Grants increased by D 6 million to b 20 million, and disbursements on public loans rose by D 10 million to D 39 million. Public capital inflow amounted to $23 per head of population, compared with $17 in 1968. This increase was partly offset by a decline in private capital inflow. Net capital inflow on public loans was D 33 million; the total surplus on capital account was D 67 million, about D 18 million higher than in 1968. 95. Additional grants included deliveries of foodstuffs (PL 480, World Food Program, EEC countries, Canada), technical assistance and assistance in kind, partly for flood relief. Disbursements of public project loans increased by about D 2 million and of non-project loans (US, France, Italy, Canada) by D 7.5 million, after a sharp decline in 1968. Disbursements on US public loans rose by D 5.5 million and accounted for over half the total in 1969. European funds, mainly from France, Italy and Germany, increased by D 5 million, despite shortfalls in German aid disbursements, and accounted for about 25 percent of total disbursements on public loans. Contribution by the World Bank Group rose by D 2 million and was substantially less than expected by Tunisia, project implementation being delayed by institutional reforms and the floods. Disbursement of Kuwait loans were D 2 million less than in 1968. 96. Gross and net private capital inflow declined by over D 5 million; restrictions were maintained on contracting new debt with maturities from 18 months to 10 years, and direct investment declined as exploration by petroleum companies slowed down. Short term financial credit was reduced by over D 8 million.  - 25 - 97. Disbursements on foreign public aid are projected to rise by D 8 million to D 68 million in 1970. This amount is close to Plan targets in total but includes a much higher proportion of grants, which are also expected to be slightly larger than in 1969. Additional foodstuffs will be delivered by Canada, the EEC and Italy. The main change from 1969 is in disbursements on project loans, which are expected to rise by D 13 million to D 33 million. Disbursements on non-project loans will increase little, and deliveries under PL 480, Title I, will decline. Overall, high- er disbursements on loans from European countries, mainly Germany, are to offset a decline in US funds. The Tunisian Government has anticipated a doubling of disbursements of World Bank loans. Gross private capital in- flow is expected to decline further but less than in 1969, and net private credit is to remain little changed; the ceilings on short and medium term borrowing have been fixed in accordance with additional financial require- ments related to flood reconstruction. 98. It is possible that projected disbursements on public loans will not fully materialize. Lack of local finance may affect progress with in- vestment projects, particularly in public enterprises. Progress on a number of projects is also likely to be slower than expected because of delays due to the floods and the need to complete pre-investment work. External Reserves 99. Net foreign liabilities of the banking system decreased by D 9 million to D 5.9 million by the end of 1969. Most of the improvement was accounted for by a reduction in the foreign liabilities of the Central Bank and the deposit money banks. Gold and foreign exchange holdings of the Central Bank rose by D 1.4 million to D 20 million, but were still equivalent to less than 2 months of 1969 imports. The creditor position on bilateral payment agreements remained unchanged at D 2.5 million. The reduction of deposit money banks' liabilities did not affect their liquid- ity since equivalent additional access to the Central Bank was granted within the framework of the credit ceiling in the stand-by approved with IMF. External Debt 100. External public debt outstanding at the end of 1969, including undisbursed, was about $700 million, equivalent to 60% of GDP. Indebted- ness has tripled since 1964 and the debt burden has become much heavier, although long-term borrowing has been substantially increased. A net reduction of short- and medium-term debt has taken place since the begin- ning of 1968 by restricting borrowing on such terms, but privately held debt, mainly by suppliers and financial institutions, still accounted for 25 percent of the total at the end of 1969.  - 26 - 101. Service payments on total external debt were about $69 million in 1969, which was equivalent to 25 percent of exports of goods and non- factor services. Charges on public and publicly guaranteed debt alone were about $57 million, or 21.1 percent of exports of goods and non-factor services and 17 percent of Government's current revenue. Privately held debt still accounted for over half these payments. 102. The size and timing of debt service obligations already incurred for the years ahead limit the scope for further borrowing at least on short- and medium-term. Almost half the service payments on the present public debt through 1983 are due in the coming 5 years, as a result of high short- and medium-term borrowing in the past, while obligations in the subsequent years are already high as a result of long-term borrowing contracted. Service payments on present privately held debt decline to 29 percent of the total by 1974 and 12 percent by 1979. 103. These commitments besides limiting the amount and terms of further loans that Tunisia should contract at present, are a further rea- son for sustained efforts to be made to raise exports and domestic savings, and to improve capital productivity. Actual investments will need to be adjusted to resources available on suitable terms. 104. The 1969-1972 Plan projected a $690 million gross capital inflow during the 4-year period, about $500 million of which would be in official loans and grants. These amounts of borrowing may need to be reconsidered in the light of the terms and conditions of external finance available. On the other hand, improved economic performance would reduce the need for external finance. Such improvement, and further reduction of medium-term borrowing and the maintenance of concessionary finance as a proportion of official external loans, are important conditions to keep the debt service burden from rising above the present high level. IV. OUTLOOK 105. A 6 percent annual growth of GDP at factor cost, close to the 1969-1972 Plan target (6.4 percent), is achievable over the next few years provided appropriate policies are followed in the framework of new govern- mental options and institutional structures. Financial constraints, in particular, leave little scope for mismanagement and adjustments. 106. The potential exists for increasing agricultural output by about 5 percent per annum on average. The rejection of production cooperatives is likely to be an immediate incentive, but it is important that a new organization be established, more selectivity in investment be achieved, extension services be strengthened and suitable price and credit policies be determined. The 9 percent annual growth in mining output in the Plan implies a substantial increase in capacity at high investment cost, and  - 27 - marketing problems. Projects need to be thoroughly re-examined in the light of alternate investment opportunities, particularly in industry. Out- put in manufacturing could be increased by more than the planned 7.5 per- cent per annum, depending on the success in promoting exports. Demand exists to sustain further rapid tourism expansion, and the annual 16 per- cent increase target is feasible, provided capacity is adequately in- creased. 107. Domestic investment was projected at 22.8 percent of GDP, a lower ratio than in the past. Achievement of growth projections will highly depend on the ability to raise capital productivity, which at present is insufficient. Prospects may, however, be favorable; in many sectors including agriculture, substantial investments have been made and marginal additions, combined with reorganization measures, management im- provement, and possibly an increasing role of the private sector, may now yield high returns. Total investment will need to be confined within the limits of domestic savings, a large proportion of which is dependent on the performance of the Government and public enterprises, the supply of external finance at terms consistent with the high debt service ratio, and the suc- cess in attracting foreign direct investment. 108. Commodity exports may grow at 7.6 percent per year as projected, but it is unlikely that the export value of phosphate products will increase at almost 12 percent per annum, as prices are likely to decline and more competition to be faced. On the other hand, export of manufactures may grow more rapidly than assumed in the Plan. Tourism should maintain the increase in non-factor receipts between 9 and 10 percent per annum. Re- straint of import expansion within the annual 8.4 percent Plan target limit will depend on the level of domestic investment and domestic sav- ings. 109. The new emphasis put by the Government on the private sector implies more reliance on indirect policy measures, rather than direct intervention, in economic management. However, the public sector will remain a dominant portion of the economy, because of the magnitude of past investment. It is therefore important that appropriate investment and reorganizational decisions be made.   STATISTICAL APPENDIX POPULATION, FIMPLOYMENT 1.1 Growth of population; labor force. NATIONAL ACCOUNTS 2.1 Excpenditure on gross national product 1965-1972 (current prices). 2.2 Gross domestic product by sectoral origin 1965-1972 (current prices). 2.3 Gross domestic product by sectoral origin 1965-1972 (1966 prices). 2.h The finance of investment 1965-1972. 2.5 Gross fixed capital formation by sector 1965-1972. 2.6 T3nterprise gross fixed capital formation 1965-1972. 2.7 General government gross fixed capital formation 1965-1972. 2.8 Enterprise fixed capital formation in manufacturing 1965-1972. BALANCE OF PAYKv1ENTS, EXTERNAL TRADE 3.1 Balance of payments 1965-1972 (2 pages). 3.z FJxport values 1965-1972. 3.3 Import values 1965-1972. 3.11 Exports of selected commodities in volume 1965-1972. 3.5 Services and current transfers 1965-1972 (2 pages). 3.6 Medium and long term capital inflows 1965-1972. 3.7 Foreign grants in aid 1965-1972. 3.8 Disbursements on public loans 1965-1972. 3.9 Service payments on foreign debt 1965-1972. 3.10 Foreign assets and liabilities at end of the year 1965-1972. EXTERNAL DEBT b1.1 Excternal public debt outstanding as of December 31, 1963 with additions through December 31, 1969 (2 pages). h .2 Estimated future service payments on external public debt outstanding including undisbursed as of December 31, 1968 with additions through December 31, 1969 (14 pages).  2- PUBLIC IINANCE 5.1 General government savings 1965-1972. 5.2 General government capital account 1965-1972. 5.3 Swmmary of central government operations 1965-1970. 5.4i Central government current revenue 1965-1970. 5.5 Central government current expenditure 1965-1970. miONEY AND P4IC[ES 6.l slonetary survey (at end of year) 1965-1970. 6.2 Factors affecting money supply 1966-1970. 6.3 Price indice 1962-1969. EDUCATION 7.1 Primary education enrollments 1965/66-1.969/70. 7.2 Secondary education enrollments 1965/66-1969/70. 7.3 Higher education, enrollments at Tunis University 1965/66-1969/70. AGRICUlTUIU'U 8.1 Volume of agricultural production 1967-1972. 8.2 Value of agricultural production 1967-1970. PUBLIC ENTERPRISES 9.1 Public enterprise savings by sector 1968-1970. 9.2 Profits and savings of public enterprises in mranufacturing 1965-1970. 9.3 Profits and savings of public enterprises outside manufacturing 1965-1970. TOURISM 10.1 Developments and prospects in tourism 1963-1972. Note: Statistics on 1970 economic budget are preliminary estimates. Adjustments were made in final projections, published in May 1970.  Table 1.1 Growth of Population - Labor Force 1956 1966 1967 1968 1969 1970 1972 Mid-Year population (1000) 3,943 a 4,550 A 4,680 4,810 4,940 5,078 5,364 Crude birth rate (per 1000) 48.o 44.3 44.0 45.0 44.2 43.4 42.2 ,rude death rate (per 1000) 28.0 16.3 16.0 17.0 16.5 16.0 15.0 Natural rate of increase (%) 2.0 2.8 /2 2.8 2.8 2.8 2.7 2.7 Age distribution ) 0 - 14 40.9 46.3 46.1 46.o 45.9 45.7 45.4 15 - 64 54.6 50.2 50.4 50.6 50.7 50.9 51.2 65 + 4.5 3.5 3.5 3.4 3.4 3.4 3.4 100.0 100.0 100.0 100.0 100.0 100.0 100.0 Labor force (1000) 3 968 1,094 1,147 1,269 Distribution by sector of activity (%) Agriculture, fisheries 65 49 47 46 Extractive industries, petroleum 2 2 2 2 Manufacturing A 10 12 12 13 Construction 3 5 6 6 Services 20 32 33 33 100 100 100 100 /1 Non-Tunisians were 340,000 in 1956 and 70,000 in 1966. 7! Intercensal grQwth rate for Tunisian population is 2.3%. Emigration of Tunisians during 1957-1966 was about 66,ooo. /3 Economically-active population (temporary unemployment included). 7/ Including Power. Source: Secretariat d'Etat au Plan   IaDle Z . I fIV lIRB ON OHM NRTIONAL OIXCT 1965-1972 (in millionw of current dinars) 3conodc kcnric Plan lhdget Provisional Budget Projectionn 1965 1966 1967 21968 1969 169 1970 1970 1972 Private Consumption 349.1 337.1 359.3 372.2 396.9 394.7 427.9 419.9 4n.2 Public Consumption 79.3 91.2 100.0 111.6 115.8 118.9 131.6 123.8 139.4 Gross Fixed Capital Formatim 132.3 128.9 126.8 127.3 140.2 135.4 149.4 152.3 165.5 Oovent a (47.5) (48-2) (46-1) (48-1) (55-7) (47.0) t54.2) (47.4) (54-9) Public and aixed entwpriases (60.4) (55-5) (47.6) (37-7) (40-8) (45.7) (59.4) (67.7 (67.3) Private (incl. cooperative) (15.1) (16.9) (22.8) (30-8) (33.1) (32.8) (27-8) (32.6 (40.3 Houaseold9 (9.3) (8.3) (10.2) (10-7) (10.5) ( 9-9) ( 8.0) ( 4.6 ( 3.0) tange in Stocks 6.1 3.1 0.1 - 9.3 3.2 7.5 2.0 3.1 1.5 Net kIporta of Ooods aad Service -71.0 -52.8 -55.0 -19.2 -30.7 -34.1 -39.6 _42.6 -33.4 Mports 98.7 114.3 120.4 132.4 145.2 141.5 151.4 152.1 174.4 Imcports 169.7 167.1 175.4 151.6 175.9 175.6 191.0 194-t 207.8 Groas Domestic Procdut at Narket Price 495.8 507.5 531.2 582.6 625.4 622.4 671.3 656.5 7A4.2 Net Factor Incom Paymnts -12.2 -14.2 -20.1 -23.9 -23.0 -25.5 -26.3 -22.6 -25.3 Gross -lational Prodct 483.6 493.3 511.1 55B.7 602.4 596.9 645.0 633.9 718.9 t Central Government and other public entities, including local authorities. Sources Secretariat d'Ftat au Plan  Table 2.2 GROSS DQIESTIC PROWCT Br 8WCTOAL ORIOIN 1965-1972 (in millions of current dinre) Economic Provi- Economic Plan Budget sional Budget Projections 1965 1966 1967 1968 1969 1969 1970 1970 1972 Agriculture 98.0 L i 0 86.6 9328 1. 979 104.8 Mining 11.4 15.7 23.3 28.2 36.1 32.1 37.0 38.1 40.2 Extractive industry 10.7 11.5 10.8 11.2 13.4 9.5 12.5 13.7 15.3 Crude oil 0.7 4.2 12.5 17.0 22.7 22.6 24.5 24.4 24.9 Power and water 7, 8.2 8.8 11.0 11.3 12.3 11.8 13.2 Manufacturing 59.1 67.1 70 81.2 80.2 85.6 88.4 99.7 Food industry 28.5 26.3 25.5 29.4 31.7 30.2 29.8 31.6 33.5 Petroleum refinery 2.3 2.5 2.6 3.1 3.5 3.4 4.1 4.0 4.8 Metallurgy, mechanical and electrical 2.0 3.5 4.3 4.3 5.5 4.8 5.3 6.1 7.0 Construction materials 4.6 5.2 6.1 6.5 7.8 7.2 8.3 8.3 9.1 Chemicals 2.4 2.3 2.7 3.3 3.4 3.3 3.4 3.6 4.4 Textiles 10.8 13.8 15.1 14.6 15.4 18.9 21.1 19.3 21.6 Wood and furniture 4.3 5.1 5.1 5.3 6.2 5.1 5.7 6.6 7.6 Paper, printing, miscellaneous 4.2 5.0 5.7 6.5 7.7 7.3 7.9 8.9 11.7 Transport and communications 37.0 4 30 44.7 46.7 44.7 48.9 47.7 54.3 Building and public works 40.0 41.5 42.0 42. 42.0 4.5 44.5 51.3 Services 116.3 113.2 121.5 129.5 134-4 137.1 14.0 141.9 161.9 Housing 16.9 17.8 19.0 20.0 21.1 20.0 21.0 22.4 25.3 Tourism 4.8 7.0 9.1 11.1 13.9 12.5 14.6 15.8 20.4 Commerce 66.5 60.0 65.0 70.0 71.0 76.2 81.0 74.2 83.4 Other /a 28.1 28.4 28.4 28.4 28.4 28.4 28.4 29.5 32.8 General government 58.8 71.8 77.8 87.2 89.4 93.4 10,5 94.6 107.4 GDP at factor cost 428.0 429.9 453 02.2 4,51 577.8 560.8 632.8 Indirect taxes less subsidies 67.9 77.6 77-7 80.4 90.5 89.3 93.5 95.7 111.4 GDP at market prices 6495.9 2 622.4 67 744.2 /a Includes services of domestics and all other services Source: Secretariat d'Etat au Plan  Table 2.3 GROSS DOMETIC PRODUCT BY SHCTORAL ORIGIN 1965-1972 (in millions of 1966 dinars) Economic Provisional Economic Plan Badget 1969 Ecdget Projections 1965 1966 1967 1968 1969 1970 1970 1972 Ariculture 102.5 74.5 63.8 82.9 84.5 80.3 84.8 83.6 93.7 Hlnina 10.1 15.7 21.4 28.4 34.2 29.6 31.5 36.3 38.9 ctEractive industry 9.4 11049 10.7 15.1 :T77 Crude Oil 0.7 4.2 12.5 18.1 19.7 20.8 20.8 21.2 21.6 Power and water 7.5 8.2 8.8 9-5 10.4 10.8 11.9 10.9 12.2 arrn Lacturina 60.8 63.7 65.2 69.0 75.9 6 80.8 83.0 8 Yood EMRZY 0.7 76.7 24--T . 26.3 26 79.0 5W7 29 .475 Petroleum refinery 2.3 2.5 2.6 3.0 3.5 3.5 3.5 4.0 4.8 Nbtafura, mchanical ard electrical 2.3 3.5 4.1 4.1 5.2 4.5 5.0 5.8 7.0 Oonstmtion mtwiads 4.5 5.2 6.1 6.5 7.4 6.7 7.8 8.4 9.2 eicals 2.3 2.3 2.7 3.3 3.4 3.5 3.6 3.6 4.4 Tetilee 12.0 13.8 14.7 13.1 13.7 17.4 19.5 16.9 18.4 Wood and furnitwo 4.4 5.1 4.9 5.0 5.8 4.8 5.3 6.2 7.1 Paer, printing, 4.5 5.0 5.5 6.1 6.9 6.8 7.4 8.3 10.9 ransport and camications 40.5 41.3 41.5 41.7 44.4 41.7 45.7 45-2 51 3 Lildizug and pw)bic works 40.6 41.5 40.5 40.2 40.0 40.4 45.0 42.4 49.2 Services 116.2 113.2 118.0 124.5 131.4 128.0 135.5 138.3 157.0 EMUsi-ng -W-7 19.0 20. 0 2 "=0. 0 216.0 .9 i Y 2 5. 3 Touris 4.8 7.0 9.1 11.1 13.9 12.5 14.6 15.8 20.4 Comnerce 65.9 60.0 61.5 65.0 68.0 67.1 71.5 70.7 78.8 Other/a 28.6 28.4 28.4 28.4 28.4 28.4 28.4 29.4 32.5 General Govezrment 63.5 71.8 75.5 82.7 85.2 89.5 99.6 90.3 101.4 GEP at factor cost 441.7 429.9 434.7 478.9 506.0 496.4 5 5 597.2 indirect tares lees subsidies 6 -77.6 ;75 -86.: "S 9 . yo. t UP at Market Prices 511.2 507.5 509.7 557.2 592.9 583.3 625.5 62 70.2 L_a Includes sEFvices of donestics and all other services Sources Secretariat d'Etat au Plan  Table 2.4 THB FINJNCB OF INVEThEJT 1965 - 1972 (in milions of dinarS) Economic Economic Thdget Provisional Bidget Plan Proj ctions 2965 1966 1967 196W 1969 1969 1970 1970 1972 Oross Pied Capital Formation 132.3 128.9 126.8 127.3 140.2 135.4 149.4 152.3 165.5 Cbange in stocks 6.1 3.1 0.1 -9.3 3.2 7.5 2.0 3.1 1.5 tross Inveatzent 138.4 132.0 126.9 118.0 143.4 142.9 151.4 155.4 167.0 lkestic Savia 67.5 79.2 72.1 98.6 112.5 108 111.8 112.8 133.6 e Iast oet Incom Paymnte -.2 T --23. i M31 7 Plus$ Not (hrzt fransfarReceipt . -0.4 0.0 1.3 0.2 1.5 1. 0.1 1.4 1.4 Natiama sawinS 54.9 65.o 953.3 74.9 91.0 84.6 85.6 ; 16 1 Putilc Ihtarprisas 21.8 21.6 25.4 34.9 40.8 38.2 44.0 o6 Private lhterpris.s 5.0 14.5 5-9 27.0 24.2- 19.7 18.7 62.6 67.6 Smiks 2.4 2.3 3.14 3.9 4.0 4.4 4.4 4.0 4.0 Households 4.9 5.2 3.3 5.3 -2.3 1.8 2.7 2.2 3.1 No8t Fecapital 83. 67. o 736 43.1 52.4 58.3 65.8 6385;. PRufflile ic4. "t _.W m M; VT 363.15 Private 33.7 27.8 19.2 11.5 11.9 13.9 13.3 13.8 7.2 P1c"i in reserves 3.7 8.2 6.o -6.1 -6.0 -9.0 -6.o -11.0 -6.o Tranfers for scholarships, child feeding and philanthropic donations, have been deducted from net current transfer receipts and added to private capital inflows. They are estimated at (mill4ons of dinars)s 2.8 2.6 3.4 4.9 5.2 5.2 4.8 4.8 4.8 Sources Secretariat d'Etat au Plan  Table 2.5 GROSS FIXDD GAPITAL FORHMAION Br SBCTOR 1965 - 1972 (in mi11ions of current dinars) Economic Ecanomic Plan Budget Provisional Budget Projections 1965 1966 1967 1968 1969 1969 1970 1969-1972 Agriculture 27.6 25.6 24.1 25.5 29.7 24.9 23.5 128.0 yHning: 20.1 20.9 19.4 16.0 8.7 12.7 12.8 64.0 Uktractive industries 4.7 3.3 2.6 -T33.6 33 0. Crude Oil 15.4 15.6 16.1 13.4 5.4 9.1 7.9 33.2 Power 7.8 6.1 7.1 6.4 6.7 26 74; 33.5 llanUfacturing 26.8 12.7 13.0 11 16.3 13.9 16.8 67.6 Food indstries xi 3.1 8 -1. 0 Petroleum refinery 0.1 0.1 0.1 0.2 1.2 0.1 0.3 Metallurgy, mechanical aad electrical 14.5 2.6 2.0 1.7 2.4 2.6 2.9 Constraction materials 0.7 3.1 3.4 2.9 1.7 0.9 2.0 emicals 0.3 1.1 1.0 1.3 3.2 1.1 5.4 Tetiles 9.7 3.1 1.8 1.2 3.6 3.0 0.8 Wood and furniture 0.1 0.4 0.5 0.5 0.5 0.1 0.5 Paper, printing, miscellaneos 0.1 0.3 1.1 1.1 1.9 5.1 2.5 Transport and commnications 7.5 16.6 11.6 14.3 18.9 15.6 24.6 96.3 Housirig 13.5 10.2 11.7 12.6 13.9 17.0 15.0 51.4 Coumrce. tourism and other services /a 7 12.2 15-4 16.5 18.5 19.2 1 67.7 Of which touriml (i6) 03.0) M3) JR0) (15-7) Admni stration 21.4 24.7 24.4 24.3 27.5 26.5 27.7 106.6 Bducation T87 9. 297 9:z 10.3 46 . 0 Health, sports, cultural affairs 2.6 3.4 4.8 3.6 2.7 4.0 2.5 14.0 Water supply 2.1 2.4 2.2 1.3 3.9Lb 2.4 Lb 7.2L 16.3 L Administrative building and equipment 8.0 10.3 8.1 10.1 8.8 9.8 8.2 32.3 seconstruction Program 0 TOTAL 132.3 128.9 126.8 127.3 140.2 135.4 149.4 617.1 La Includes investuant in constraction and public works enterprises Includes investmmnt in urban water supply by SONUD). ji Includes D15.0 million of investaent by SONEDE. Source: Secretariat d'Etat au Plan  Table 2.6 ENTEPRISK GROSS FIXED CAPITAL FORMATION 1965 -1972 (in millions of current dinars) 8conomic Economic Plan Bidget Provisional Bzdget Projections 1965 1966 1967 1968 1969 1969 1970 1969-1972 Agriculture 7.5 7.4 6.8 7.4 10.9 8.8 6.9 53.7 Publ-ic IT-7 7- T T-7 T7 --3-9 M T;T TT1.o Private (incl. cooperative) 3.2 3.3 3.0 5.6 7.0 6.1 4.3 42.7 Miningz 4.7 5.3 3.3 2.6 3.3 3.6 4.9 30.8 -75hic li 7 3. T- '2 7- X 1;- 1;i 9. Private -- -- -- 0.1 0.3 0.2 -- 1.2 Crade Oil 15.4 15.6 16.1 13.4 5.4 9.1 7.9 33.2 Pb-lic ME 10.1 r7 13.4 Private 7.1 3.2 5.7 7.7 3.9 5.2 5.7 19.8 Power 7.8 6.2 7.1 6.4 6.6 5.6 7 335 Piib-lic T7; 97; 7T- W- 6. T v 74 Private -- 0.1 -- 0.1 -- 0.5 --_ Manufacturing 26.8 12.7 13.0 11.7 16.3 13.9 16.8 67.6 Pub~lic~ 26.7 117;1T 9. T. 1. 7 T I1.2 Private 0.1 1.6 3.6 3.6 6.3 4.2 3.8 16.4 Transport eand commnications 4 11.5 7.7 9.1 7.8 11.4 12.8 57 < Piblic 3 W7 77 z 7 9 MT Private 1.0 0.9 0.4 1.9 1.1 2.3 1.0 7.5 Tourism 10.6 13.0 13.8 15.0 15.7 14.1 60.0 Pablic 3.2 3.6 3.5 3.5 2.2 . 9 7.3 Private 3.3 7.0 9.5 10.3 12.8 13.0 12.2 52.7 Commerce, housing and other services 2.1 2.9 3.4 4.2 5.9 8.9 9.3 36.6 Public 1.7 7 7.7 7f ;7 Private (incl. cooperative) 0.4 0.7 o.6 1.6 2.0 1.3 0.8 4.7 Water supply -- -- -- ~ ~ 2.7 1.5 7.0 15.0 Public T~ 7~ T"~