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Cover -- CONTENTS -- CONTEXT: RESILIENCE IN A DIFFICULT POLITICAL TRANSITION AND A DETERIORATING SECURITY ENVIRONMENT -- RECENT DEVELOPMENTS: WEAK ECONOMIC ACTIVITY AMID HIGH VULNERABILITIES -- OUTLOOK FRAUGHT WITH RISKS -- THE REFORM AGENDA -- A. Achieving Macroeconomic Stability -- B. Achieving Higher and More Inclusive Growth -- C. Protecting the Most Vulnerable -- PROGRAM ISSUES AND MODALITIES -- STAFF APPRAISAL -- BOXES -- 1. Tunisia's Journey: From the Arab Spring to a New Democracy -- 2. Authorities' Response to Policy Recommendations in Previous Article IV Consultations -- 3. Tourism Sector: Economic Impact of the Recent Terror Attacks -- 4. Tunisia's Potential Growth -- 5. Public Sector Employment and Wages -- 6. Inclusiveness and Growth Constraints -- 7. Why Focus on Public Banks ? -- FIGURES -- 1. Recent Economic Developments, 2007-15 -- 2. External and Financial Indicators, 2007-15 -- TABLES -- 1. Selected Economic and Financial Indicators, 2011-16 -- 2. Balance of Payments, 2011-20 -- 3. External Financing Needs, 2012-20 -- 4a. Central Government Financial Operations, 2012-16 (In millions of dinars) -- 4b. Central Government Financial Operations, 2012-20 (In percent of GDP) -- 5. Monetary Survey (Financial System), 2010-16 -- 6. Central Bank Balance Sheet, 2010-16 -- 7. Financial Soundness Indicators of the Banking Sector, 2008-15 -- 8. Access and Phasing under the Stand-By Arrangement, 2013-15 -- 9. Illustrative Medium-Term Growth Scenario, 2011-20 -- 10. Indicators of Fund Credit, 2012-20 -- ANNEXES -- I. External Sector Assessment -- II. Public Debt Sustainability Analysis -- III. External Debt Sustainability Analysis -- IV. Tunisia's Inclusiveness Issues -- V. Fair Taxation in Tunisia -- APPENDIX -- I. Letter of Intent -- Attachment I: Memorandum on Economic and Financial Policies.

EXECUTIVE SUMMARYContext. On June 7, 2013, the Executive Board approved a 24-month Stand-By Arrangement in an amount equivalent to 400 percent of quota (SDR 1.146 billion or about 1.75 billion). To date, SDR 716.25 million, equivalent to 1.1 billion, has been disbursed.Background. Tunisia is completing a successful political transition to democracy while navigating a challenging environment marked by high social and security tensions, slow growth in trading partners, and spillovers from regional conflicts. At the same time, large external and fiscal imbalances, high unemployment, and increased

Cover -- CONTENTS -- A SUBDUED RECOVERY IN A DIFFICULT CONTEXT -- PROSPECTS FOR BETTER OUTLOOK, BUT HIGH RISKS -- AGENDA TO FOSTER MACROECONOMIC STABILITY -- A. Reducing Macroeconomic Imbalances -- B. Ensuring Adequate Social Protection -- C. Creating More Opportunity for the Private Sector -- PROGRAM ISSUES AND MODALITIES -- STAFF APPRAISAL -- FIGURES -- 1. Real Sector Developments, 2010-18 -- 2. External Sector Developments, 2010-18 -- 3. Fiscal Sector Developments, 2010-18 -- 4. Monetary Sector Developments, 2010-19 -- TABLES -- 1. Selected Economic and Financial Indicators, 2016-24 -- 2. Real Sector, 2016-24 -- 3. Balance of Payments, 2016-24 -- 4. Central Government Fiscal Operations, 2016-20 (in millions of dinars) -- 6. Central Government Fiscal Operations, 2016-24 (in percent of GDP) -- 7. Monetary Survey, 2016-20 -- 8. Central Bank Survey, 2016-20 -- 4. External Financing Needs, 2016-20 -- 9. Financial Soundness Indicators of the Banking Sector, 2010-18 -- 10. Illustrative Medium-Term Outlook, 2016-24 -- 11. Proposed Schedule of Purchases Under the Extended Fund Facility, 2016-20 -- 12. Indicators of Fund Credit, 2016-24 -- 13. Inclusive Growth Trends -- ANNEXES -- I. Trends in the Civil Service Wage Bill -- II. Risk Assessment Matrix -- III. Debt Sustainability Analysis -- IV. Capacity Building Priorities -- APPENDIX -- I. Letter of Intent -- Attachment I. Memorandum of Economic and Financial Policies -- Attachment II. Technical Memorandum of Understanding.

Cover -- CONTENTS -- Glossary -- TUNISIA'S FRAGILE TRANSITION CONTINUES -- IMPROVING OUTLOOK, MAINLY DOWNSIDE RISKS -- POLICIES TO TURN HIGH ASPIRATIONS INTO INCLUSIVE GROWTH -- A. Maintaining Macroeconomic Stability Amid High Vulnerabilities -- B. Ensuring Adequate Social Protection as Key Part of the Social Contract -- C. Creating More Opportunity for the Private Sector -- PROGRAM ISSUES AND MODALITIES -- STAFF APPRAISAL -- BOX -- 1. The Challenge of Raising Growth to Reduce Unemployment -- FIGURES -- 1. Recent Economic Developments, 2007-17 -- 2. Real Sector Developments, 2000-23 -- 3. Fiscal Developments, 2007-23 -- 4. External Sector Developments, 2005-20 -- 5. Monetary and Financial Indicators, 2008-17 -- 6. Revised Projections Against First Review Targets and Objectives, 2016-22 -- 7. Challenges of Fiscal Consolidation in MENA Oil Importers -- TABLES -- 1. Selected Economic and Financial Indicators, 2015-23 -- 2. Balance of Payments, 2015-18 -- 3. External Financing Needs, 2015-18 -- 4. Central Government Fiscal Operations, 2015-18 (In millions of dinars) -- 5. Central Government Fiscal Operations, 2015-23 (In percent of GDP) -- 6. Monetary Survey, 2015-18 -- 7. Central Bank Survey, 2015-18 -- 8. Financial Soundness Indicators of the Banking Sector, 2010-17 -- 9. Illustrative Medium-Term Growth Scenario, 2013-23 -- 10. Schedule of Purchases Under the Extended Fund Facility, 2016-20 -- 11. Indicators of Fund Credit, 2015-23 -- ANNEXES -- I. Recommendations from the 2015 Article IV Consultation -- II. Risk Assessment Matrix -- III. Public Debt Sustainability Analysis -- IV. External Debt Sustainability Analysis -- V. External Sector Assessment -- APPENDIX -- I. Letter of Intent -- Attachment I. Memorandum of Economic and Financial Policies -- Attachment II. Technical Memorandum of Understanding -- CONTENTS -- RELATIONS WITH THE FUND.

Cover -- CONTENTS -- STRONGER GROWTH, BUT ALSO HIGH IMBALANCES -- IMPROVING OUTLOOK, MOSTLY DOWNSIDE RISKS -- STRONG, URGENT MEASURES TO PROTECT GROWTH -- A. Maintaining Macroeconomic Stability Amid High Imbalances -- B. Ensuring Adequate Social Protection -- C. Creating More Opportunity for the Private Sector -- PROGRAM ISSUES AND MODALITIES -- STAFF APPRAISAL -- FIGURES -- 1. Recent Economic Developments, 2009-18 -- 2. Real Sector Developments, 2009-23 -- 3. Fiscal Developments and Projections, 2015-23 -- 4. External Sector Developments, 2009-20 -- 5. Monetary and Financial Indicators, 2012-18 -- TABLES -- 1. Selected Economic and Financial Indicators, 2015-23 -- 2. Real Sector, 2015-23 -- 3. Balance of Payments, 2015-19 -- 4. External Financing Needs, 2015-19 -- 5. Central Government Fiscal Operations, 2015-19 (In millions of dinars) -- 6. Central Government Fiscal Operations, 2015-23 (In percent of GDP) -- 7. Monetary Survey, 2015-19 -- 8. Central Bank Survey, 2015-19 -- 9. Financial Soundness Indicators of the Banking Sector, 2010-18 -- 10. Illustrative Medium-Term Outlook, 2015-23 -- 11. Schedule of Purchases Under the Extended Fund Facility, 2016-20 -- 12. Indicators of Fund Credit, 2015-23 -- ANNEXES -- I. Inflation Drivers -- II. Risk Assessment Matrix -- III. Monetary Policy-Strengthening the Nominal Anchor -- IV. An Agenda for Technical Assistance, FY18-19 -- APPENDIX -- I. Letter of Intent -- Attachment I. Memorandum of Economic and Financial Policies -- Attachment II. Technical Memorandum of Understanding.

EXECUTIVE SUMMARYBackground. The political transition is moving forward again following another period of political upheaval and security tensions. However, the protracted political crisis of the past few months has taken a toll on the economy, resulting in a weaker economic recovery than envisaged and further erosion of external and fiscal buffers.Program performance has been mixed. End-June and end-September NIR and NDA quantitative performance criteria have been met, but are estimated to have been missed by end-December because of lower external financing and the high liquidity needs of the