The World Bank’s Board of Executive Directors has approved a loan of US$120 million to Tunisia for the project “Support to Small and Medium Enterprises for Economic Recovery.”
The project intends to alleviate Tunisian firms’ key long-term liquidity limitations by funding long-term lines of credit that will be on-lent by the Ministry of Finance to participating financial institutions for lending to qualifying small and medium-sized enterprises (SMEs).
“SMEs play a key role in the Tunisian economy. The COVID-19 pandemic and the war in Ukraine have caused macroeconomic imbalances in Tunisia, which have exacerbated challenges faced by SMEs and weakened their performance and financial health,” stated Alexandre Arrobbio, World Bank Country Manager for Tunisia.
He added, “Through this project and other financial sector support programs, the World Bank, together with our partners, are pursuing support for the Tunisian government’s recovery plan. This plan includes pivotal financial sector reforms that the authorities are undertaking to strengthen financial sector regulation and supervision, further develop financial infrastructure, and promote broader financial inclusion”.
Tunisian SMEs have insufficient access to credit. According to the World Bank’s 2020 Business Surveys in Tunisia, SMEs’ access to credit has worsened over time. Access to finance, for example, was rated as a major limitation by 21.9 percent of enterprises in 2013 and 43.9 percent of firms in 2020. Due to a shortage of long-term liquidity in the banking industry, SMEs who do have access to finance primarily acquire short-term credit. Indeed, capital markets and contractual savings institutions, which are the primary sources of long-term financing in many emerging markets, remain underdeveloped in Tunisia.
To overcome these issues, the project will establish two lines of credit.
The first $24.5 million facility will be utilised to reschedule current loans of viable SMEs to extended maturities in order to reduce their debt burden. The second line of credit will give fresh long-term loans to viable SMEs worth $93.7 million. The third component, worth $1.5 million, is for project implementation assistance, monitoring, and evaluation. The project also builds on the modernization of SOTUGAR, Tunisia’s public partial credit guarantee mechanism, which is supported by parallel technical assistance and a memorandum of understanding between the Ministry of Finance and the Central Bank of Tunisia to strengthen SOTUGAR’s governance and supervision.
During the project’s preparation, the World Bank worked with a wide range of stakeholders, all of whom approved the lines of credit. This assistance to SMEs is being provided in collaboration with other partners, including the Agence Française de Développement (AFD) and the European Investment Bank (EIB), both of which plan to extend similar credit facilities to SMEs by the summer, subject to satisfactory due diligence and board approval.
