The political environment in Tunisia has been marked with political uncertainty especially since the assassination of opposition leader Mohammed Brahmi in July 2013 which was followed by a series of attacks across the country and an unprecedented security operation against terrorist groups operating in Tunisia. Major opposition parties called for the resignation of the government and the dissolution of the National Constituent Assembly (ANC), which was scheduled to vote on the constitution and finalize the composition of the electoral authority and pass an electoral law.
While public opinion polls have shown that social and economic issues remain at the core of Tunisian concerns, there is an increasing demand for government to limit policymaking to the passage of the new constitution and electoral law. The politicization of the constitution writing process, and the expansion of the ANC’s legislative responsibilities, led to delays in the drafting of the constitution beyond the one-year commitment. This led the Troika, the ruling coalition made up of Ennahda, Ettakatol, and the Congress for the Republic to abandon its commitment to complete the constitution in one year. Once the one-year mark passed in October 2012, opposition parties began a series of protests to push for the completion of the process and elections by end December 2013.
Tunisia's economic recovery slowed down in 2013. Security concerns and weak economic performance in the European Union and Libya have dampened growth. GDP growth was only 2.7 percent in Quarter (Q) 1, 2013, and 3.2 percent in Q2 2013. The average for 2013 is now expected at around 3.2 percent against 3.6 percent in 2012. Inflation had steadily increased, due to high food prices, since 2012 to peak at 6.5 percent in March 2013. It has since stabilized to 6 percent in recent months responding to tighter monetary policy by the Central Bank.
The government has maintained the expansionary fiscal policy adopted since the revolution but policy buffers have now been exhausted. To limit the growing fiscal impact of international oil prices on subsidies, the government increased domestic fuel prices in September 2012 and March 2013. While additional increases are unlikely in the current political context, short-term measures will be needed to contain the budget deficit. The deficit should reach 7.2 percent of GDP against 5.1 percent last year. This increase in public spending combined with high commodity prices and sluggish manufacturing exports have kept the pressure on external accounts. The current account deficit will remain high at an estimated 8.1 percent of GDP (same as 2012). Foreign Direct Investment and other net external financing inflows will not suffice to prevent a run-down in foreign exchange reserves, which should stand close to the equivalent of 3 months of imports by year end. Given the mounting strains on the fiscal and external balances, adjustments will be necessary in 2014.
Updated: September 2013
An Interim Strategy Note (ISN) for Tunisia covering FY13-14 was endorsed by the World Bank’s Board of Directors in early July 2012. The ISN outlines a World Bank Group program focused on contributing to the Constituent Assembly Government’s short and medium-term employment creation objective. The program aims at promoting private-sector led recovery and job creation, with a focus on openness, opportunity and accountability. The Bank Group’s support is framed around three areas of engagement: i) Laying the foundation for renewed sustainable growth and job creation; ii) Promoting social and economic inclusion; and iii) Strengthening governance: voice, transparency and accountability. The ISN was prepared jointly with the IFC to align the Bank’s strategy with Tunisia’s post-revolution priorities.
Key lending operations under the ISN include: a series of Governance, Opportunity and Jobs Development Policy Loan (GOJ DPL), the first approved by the Board for $500 million in November 2012; the MSME Financing Facility (credit line), approved in July 2011; and three investment operations: the Urban Development and Local Governance; and Competitiveness and Export Development; and a Training for Employment operation. The GOJ DPL approved in November 2012 was the first in a series of three DPLs and supports reforms to strengthen governance in the public and banking sectors; to increase transparency, access to information, competition in the private sector and flexibility in the labor market. It also supports demand-side governance reforms such as community score cards. The African Development Bank and the EU are key Bank partners providing parallel budget support for the Government of Tunisia’s reform program.
The Bank’s portfolio includes 10 Investment Projects Financing loans, 4 Global Environment Facility grants in infrastructure and social services, and rural development and natural resources management, 3 Japanese Social and Development Fund (JSDF), 1 State and Peace building Fund (SPF) and 1 Multi-Donor Trust Fund. Actual commitments for FY14 are estimated at US$492 million with an undisbursed balance of US$260 million as of September 2013. Other ongoing operations are focused on supporting lagging regions, mainly through two CDD operations (the 4th Northwest Mountainous and Forested Areas Project and the 2nd Natural Resources Management Project), as well as higher education, energy efficiency, water and sanitation services and solid waste management. The Bank has also mobilized trust fund financing from JSDF (US$6 million) and SPF (US$5 million) to pilot support toyouth employment, training and social services.
IFC’s approach in Tunisia emphasizes inclusion and focuses on job creation through increased private sector investments in key sectors. IFC will focus on (a) improving the business environment to help send a strong signal to private investors that Tunisia is once again open for business; (b) expanding access to finance to MSMEs – through integrated AS/IS support to banks, SME funds and microfinance, targeting women and youth entrepreneurs; (c) investing in labor intensive and high value added sectors (i.e. IT, off-shoring, agribusiness, electronics, electrical and mechanical industries); and (d) improving infrastructure and social services especially in lagging regions.
The Multilateral Investment Guarantee agency is providing a US$240 million guarantee in support of financing for a replacement car ferry for the Compagnie Tunisienne de Navigation, approved in July 2011.
Updated: September 2013
The World Bank was able to respond quickly to changing circumstances, and provide key budgetary support to the interim government following the January 14, 2011 revolution. This included strengthened dialogue with the Constituent Assembly and interim Government to determine priorities and how the Bank can best support them. The new strategic direction that the GOT embarked upon works toward a sustained economic recovery which leads to increased employment creation. While the environment in Tunisia remains fluid, the World Bank has had some successes post-revolution:
The 2011 Governance and Opportunity (GO DPL) has led to increased public access to economic and social data, and on public finances: the Ministry of Finance now publishes monthly data on budget execution; the annual reports of the Supreme Audit Institution have been published online; the Statistical Office has introduced on-line access to key survey databases (Household Budget Survey 2005; Labor Force Survey 2010; a sample of the Population Census 2004).
Under a Freedom of Association Law passed in 2011, non-governmental organizations, think-tanks and other groups can now easily assemble, and there has been a blossoming of such actors across the country. The use of the internet has expanded, connecting Tunisians and opening up Tunisia to the world. As of September 2011 there was a 33 percent increase in the number of websites “.tn”, compared to end-2010. A new regulatory framework for the National Employment Fund (around 0.4 percent of GDP) has been put in place and the program is now under the management of the Ministry of Employment. To promote citizens voices, the DPL reform program included developing a community scorecard mechanism to evaluate employment, health and education services. This mechanism enables regular monitoring and evaluation by third parties of selected social programs and public services that would allow citizens to rate performance.
The 2012 Governance, Opportunity and Jobs DPL (GOJ DPL), supported the government in: Launching a participatory review of business formalities to streamline procedures, increase transparency, and reduce arbitrary and discretionary behavior; Making landing stations of international telecommunications cables open to more operators in an effort to promote the competitiveness of the economy and liberalize the sector; Restructuring the financial sector and strengthening its stability and commissioning strategic and financial audits of three public banks.
Moreover, stricter prudential regulations for the banking sector, from micro-finance to large state-owned banks, were announced by the Central Bank. An autonomous auditing, evaluation and accreditation system for the quality of health services was established using international standards. In the education sector, the National Authority for the Evaluation, Quality Assurance and Accreditation of higher education was established.
The Tunisian government issued a decision to publish key information on public finances, with citizens’ budget and an online open budget platform was created to further promote the transparency of public finances. A participatory regulatory simplification process in the Ministry of Finance was established which reduced red tape by simplifying procedures by 86 percent and eliminated 7 percent of customs & tax procedures. A broader regulatory simplification reform has been launched in 9 ministries.
The results of the community scorecards were published on a national scorecard (drawing on evaluations from 9,000 citizens). The government launched safety net reform to establish a new registry and means-tested targeting to better reach the most vulnerable populations.