While the government approved a supplemental budget in June 2011 with a large fiscal stimulus package, only part of it was absorbed, and the fiscal deficit was 3.5 percent of GDP in 2011 instead of the budgeted 5.1 percent of GDP. Read More »
Tunisia has successfully completed the first phase of its political transition to a multi-party democracy.On the heels of the January 2011 revolution, an interim government was sworn into office a month later and was tasked with organizing the national election of a constituent assembly to write a new constitution. Free and fair elections were held on October 23, 2011, with 90 percent of the 4.1 million registered voters participating.
Ennahda, the once-banned Islamist party, won the most seats, 89 out of the 217-member constituent assembly, making it the leading governing party. It formed a coalition government with two secular political parties, the Congress for the Republic (CPR) with 9 percent of seats, and Ettakatol, the social democratic party, with 7 percent. Under the agreement brokered by the three parties, commonly referred to as the troika, Moncef Marzouki of the CPR became President of the Republic, Ennahda’s Hamadi Jebali became Head of Government and Prime Minister, and Ettakatol’s Mustapha Ben Jaafar became Speaker of the Constituent Assembly. The new cabinet which includes members from Ennahda, CPR, Ettakatol, and independent ministers was confirmed on December 23, 2011.
The constituent assembly completed a first draft of the new constitution in December 2012. A key unresolved question has been whether to opt for a presidential (with real checks and balances) or a prime ministerial system. Social tensions and disagreements around the country’s religious identity, ranging from radical Islam to liberal “modern” western, have also delayed finalizing the constitution expected to be completed in mid-2013.
The shocking assassination of a well-respected opposition leader, Chokri Belaid, in February 2013, exacerbated a political crisis and led to the resignation of Prime Minister Jebali. A new government led by Ali Larayedh, former Minister of Interior in the Jebali Government and a member of Ennahda ruling party, was approved by the Constituent Assembly on March 13, 2013. The new coalition government has committed to ensuring that a new constitution is finalized by June 2013 and national elections are held by end 2013. Independents have been appointed to be in charge of sovereign ministries (Defense, Foreign Affairs, Interior, and Justice).
Tunisia’s economy started to recover in 2012. However, the increasing political and social instability, as well as the difficult external environment, continue to hamper growth. Rebounding from the contraction of 1.9 percent of GDP in 2011, the economy grew by 3.6 percent in 2012. Unemployment receded from 18.9 percent in 2011 to 16.7 percent in 2012, still well above the pre-revolution level of 13 percent. Much of the growth was the result of a rebound in tourism and mining, heavily hit in 2011, and the increased consumption resulting from large public expenditures on wages and social programs. Political uncertainty and persistent social tensions domestically combined with the weak Eurozone performance and the continued instability in Libya are key factors impeding a faster recovery.
The government continued to pursue expansionary fiscal and monetary policies in 2012, in an effort to further boost economic recovery and assuage social tensions. Only part of the large fiscal stimulus packages approved in the 2012 supplementary budget was executed, and the composition of actual expenditures shifted from investment to consumption. The fiscal deficit (excluding grants and privatization, but including revenues from sale of confiscated assets) was 5.1 percent of GDP in 2012 compared to a budgeted 6.6 percent of GDP. A recent Debt Sustainability Analysis suggests that Tunisia has the fiscal space to accommodate such fiscal expansion at this juncture, but the space for fiscal expansion is rapidly closing. In addition the composition of public spending is deteriorating as lower execution of public investment projects (by approximately 1.5 percent of GDP compared to the budgeted amount) was replaced by an increase in expenditures on wages and food and fuel subsidies (even though the government increased domestic fuel prices by 8 percent in September 2012). Inflation steadily increased to reach 5.9 percent year-on-year in late 2012, against 4.2 percent a year earlier, driven mainly by food prices that grew by 8.4 percent, and in particular by non-subsidized food prices that increased by 9.6 percent. Amidst rising public discontent with increasing cost of living, the Central Bank tightened the monetary stance in mid-2012, reversing the expansionary monetary policy followed since the revolution. The external current account deficit continued to widen in 2012, reaching 8.1 percent of GDP, financed by a recovery in FDI (mainly in the energy sector) and large inflows of external official financing.
The impact of political crisis and uncertainty on the economy has also been evidenced by the gradual downgrading of Tunisia’s credit rating by international ratings agencies. Most recently, following the Prime Minister’s resignation in February 2013, Standard and Poor’s lowered it from BB to BB-, making it more expensive for Tunisia to raise financing on the international markets. The government will continue to rely on international financial institutions for support in 2013. A turnaround is expected for 2014 with improved domestic confidence and the anticipated European Union recovery which will contribute to raising GDP growth to around 5 percent.
Updated: April 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 US$500 million Governance, Opportunity and Jobs Development Policy Loan (GOJ DPL), approved by the Board in November 2012; and three investment operations: Urban Development and Local Governance (US$100 million); Training for Employment (US$65 million); and Competitiveness and Export Development (US$85 million). The recently approved GOJ DPL is the first in a series of two DPLs and supports reforms to strengthen governance in the public sector and banking sector; 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 is providing US$500 million and the EU €107 million in additional support for this reform program, which builds on the Governance and Opportunity DPL (US$500 million) approved by the Bank’s Board in June 2011.
The Bank’s portfolio includes 11 IBRD loans, 5 grants (Japanese Social and Development Fund and State and Peace building Fund) and 4 Global Environment Facility grants in infrastructure and social services, and rural development and natural resources management. Actual commitments for FY13 are estimated at US$992 million with an undisbursed balance of US$227 million as of March 12, 2013. Since the January 2011 revolution, the Bank has approved and disbursed two DPLs (budget support operations) amounting to US$1 billion (US$500 million each), and approved a US$50 million loan to facilitate access to financing for MSMEs. 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.
The World Bank operates as part of a broader international effort in Tunisia, together with the African Development Bank, European Union, bilateral donors (France, Japan, US, others), and United Nations agencies. In particular, the first and second multi-sector DPLs leveraged financing from the World Bank, the African Development Bank (AfDB), the European Union, and the French Development Agency (and in collaboration with JICA and UNDP). This budget support complements the grant financing provided by the Japanese Social Development Fund as well as the State and Peace Building Fund. The grants provided by these partners are targeted to youth employment, training and social services to alleviate the challenges which Tunisian has faced following the revolution.
Updated: April 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 an ongoing dialogue with the Constituent Assembly Interim Government to determine priorities and how the Bank can best support them. The new strategic direction works towards 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 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. The government also launched a workfare project for on-the-job training and skills development for the poor, using a participatory approach.