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Tunisia’s Economic Outlook- Spring 2016


The latest MENA Economic Monitor Report - Spring 2016, expects Tunisia’s GDP growth to recover modestly to 1.8 % in 2016.

The social tensions that marked the first half of 2015, as well as the combined effects of three dramatic terrorist attacks have been the main drivers of Tunisia’s economic performance in 2015. GDP growth reached a mere 0.8 % only thanks to a strong performance in agricultural production (+9.2 %) particularly olive production, while most other sectors of the economy contracted or stagnated. A combination of strikes and social unrest in mine-producing regions (phosphate) and the long-term decline in the production of oil and gas led to a sharp contraction in chemical industries (-5.3 %) and oil refining (-18.2 %) and an overall decline of non-manufacturing industries (-4.1 %). After a marked acceleration throughout the first half of 2015, CPI inflation steadily decelerated to 4.1 % (y-o-y) by end-2015 reaching an annual average of 4.9 %, the same rate as the previous year. The unemployment rate remains high at 15.4 %, particularly for women (22.6 %), university graduates (31.2 %) and the youth (31.8 %).

For the first time since 2011, the fiscal deficit was contained below 5 % of GDP in 2015, thanks to the sharp drop in international oil prices and de facto lower energy subsidies. Total revenue declined to 23 % of GDP, from 23.9 % in 2014 but at a slower pace than expenditures reflecting weak economic activities. Public expenditure remained dominated by recurrent spending, including a wage bill, which increased to 13.4 % of GDP (from 12.8 in 2014) to reach almost 50 % of total spending. Capital expenditure continued to be squeezed, reflecting slow investment execution. Public debt reached 52 % of GDP in 2015 (up from 40 % in 2010).

The current account deficit remained large at 8.7 % of GDP in 2015. The trade deficit was reduced to 11.3 % of GDP in 2015, against a record high of 13.7 % of GDP in 2014, in line with the deceleration of private domestic demand, and lower international energy prices. Notwithstanding exceptional olive oil exports, total exports declined as a result of low production in mining and energy sectors and a weak performance in manufacturing. Imports contracted with the sharp drop in international oil prices and low demand for equipment and machinery import. Reflecting the weak security environment, tourist arrivals and receipts dropped by 30.8 and 35.1 %, respectively. Remittances also decreased. FDI inflows increased by 9 % in 2015 and gross foreign exchange reserves declined by $200 million to $7.5 billion at the end of 2015 to represent 4 months of import coverage.

The immediate economic outlook is subject to the lingering impact of the security shocks and social tensions that marked much of 2015 and early 2016. In a favorable scenario, economic growth would pick up in the medium term. GDP growth is projected to recover modestly to 1.8 % in 2016 as phosphate production picks up. The twin deficits are projected to be -8.0 (current account) -4.4 (fiscal balance) % of GDP. In a scenario that would combine the pursuit of structural reforms, the reinforcement of security and improvement in the regional situation (most notably a start of normalization in Libya), greater social stability, and a moderate increase in external demand, economic growth is projected to accelerate to 2.5 % in 2017 and 3 % in 2018. Fiscal pressures should continue to grow with increasing current expenditure exacerbated by the announced wage increase starting in 2016 and new recruitments in security and defense forces. The current account is likely to benefit from the gradual recovery of remittances and services trade and would decline gradually toward 7.8-7.5 % of GDP in 2017-18. Debt servicing payments are projected to reach 4 % of GDP per annum in 2016-2018. 


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