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FEATURE STORY

Tunisia: Escape austerity through accelerating growth

January 16, 2014

STORY HIGHLIGHTS
  • The World Bank estimates that growth in 2013 will be around 2.6 %*, and will progressively rise to 3.0 % in 2014 and 4.1 % in 2015, figures well below the country’s potential.
  • The most pressing challenge for Tunisia today is to accelerate reforms that can spur economic growth.
  • In 2014 and in the future, Tunisia faces a difficult economic outlook due to limited flexibility in expansionary policies; but if conditions are put in place for the private sector, it could play an important role in accelerating growth which has the potential to benefit the whole country.

Tunisia is at a critical juncture in economic terms, the World Bank notes in its latest Economic Monitoring Note on Tunisia. The World Bank predicts growth of 2.6 % in 2013, 3.0 % in 2014 and 4.1 % in 2015, well below the country’s potential. To elevate Tunisia’s growth path and encourage job creation, Tunisia must undertake reforms to remove structural barriers that hinder the development of private investment.

While the transition process unfolds, political and security challenges that have marked 2013 also weighed on economic activity in Tunisia. Investment, exports and tourism have declined or at best stagnated during the year. The pace of economic expansion slowed considerably due to these unfavorable developments. Given the prospects of sluggish growth, unemployment is likely to remain at high levels in the near future.

In this context , more and more calls for ' austerity ' have been launched in recent months. Even if this is necessary, fiscal discipline alone does not stimulate economic growth or job creation , and may even act as a brake in the short term.

Faster growth will only be possible by developing an inclusive and competitive private sector - which requires faster and deeper reforms already underway, while redirecting public expenditures with the fiscal space still available.

Read the full report here (pdf - French).

* World Bank forecasts are frequently updated based on new information and changing (global) circumstances. Consequently, projections presented here, or in other reports, such as the Global Economic Prospects, may differ from those contained in other Bank documents.