Tunisia entered a new political phase in July 2022 by adopting a new Constitution introducing a presidential system of government and a bicameral legislative system. Parliamentary elections were held in two rounds, the first in December 2022 and the second in January 2023, while the new Parliament's first session took place on March 13, 2023. Additionally, the setting up of the second legislative chamber foreseen by the Constitution was initiated by the recent decree-laws on municipal elections and new local councils.
MACROECONOMIC CONTEXT
Tunisia's economic performance decelerated after 2011, resulting in a lost decade of growth, exacerbated by the COVID-19 pandemic, which hit in 2020. Gross domestic product (GDP) growth declined to 1.7 percent on average between 2011 and 2019. A significant decline in productivity growth was observed as a result of excessive regulation of economic activity, reduced trade orientation, low investment, and limited innovation.
With worsening growth and job outcomes, Tunisia increasingly relied on the welfare state to meet citizens' aspirations for better livelihoods. Job creation slowed down post-revolution, as the economy failed to produce sufficient opportunities, particularly for university graduates and the prime working-age population. While the state sought to compensate citizens through public employment creation and large consumer and producer subsidies, it has yet to tackle the profound distortions holding back the economy. Markets have become increasingly concentrated, thus creating entry barriers, while the costs of doing business remain high across sectors, including cumbersome rules on investment, trade, and licenses; poor access to finance; and a growing public administration. This expanding role of the state has resulted in the rapid growth of public debt, increasing from 40.7 percent of GDP in 2010 to 79.9 percent in 2021. The COVID-19 pandemic and, more recently, Russia’s invasion of Ukraine have exacerbated socio-economic vulnerabilities. Rising commodity prices widened the trade deficit by 63 percent in 2022, reaching 15 percent of GDP. Lower oil and gas production and increased demand for energy and agricultural products have aggravated the vulnerability of the trade balance to the vagaries of international markets.
The rapidly rising import bill has caused signs of distress to the balance of payments despite the resilience of external capital flows. The account deficit deteriorated by 59 percent in 2022, reaching 12.4 billion dinars (or 8.5 percent of GDP compared to 6 percent in 2021). The pressure on the dinar increased, but foreign exchange reserves have remained relatively stable in dinars while they have decreased in terms of days of imports (100 days at the end of 2022 versus 133 one year earlier). The increase in international commodity prices has created additional pressures on public finances, mainly through subsidy spending (+99 percent in 2022 compared to 2021), reaching 8.3 percent of GDP against 4.6 percent in 2021. The increase in subsidies translates into growing pressure from public debt, which escalated between 2017 and 2022 from 66.9 to 79.3 percent of GDP. The increasing use of local financing may have led to the crowding out of credit in the economy. Given the persistent difficulties in accessing international financing, the Central Bank continues to refinance treasury bond issuance, which increases liquidity.
Inflationary pressures increased significantly, mainly from global markets and higher administered prices. In February 2023, the inflation rate increased for the eighteenth consecutive month to 10.4 percent (from 7 percent in February 2022 and 6.16 percent in August 2021). This is the highest rate since December 1984. Rising inflation pushed the Central Bank to raise its policy rate by a cumulative 175 basis points throughout 2022 to 8 percent.
The economic recovery was slowing in 2022. After the moderate rebound in 2021 (4.4 percent) following a sharp contraction in 2020 (–8.8 percent), Tunisia's economy slowed, with real GDP growing by 2.5 percent in 2022. With a 4 percent growth, services contributed by 2.4 percentage points to annual GDP growth, the highest sectoral contributor. Growth in services was driven by tourism and transport. Hotels and restaurant services and transport continued the recovery after suffering the largest drop during the COVID-19 crisis in 2020, when their value-added was only 75 percent and 86 percent of that in 2019, respectively. The manufacturing sector grew by 5 percent in 2022, contributing 0.7 percentage points to GDP growth. Textiles and the mechanical and electrical industries dominated the manufacturing growth recording a 14 percent and 7.9 percent growth rate in 2022. In contrast to 2021 (when growth was negative), agriculture contributed by 0.2 percentage points to growth with a 2 percent increase in value added. On the other hand, the mining, energy, and non-manufacturing sectors (electricity, water, and construction) contributed negatively to GDP growth (–0.9 percentage points).
With an unemployment rate of 15.2 percent in the fourth quarter of 2022 (12.9 percent for men versus 20.1 percent for women), the labor market is slowly returning to the 2019 situation, when the unemployment rate was at 14.9 percent (12.1 percent for men and 21.7 percent for women). However, the slight decline in the unemployment rate in 2022 reflects not higher employment but a decline in the labor force participation rate, which stood at 46.5 percent in 2022 compared to 47.1 in 2019. A total of 66,800 jobs were lost during the period. While the participation rate remains low for women relative to men, gender disparities are slowly declining. The male labor force participation rate has declined since the 4th quarter of 2019 (from 68.3 percent to 65.7 percent), while it has slightly increased for women (from 26.8 percent to 28.2 percent). Similarly, job losses are concentrated among men (132,800 jobs lost), while women have experienced net gains in jobs (66,000). Job losses are concentrated in non-manufacturing, particularly construction activities (–82,900), while the manufacturing sector added 29,600 jobs.
Last Updated: May 30, 2023
