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Overview

  • In Tunisia, a new government was sworn in on September 2, 2020. Its Prime Minister, Hichem Mechichi, says his priority is to address the economic and social situation, rebalance public finances (through talks with lenders), and begin reforms to cut subsidies and programs sustaining organizations like State Owned Enterprises. In April 2021, Tunisia provided international partners with draft reform programs, but the government has yet to present a comprehensive, detailed strategy to confront the country’s deep economic and financial challenges, now reflected in unprecedented levels of budget deficit and public debt.

    Even before COVID-19, Tunisia’s capacity for economic resilience had been drained by years of indecisive public policymaking and growing protectionism. Public services were already deteriorating. After an attempt to reshuffle the government—rejected by the President of the Republic, Kais Saied —the country’s Prime Minister is leading the government with a cabinet in which half the ministers hold more than one position.

    Macroeconomic context

    As 2020 drew to a close, the depth of the pandemic’s impact on the Tunisian economy became more apparent. Tunisia has experienced a sharper decline in economic growth than most of its regional peers, having entered this crisis with slow growth and rising debt levels. GDP growth contracted by 8.8% in 2020. Unemployment increased from 15% prior to the pandemic to 17.8% by the end of the first quarter of 2021. Moreover, it continues to affect women (24.9%) and young people aged 15–24 (40.8%) in particular.

    Poverty and vulnerability are expected to grow and invert a trend observed in poverty reduction over the last few years. A series of telephone interviews, conducted by the National Institute of Statistics (INS) and the World Bank, showed evidence of the pandemic modifying their eating habits. Poorer households have reduced the quantities of food they have consumed or started consuming less preferred foods. To cope with rising food prices or make up for jobs losses, households either drew on their savings, accepted outside financial help, or borrowed money from relatives and deferred payment of any outstanding obligations.

    In 2020, extreme poverty—measured using the international poverty line of living on US$1.90 per day—still remained below 1% in Tunisia; however, poverty measured within the US$3.20 per day bracket was estimated to have increased from 2.9% to 3.7%. Additionally, the percentage of the population described as being “vulnerable” to falling into poverty was expected to have increased as well. Using a threshold of US$5.50 per person per day, the number of poor and of vulnerable together is expected to have increased from 16.7% to 20.1% of the country’s total population of about 11.7 million (World Bank 2021, 2019).

    The current account deficit remained high, at 6.8% of GDP in 2020, but has improved (from 8.5% in 2019), as imports declined at a faster pace than exports. These factors are supporting continued growth in forex reserves, which stood at US$8.3 billion by January 2021 (equivalent to 158 days of import cover) against US$7.4 billion at end-2019. During the first months of 2021, the trade deficit contracted by 10%. Exports of goods increased by 23% and imports rose by 13.7% compared to the same period in 2020. Meanwhile, the balance of services went from a positive balance of 523 million dinars to a negative balance of 177.5 million, a drop of 134%, but remittances increased by 17%, leading to a contraction of 6.8% of the current account balance. Trends in the first months of this year are positive, as higher exports—mainly from industrial production—contribute to lower external financing needs and lessen pressure on reserves. But external risk remains significant.

    In contrast, the fiscal deficit has reached 10% of GDP, aggravated by a decline in revenues due to the reduction in economic activity and tax deferral measures, along with the costs of the COVID-19 response program. The wage bill increased to about 17.5% of GDP in 2020, adding to spending pressures and signaling a lack of progress in containing civil service pay. These developments are worsening debt vulnerabilities. Public debt is forecast to rise from 72% of GDP in 2019 to of 87% of GDP in 2020, which is well above the emerging market debt burden benchmark of 70% of GDP.

    During the first quarter of 2021, tax revenues increased by 13% (YoY). On the other hand, non-tax revenues (-77%) fell sharply. As a result, total revenues (tax and non-tax) rose by 1.7%. At the same time, expenditures decreased by 2.3% despite the increase in wages (+4.7%), management expenses (+7.9%) and interest on debt (+1.2%). The fall in subsidies and interventions (-13.4%), as well as investment expenditure (-38%), allowed for savings of 475 million dinars (US$1.73 million).

    Overall, the budget deficit decreased by 27.7%, consistent with the objective of reducing the 2021 budget deficit to 6.6% of GDP.

    Last Updated: Jun 21, 2021

  • Outlook

    After an 8.8% contraction in 2020, growth was initially expected to accelerate to about 4% in 2021. The first quarter’s mixed performance indicates some signs of recovery (mainly in industrial sectors) but the impact of the pandemic on growth has continued into this year. Market services are suffering from containment health measures, travel restrictions, and the slow pace of vaccination. Political, social, and economic uncertainty remain high; early economic forecasts could be adjusted downwards.

    From 2022, growth is expected to return to a more subdued trajectory of about 2%, reflecting Tunisia’s weak investment climate and slow structural transformation. The current account deficit is expected to widen slightly as demand for imports begins to recover and exports pick up at only a sluggish pace, given the country’s persisting structural constraints and political uncertainty. The fiscal deficit is expected to increase to about 8% of GDP in 2021 and decline gradually in the medium-term, with downside risks from a growing wage bill, subsidies, and underperforming State-Owned Enterprises (SOEs).

    The outlook for reforms being put into place to support economic recovery is challenging: With the population already strained by the unprecedented shock of COVID-19, any space there had been to improve the fiscal outlook—by reducing both the wage bill and the cost of untargeted subsidies—has been narrowed by heightened levels of social and political tension. Structural reforms, made to address SOE performance, increase market contestability, and clamp down on corruption are even more necessary now than before, but national political dialogue and buy-in for such reforms have yet to emerge. Security risks are a further concern for the country’s outlook.

    Following the increase in poverty in 2020, it is expected to begin dropping again from 2021 onwards, but at a slow pace and with important risks related to the pace of the economic recovery and the capacity of the authorities to cushion the population from the impact COVID-19 within the context of a tight budget. 

    Portfolio

    The current Country Partnership Framework (CPF) comes to an end in the World Bank’s Fiscal Year 21 (FY21) and a new one will be prepared and adopted in FY22. A new Systematic Country Diagnosis (SCD) is being prepared and will be completed in FY21, prior to the preparation of the new CPF for FY22–FY26.

    The challenges posed by the COVID-19 crisis reconfirmed the need to adjust support to Tunisia in the Relief, Restructuring, and Resilient Recovery fund set aside for it. The Bank has provided a fast and flexible response to the COVID-19 pandemic by using its operational and policy instruments and by working in close partnership with governments and other development agencies. Bank support has included restructuring six projects so they include a COVID-19 response component, as well as a new COVID-19 emergency operation (worth US$20 million) for which US$100 million in Additional Financing was issued in March 2021 to enable affordable and equitable access to COVID-19 vaccines in Tunisia. The extra financing will support the Tunisian government’s National COVID-19 Vaccination Strategy, which is to vaccinate 50% of its population by end-2021 and help strengthen key aspects of the vaccine distribution. A new Social Protection Emergency Response Project was also issued in March to address the impact of the pandemic on the most vulnerable. The project is providing cash transfers for about 1 million vulnerable Tunisian households to help them deal with the economic impact of the COVID crisis.

    Tunisia’s First Resilience and Recovery Emergency Development Policy Financing (US$175 million) loan was approved in June 2020, disbursed in December 2020, and contributed to the Government of Tunisia’s crisis response to COVID through the following: (i) the expansion of permanent and temporary cash transfers to about 36% of the population; (ii) temporary top-ups of small pensions for about 1.2% of the population; (iii) the introduction of temporary unemployment benefit to benefit up to 2.7% of the population; and (iv) support to self-employed and informal workers for about 0.3% of the population.

    The Bank is part of a well-coordinated partnership of major development institutions that is designed to support Tunisia’s response to the crisis the pandemic has helped precipitate. The financial and technical package includes: (i) parallel, policy-based operations prepared by the World Bank, German Development Bank, French Development Agency, Japan International Cooperation Agency, and the African Development Bank, in close coordination with the European Union.

    Pipeline: The lending volume for FY22 covers four investment lending projects with commitments of up to US$450 million. Further programming will be defined by the new CPF, which is expected to be finalized in early FY 22.

    Tunisia’s current portfolio commitments stand at US$2.1 billion for 17 active IBRD projects, of which US$1.1 billion remains undisbursed. There are 13 Investment Project Financing programs (worth US$1.44 billion), two Programs for Results (US$480 million), one Development Policy Financing loan (US$175 million) and three grants (US$15.6 million).

    Tunisia Economic Resilience and Inclusion (TERI) Umbrella 2.0 Trust Fund: The TERI Umbrella Program is being established to streamline and harmonize the work of the government, World Bank, and donor interventions, aligning their strategies and exploiting their synergies to support Tunisia’s reform agenda more effectively. The program will build on the synergies that exist between the existing Multi-donor Trust Funds (MDTFs)—Moussanada, Compact with Africa, and TRACE—and support MDTF-specific areas. Its intervention will focus on: (i) a more effective and resilient public sector, designed to improve services to individual citizens and the private sector; (ii) restoring a business environment conducive to sustainable economic growth and private sector-led job creation; and (iii) enhancing services to citizens for social, economic, and regional inclusion.

    Last Updated: Jun 21, 2021

LENDING

Tunisia : Commitments by Fiscal Year (in millions of dollars)*

*Amounts include IBRD and IDA commitments


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Additional Resources

Country Office Contacts

Tunis
Sadok Ayari
Building Le Boulevard, 3rd floor, Cité les Pins, Les Berges du Lac II, 1053 Tunis
+216 31 37 30 00
sayari@worldbank.org