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. While parliamentary elections were held in December 2022 and January 2023, the new parliament's first session occurred in March 2023. Parallel to the parliamentary elections, elections for regional councils will be held in December 2023. These elected representatives will subsequently form the Council of Regions and Districts, which acts as the second house of the Tunisian Parliament.
Tunisia's economic performance slowed after the 2011 revolution, resulting in a decade of lost growth, exacerbated by the COVID-19 pandemic in 2020. Gross domestic product (GDP) growth thus fell to 1.7 percent on average between 2011 and 2019, down from 3.5 percent between 2000 and 2011. The significant decline in productivity growth observed is primarily due to excessive regulation of economic activity, reduced trade orientation, low investment, and limited innovation.
As growth and employment performance declined, Tunisia increasingly relied on the welfare state to meet citizens' aspirations for better livelihoods. With the economy offering insufficient opportunities, job creation has slowed over the last decade, 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, the profound distortions holding back the economy need to be addressed. Markets have become increasingly concentrated, thus creating entry barriers, while the costs of doing business remain high across sectors, notably due to cumbersome rules on investment, trade, and licenses, limited 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 79.8 percent in 2022.
The COVID-19 pandemic and, more recently, the war in Ukraine have exacerbated socio-economic vulnerabilities, slowing down an already limited economic growth. The economy severely contracted—by 8.7 percent in 2020 amidst the COVID-19 pandemic, and the economic recovery has been sluggish. As a result, Tunisia’s gross domestic product (GDP) declined by 2.5 percent in real terms between 2019 and 2022. The slow recovery was exacerbated by a severe drought that hit Tunisia in the first half of 2023, during which the economy only expanded 1.2 percent in real terms, down half the growth rate in 2022. Agriculture (down 9 percent year-on-year in the first six months of 2023) was the main driver of the 2023 economic slowdown, as low and variable rainfall exposed the deficiencies of a sector that needs reforms to adapt to climate change.
On the other hand, the tourism sector's continued post-COVID recovery in the first half of 2023 led to robust growth in hotels and restaurants (+ 17 percent year-on-year) and transportation services (+5 percent). The manufacturing sector, meanwhile, posted restrained growth rates, with textile and garments (+6 percent year-on-year) and mechanical and electrical industries (+5 percent) performing relatively better than the rest of the sector.
Limited economic growth pushed Q2 2023 unemployment to 15.6% (21.1% for women), with minimal job creation and significant female job losses. Labor force participation increased slightly. Unemployment matches 2019 levels, but participation remains 2% below pre-Covid.
Tunisia’s current account is structurally in deficit, dragged down by a large merchandise trade deficit. This was exacerbated by the hike in global energy and food prices in 2022 following Russia’s invasion of Ukraine. As terms of trade improved for Tunisia in early 2023, the trade deficit declined to TD 12.2 billion (7.5 percent of 2023 GDP) in the first eight months of 2023, a 39 percent drop vis-à-vis the same period in 2022. The lower trade deficit and increased tourism receipts moderated the current account deficit in H1 2023, easing external financing pressure. Tunisia still relies on sovereign lending due to the uncertain financing conditions and the heavy external debt repayments (three percent of GDP) in the short term.
Inflation has begun to moderate since peaking in February 2023 (10.4 percent). It fell to 9.0 percent in September due to lower global prices and weak domestic demand. Yet inflation is still high, particularly for food (13.9 percent), as the drought and the import compression have reduced the supply in domestic food markets. Inflation remains well above the interest rate, although the latter remained stable at eight percent through the first nine months of 2023.
Last Updated: Nov 29, 2023