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.
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