Estudios Económicos
Tunisia

Tunisia

Population 11.8 million
GDP 3,293 US$
C
Country risk assessment
B
Business Climate
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Synthesis

MAJOR MACRO ECONOMIC INDICATORS

  2018 2019 2020 (e) 2021 (f)
GDP growth (%) 2.7 0.9 -9.2 3.5
Inflation (yearly average, %) 7.3 8.7 5.5 6.0
Budget balance (% GDP) -4.6 -3.3 -11.7 -8.0
Current account balance (% GDP) -11.2 -8.5 -6.5 -6.0
Public debt (% GDP) 77.3 72.5 81.5 90.0

(e): Estimate (f): Forecast

STRENGTHS

  • Support from international, multilateral, European and Arab donors
  • Economy in the process of diversification
  • Proximity to the European market and association agreement with the EU
  • Tourism potential
  • Natural resources (phosphates and hydrocarbons in particular)

WEAKNESSES

  • High social and geographical inequalities, high unemployment - especially among young people (41%), leading to increased social unrest and demonstrations
  • Economy strongly impacted by COVID-19 and political crisis
  • Fragmentation of political representation reflecting that of society and learning about democracy
  • Tourism confronted with security problems, increased foreign competition, lack of investment, and little diversification in both range and themes

RISK ASSESSMENT

A recovery pressured by the pandemic and political crisis

The health and political crises, coupled with social unrest, continue to affect the economy. Nonetheless, it will initiate a recovery in 2021, but will remain constrained amid a slow vaccine rollout. Household consumption (75% of GDP) will grow weakly in 2021 due to COVID-19 restrictions, lower income and higher unemployment, which is expected to exceed 18% in 2021. Total investment (around 17% of GDP), which fell sharply in 2020, will tepidly resume, as political and social turmoil is likely to affect investors’ sentiment. Public investment will be constrained by the need to keep fiscal spending under control. Services (nearly 50% of GDP), particularly tourism (hotels, restaurants and transport) were hard hit by the crisis and should still be hampered in 2021. This will impede the rebound of tourism external receipts and, thus, their contribution to growth. Industries (16% of GDP), like hydrocarbons, phosphates, derived fertilizers and plaster could suffer from recurrent strikes. After shrinking in 2020, manufacturing industries, notably those export-oriented such as clothing, automobile and aeronautical parts should benefit from recovering external demand, particularly from Europe. Olive oil exports, one of the rare sectors not to have suffered from the crisis, will continue to prosper. Despite a rising energy import bill, higher exports and still subdued imports due to weak domestic demand will lead to a smaller negative contribution of net exports.

 

Fiscal adjustment delayed by the political crisis

Although still high, the fiscal deficit is expected to narrow as revenues pick up (modestly) and capital and current expenditures - excluding the public wage bill (57% of expenses) and energy subsidies - contract. On the one hand, international partners wish to see the wage and subsidies bills reduced, but on the other, they do not want to trigger reactions from the population . Public debt reached 82% of GDP in end-June 2021, out of which 67% was denominated in foreign currency (56% in Euro) and 70% owed to multilateral and bilateral creditors.

The current account deficit should further shrink in 2021. Exports will rise faster than imports, so the trade deficit will diminish. This will more than compensate for the lack of positive contribution from the services balance due to the absence of tourists. Expatriates’ remittances, which expanded in 2020, should stay on this rising trend. Tunisia received assistance support from the European Union in mid-2021 (EUR 300 million, with another 300 million to be allocated before the end of the year) and the African Development Bank (EUR 60 million) for economic recovery and social integration. This partly compensated the amortization of older loans and limited the drain on foreign exchange reserves, which still represented 4 months of imports as of end-September 2021. As the IMF’s Extended Credit Facility expired in May 2020, the negotiation on an extension of a Fund’s facility and trust across investors is likely to be hampered by the current political crisis. The external debt (over 90% of GDP in September 2020) is expected to remain high and the majority of it (80%) will continue to be public or public-guaranteed debt. This would raise questions over the country’s ability to service its debt (debt service is set to represent 13% of GDP in 2021, from 9.5% in 2020). Moreover, the debt ratio will be vulnerable to currency depreciation, fluctuations in donor support and GDP growth. The dinar has only seen minor fluctuations thanks to external aid. In 2021, fewer interventions are expected and the exchange rate could weaken.

 

Institutions in parenthesis

Using a highly contentious reading of the 2014 constitution, President Kaïs Saïed, elected in October 2019, suspended Parliament activity in late July 2021, dismissed the prime minister Hichem Mechichi and his government, and took over the executive power. This was a response to social unrest, political stalemate, and quarrelling between president, prime minister and parliament. The Assembly of the Representatives of the People was deeply fragmented, with an opposition between the secularists and clerics (represented by Ennahdha, the conservative Islamist party, which holds 52 seats out of 217). In September 2021, the president suspended most of the constitution and stated that he would rule by decree-law, appoint the Cabinet and set its policy orientation and basic decisions without interference, prompting immediate opposition from rivals. The elected parliament will not only remain frozen but its members will stop being paid. They will still be stripped of their immunity from prosecution. Saïed did not put any time limit on his seizure of power, but said he would appoint a committee to help draft amendments to the constitution. These decisions has led opponents to demonstrate against Saïed, but according to polls, the majority of the people seems to keep supporting the president. However, external pressure from the U.S. and the EU to re-establish constitutional order could increase.

 

Last updated: October 2021

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