Tunisia’s Economy in the Eye of the Storm
Introduction
Tunisia faces significant economic challenges due to a lack of rapid reforms. Since President Kais Saied's power grab in July 2021, the country has adopted an expansive fiscal policy, leading to historically large deficits and unsustainable levels of public debt. Additionally, the government has been reluctant to provide sufficient support for economic activity, resulting in a deteriorating business climate and heightened macroeconomic risks. These factors have created a dangerous scenario where a financial crisis could occur, potentially leading to state bankruptcy, economic collapse, and political unrest.
Summary of Tunisia’s Prospects for 2024
In 2023, Tunisia experienced its lowest economic growth in a decade, primarily due to rising inflation, deteriorating employment and social conditions, and a decline in investment. Key indicators include:
- Economic Growth: 0.4% (the lowest since 2020).
- Inflation: 9.3% (a record level).
- Fiscal Deficit: 7.7% of GDP.
- Investment: 12.8% of GDP, with private investment at 7% of GDP.
- Public Debt: Close to 100% of GDP.
- Unemployment: 39% among youth and 24% among college graduates.
These trends are expected to continue in 2024, with high risks of macroeconomic instability:
- Domestic Borrowing: Increasing reliance on domestic borrowing and direct financing from the Central Bank.
- Budget Deficit: Significant foreign funding gap unlikely to be closed easily.
- Monetary Financing: Risks of rising inflation and a potential financial crisis.
The Economy’s Underperformance in 2023
The economic recession in 2023 was driven by domestic weaknesses rather than external factors:
- Production Sectors: Agriculture, construction, and industrial output declined, while manufacturing stagnated.
- Domestic Demand: Household consumption fell due to rising prices and falling incomes.
- Investment: Continued decline to historically low levels.
- Government Spending: Insufficient to offset weaknesses in other areas.
- Inflation: Not driven by currency devaluation but by increased monetary financing.
Conclusion
Tunisia’s economic policies have created a precarious situation, with a high risk of a financial crisis. The country faces difficult choices and needs bold reforms to boost economic growth and ensure social cohesion. Without external support, the situation is likely to worsen, posing significant challenges to the economy and society.
