The World Bank in Tunisia
Tunisia remains a country of contrasts: while important progress has been made on political transition toward an open, democratic system of governance, economic transition has not kept pace.
A new government led by Hichem Mechichi was sworn in on September 2nd. In his speech before Parliament the day of the confidence vote, Prime Minister Mechichi said his priority is to help address the economic and social situation—stop the bleeding of public finances, start talks with lenders, and begin reform programs, including for public companies and subsidies.
Yet since its inauguration, the government has yet to present a clear strategy to address Tunisia’s deep economic and financial challenges, even when the country has reached unprecedented budget deficit levels and deteriorating public services. While the COVID-19 crisis has aggravated the situation, economic resilience had been drained by several years of indecisive public policies and a growing protectionist stance.
The COVID-19 pandemic is having a heavier impact than previously anticipated. The lock-down simultaneously suppressed domestic supply and demand, contracting GDP by 21% (year-over-year) in the second quarter. At the same time, reduced external demand and travel restrictions lowered tourism receipts by 47% and reduced exports of mechanic and electric industry and textiles (Tunisia’s main manufacturing exports) by 27% by (year-over-year) as of mid-2020.
Other factors are affecting growth this year. The country suffered from further political upheaval as Elyes Fakhfakh’s recently-formed government fell, which added more uncertainty, and worker disruptions are affecting mining output. Taken together, these factors are contributing to an expected 9% contraction in 2020, down from the first Covid forecast of -4%. In this context, unemployment increased from 15% to 18% in the second quarter of the year, a level last reached in the time of the 2011 revolution.
Poverty and vulnerability are expected to grow and invert a trend observed in the last years of fast poverty reduction. According to a series of telephone interviews conducted by INS and the World Bank, there is evidence that pandemic has modified eating habits. Poorer households have reduced quantities consumed or started consuming less preferred foods. To cope with rising food prices or to make up for jobs losses, households drew on their savings, received help or borrowed money from relatives and deferred payment of their obligations. In 2020, extreme poverty—measured using the international poverty line of living on US$1.90 per-day—will still be below 1%; however, poverty measured with the US$3.20 per-day line will increase by about 1.3 percentage points, from 2.9% to 4.2%. Additionally, the percentage of the population that is “vulnerable” to fall into poverty is expected to increase in 2020. Using an expenditure threshold of US$ 5.50 per-day, the number of poor and of those vulnerable to poverty is expected to increase from 16.6% to 22% of the total population.
The current account deficit remains high at an expected 7.1% of GDP in 2020, but it has improved (from 8.8% in 2019) as imports decline at a faster pace than exports. These factors are supporting continued growth in forex reserves, which stood at 142 days of import by August (against 95 days a year earlier).
In contrast, the fiscal deficit project to reach 12%, aggravated by an 11% decline in revenues by mid-year, reflecting the reduction in economic activity and tax deferral measures. The wage bill increased by 14% by mid-2020, adding to spending pressures and signaling lack of progress in containing civil service pay. These developments are worsening debt vulnerabilities. Public debt is forecasted to rise from 72.2% of GDP in 2019 to a peak of 86.6% of GDP in 2020, well above the emerging market debt burden benchmark of 70% of GDP.
Last Updated: Oct 01, 2020
Tunisia : Commitments by Fiscal Year (in millions of dollars)*
*Amounts include IBRD and IDA commitments
AROUND THE BANK GROUP
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