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Tunisia

Tunisia

Population 11.7 million
GDP 3,422 US$
C
Country risk assessment
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Synthesis

MAJOR MACRO ECONOMIC INDICATORS

  2017 2018 2019 (e) 2020 (f)
GDP growth (%) 1.8 2.7 1.0 -5.0
Inflation (yearly average, %) 5.3 7.3 6.8 5.3
Budget balance (% GDP) -6.2 -4.6 -3.6 -8.4
Current account balance (% GDP) -10.2 -11.1 -9.1 -12.5
Public debt (% GDP) 70.4 77.0 74.4 79.0

(e): Estimate. (f): Forecast.

STRENGTHS

  • Support from international donors, including the IMF, through an Extended Fund Facility (EFF) programme
  • Economy in the process of diversifying
  • Close to the European market, association agreement with the EU
  • Tourism potential
  • Natural resources, including phosphates and hydrocarbons
  • Growing integration of women in political and economic governance positions

WEAKNESSES

  • High social and geographical inequalities
  • Economy strongly impacted by the Covid-19 crisis
  • High unemployment rate, mainly amongst young people
  • Tourism sector facing political and security problems, as well as increased foreign competition
  • Social tension leading to more demonstrations and social unrest
  • Porous border with Libya, which is a source of insecurity
  • Structural imbalances in the public and external accounts, significant increase in external debt, which represents about 93% of GDP

RISK ASSESSMENT

An already anaemic growth rate that dropped due to COVID-19

The first cases of COVID-19 were reported on 2 March, leading to full lockdown on 22 March. Containment measures were extended until 4 May, when a first phase of easing, involving only those between 15 and 65 years of age, was initiated. Persons under 15 and over 65 were unrestricted on 18 May. As of 18 August, the number of confirmed cases had reached 2,314 with 54 deaths and 1,370 recoveries. Despite Tunisia's low infection rate, the already weak growth rate is expected to contract sharply in 2020, plunging the country into recession. Indeed, GDP declined by 21.6% in Q2 2020 year-on-year. Exports of goods and services, which accounted for 50% of GDP in 2019, recorded a 20.6% decline in value in H1 2020 year-on-year. The majority of sectors were affected by this decline in external demand. Agriculture, which accounts for 11% of Tunisian GDP and already in a bad position before the COVID-19 crisis because of a dry spring that affected production, saw its situation worsened by lockdown measures. Farmers are having difficulty obtaining fertilizers, which is causing a considerable production drop. This has led to a decline in exports, particularly of citrus fruits, dates and seafood products. The manufacturing sector, which represents 16% of GDP, is also contracting due to disruptions in supply chains and falling European demand, particularly for textiles and clothing. Despite the decline in imports of goods and services by around 24% in value terms in H1 2020 because of the contraction of domestic demand, the current account deficit continues to widen due to the larger fall in exports, as well as the abrupt halt of tourism. The direct contribution of tourism to GDP was 13.9% in 2019. This sector is at a standstill due to the closure of national borders for 14 weeks and lockdown measures. Tourism receipts fell by 47% in H1 2020 year-on-year. Furthermore, remittances from the Tunisian diaspora (4.9% of GDP in 2019), on which many families depend, are on a sharp decline - estimated at 17% - affecting the consumption of many households. The unemployment rate is increasing and could rise to 21.6% in 2020, compared to 15% in 2019.

 

Public deficit will widen further despite external aid

The public deficit is widening because of decreasing revenues and increasing expenditures. Tax revenues fell by 12% year-on-year in H1 2020. Disbursement expenditure, on the other hand, increased by 11.5% in H1 2020 compared to the same period in 2019. On 21 March, the government announced that it would inject nearly USD 695 million (2% of GDP) to support the economy and the most vulnerable households. This stimulus plan includes, for instance, the elimination of penalties for late payments to the State or the rescheduling of tax debts of companies that have recorded a decline of at least 30% in their activity. A quarter of this sum will be injected into a strategic fund designed to provide financial support to companies. Another quarter will be allocated to small businesses in the tourism, transport, crafts and culture sectors. USD 34.7 million should be earmarked to finance equipment for hospitals and public health institutions. On the social front, USD 52.1 million will help the poorest families and vulnerable people. Finally, USD 104.3 million will be used to support employees who have been laid off. Moreover, a fund to fight COVID-19 was created by the Ministry of Health, which, as of 6 May 2020, had collected nearly USD 72 million in donations. This fund is exclusively financed by private funding and is reserved for financing actions aimed at fighting pandemics. In April 2020, the IMF approved an emergency loan of USD 745 million under its rapid financing instrument. These funds are intended to finance part of the trade balance deficit, as well as the public deficit. In addition, Tunisia has received a large number of grants and credits, totaling USD 3.2 billion, from foreign partners such as the IBRD, the European Union, the African Development Bank, the United States and Italy. Nevertheless, public debt is expected to increase to 79% of GDP by the end of 2020, with the external share representing 75% of the total.

 

Intensification of political and social tensions

The Tunisian political scene remains tormented. On 15 July, the head of government Elyès Fakhfakh, a social-democrat, resigned at the request of President Kaïs Saïed, following accusations of a conflict of interest. Hichem Mechichi, a former interior minister, who is an independent and little known by the public, replaced him. Mechichi is due to form a new government by 26 August, which he wants to compose with only independents. This new government will have to be approved by the president, as well as by parliament, failing which new elections will be held within the next three months. The Tunisian parliament is heterogeneous, with the predominance of the Ennahdha party, a conservative Islamist party, holding 52 seats out of 217. The remaining seats are allocated to parties or independents with very different ideologies (populist, democratic, socialist, liberal or anti-Islamist parties). This heterogeneous composition may be a hindrance on the approval of the new government. On the social front, protest movements are on the rise, with 934 movements registered in June. The rise in the unemployment rate and the poverty rate is fueling these movements. Other demands, such as access to drinking water, employment, security issues, education and health, were also observed. 

 

Last updated: August 2020

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