The Tunisian economy is in an impasse: growth is slipping and has still not returned to its pre-Covid level. It is the only country in the region in this situation. This weakness in activity is reflected in the evolution of the labor market with an unemployment rate which fails to break the floor of 16% and which even fluctuates around 40% for all young people aged 15 to 24 years old. Higher education graduates are not spared and the brain drain (doctors, engineers and others) is taking on worrying proportions. But these are only symptoms or consequences of a country plunged into extreme financial stress linked to an enormous need for external financing. These correspond more or less to the amount of money that Tunisia must borrow abroad each year to fill the gap between its expenses and its income, in particular to finance its budget deficit and repay its debt.
Heavy debt burden and risk of default
At the heart of the problem, the accumulation for years of significant budget deficits and a debt to be repaid which is swelling, with it the risk of payment default. According to official estimates, financing needs will peak at around 17% of GDP in 2024-2025. To understand the current situation, we must go back to 2022, the date when Tunisia suffered a double shock. First, all of the country’s traditional external creditors agree to no longer finance the budget in the absence of shock therapy, which will have to be validated by a new IMF program guaranteeing the sustainability of public finances. Then came the war in Ukraine, a terrible blow for the Tunisian economy which saw the surge in import prices of oil and wheat of which the country is a major importer.
The impact of this drift is threefold: the foreign trade deficit is widening to reach historic levels; inflation wakes up to exceed 10%. This remains moderate, but it is enough to impact household income and consumption. And, if the rise in prices has not been more explosive, it is because the country has a system of subsidies for imported products to control, at least in part, the evolution of prices. An extremely costly system for public finances when prices soar upstream. The third impact of the surge in commodity prices is therefore that of the increase in budgetary and external financing needs, precisely at the time when creditors withdrew.
The situation is not new. Since the Arab Spring of 2011 which caused power to waver, the various parliamentary coalitions have continued to buy social peace via the system of subsidies but also public employment, with the key result being an increase in the public payroll. The cost of these two expenditure items increased by debt interest represents nearly 30% of GDP, or almost all tax revenue. In short, the budget is in deficit even before integrating operational expenditure and public investment.
Growth sectors but insufficient to revive the economy
Badly off to a good start, the Tunisian economy is nonetheless devoid of assets. In particular, it has significant phosphate resources, essential for the global production of fertilizers. The agricultural sector is also a strength. A key exporter of olive oil, the country has strong positions in fruits and vegetables, cereals and fishing. The only downside is that periods of drought are increasing with climate change and weighing on yields. It is also a leading tourism industry, a major foreign exchange earner. The effects of the Covid crisis have passed and visitors are back. A downside, however, is that its choice of mass tourism, particularly “all-inclusive” formulas, benefits tour operators and their charter companies, less so local tourist operators and the Tunisian state. The country is also a regional hub for the production of automotive parts, electrical components and clothing, thanks to its geographic proximity to Europe and a skilled and competitive workforce. It is also a leading regional player in the field of outsourcing services for foreign companies. The Tunisian economy does not lack sectoral assets but remains prisoner of its external vulnerability and is on the razor’s edge of sovereign risk. Each shock, each crisis, brings it a little closer to the risk of default.
