2023-11-07 10:11:25
As Tunisia seeks to recover from the economic impacts of the Covid-19 pandemic, slowing growth, drought-related uncertainty and ongoing structural reforms are all factors influencing its economic future.
Tunisia, a country located at the crossroads of North Africa, has long been a model of economic stability in the region. However, recent World Bank data reveals a complex economic reality. The World Bank’s latest Economic Outlook provides an in-depth look at growth prospects in Tunisia, outlining the major challenges the country faces in terms of external financing and structural reforms. This report dives into the numbers and data to understand the reality of current and future challenges.
A slowdown of anticipated growth
According to World Bank data, Tunisia is facing a significant slowdown in its economic growth. In 2023, the World Bank forecasts GDP growth of just 1.2%, marking a sharp decline compared to previous years. This situation stems from several factors, including the economic performance recorded in the first half of 2023, the difficult conditions linked to the drought which hit agriculture hard, as well as the uncertainty surrounding debt financing and the pace of structural reforms. planned by the government.
Real GDP in 2023 is projected to be still 1.3% lower than before the Covid-19 pandemic. However, the World Bank suggests a glimmer of hope for the year 2024, with forecast growth of 3.0%, subject to an easing of drought. This slight recovery would allow the Tunisian economy to target annual growth of 2.4% during the post-Covid period. However, these forecasts remain modest, reflecting an economy held back by pre-existing structural weaknesses and uncertainty surrounding financing conditions.
Significant downside risks
The World Bank highlights that growth forecasts for 2024 are subject to significant downside risks. These risks are linked to the evolution of the drought, the pace of structural reforms planned by the government and financing conditions. If Tunisia does not adopt decisive budgetary reforms favorable to competition, or if available financing is not sufficient to cover external needs, growth projections for 2024 could be significantly revised downwards. This situation could lead to a shortage of foreign exchange, rationing of imports and potentially a depreciation of the dinar, which would worsen existing inflationary pressures.
Regarding the budget and current account deficits, World Bank data indicates an expected improvement. The budget deficit is expected to decline slightly to 5.6% of GDP in 2023, from 6.6% in 2022. This reduction is mainly explained by the reduction in spending, notably the wage bill and commodity subsidies. , which will benefit from the drop in international prices.
As for the current account deficit, it is also expected to decline significantly to 4.0% of GDP in 2023, due to strong travel exports, improving terms of trade and continued compression of imports.
“Tunisia’s twin deficits are expected to be more moderate thanks to more favorable commodity prices and some spending compression. The budget deficit is expected to decrease somewhat to reach 5.6% of GDP in 2023 (compared to 6.6% of GDP in 2022)… The current account deficit is expected to narrow considerably to 4.0% of GDP in 2023 ( against 8.6% in 2022)… However, the rise in oil prices since July 2023 presents an obvious risk of worsening both for the budgetary balance and for the external balance,” underlines the document.
Increased dependence to external financing
Despite the reduction in deficits, Tunisia is expected to face a significant increase in its external financing needs due to debt amortization. Nearly two thirds of the necessary financing will have to be devoted to depreciation. This reinforces Tunisia’s dependence on external financing sources, which are expected to represent around 57% of total financing.
“Despite the reduction in deficits, gross financing needs are expected to increase further to reach 16.0% of GDP in 2023 (compared to 12.6% in 2022), mainly due to the increase in debt amortization. In fact, almost two-thirds of the funding is expected to go toward amortization, since a significant amount of debt matures at the end of the year. While this helps to somewhat reduce the level of public debt (from 79.8% in 2022 to 76.9% of GDP in 2023), it also increases Tunisia’s dependence on external sources of financing, which are expected to represent around 57% of total financing… FDI would remain stable and portfolio investments minimal, sovereign loans should still cover external financing needs while Tunisia continues to be deprived of access to international capital markets. ”, the document further explains.
The same source indicates that the absence of an IMF program raises uncertainties about external financing, and that it is crucial to determine how this will affect Tunisia. Although an agreement was reached with Tunisian authorities in October 2022 for submission to the IMF board, this program has not been finalized, adding an additional layer of uncertainty.
He added that if Tunisia manages to accelerate the pace of reforms and maintain a sufficient level of financing, a slight recovery in growth in the medium term is anticipated, as well as a stabilization of macroeconomic and budgetary imbalances. This recovery could allow the economy to converge on a long-term growth trajectory, while reducing inflation and improving financing conditions.
“We expect the economy to slightly accelerate its growth rate to 3% in 2025–2026. This would imply a slow convergence around the mid-2030s towards the long-term growth trajectory, from which the economy deviated during the Covid-19 crisis. We expect a slight decrease in inflation due to the relatively large post-Covid output gap and the slight increases in public wages following last year’s government-Ugtt agreement,” the document underlines.
In conclusion, World Bank data highlights the economic challenges facing Tunisia and calls for structural reforms and adequate financing to boost growth and ensure economic stability. Tunisia must actively work on several fronts to restore investor confidence, encourage innovation and ensure long-term economic sustainability.
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