Tunisia’s economy is in crisis, burdened by high debt, unemployment, and inflation. The lack of an IMF deal has forced the government to devise a risky 2025 budget. The economy suffers from structural failures, vast public employment, and increasing reliance on ineffective financial measures, risking deeper economic decline while avoiding necessary reforms.
Tunisia’s economy, weakened by years of stagnation, mounting debt, and social turmoil, began 2023 in dire straits. Public debt approached 80% of GDP while youth unemployment soared, and inflation persisted, affecting households enduring shortages of essential goods. The government’s reliance on temporary measures has merely masked deeper issues in competitiveness, tax collection, and public sector effectiveness. Additionally, the lack of an International Monetary Fund (IMF) agreement has left Tunisia without access to affordable external financing, compelling officials to draft a precarious 2025 budget that serves as a survival plan and a risky gamble.
Reflecting on the post-2011 era, Tunisia’s economic plight serves as a cautionary tale of unmet aspirations and systemic failures. Once celebrated as a beacon of success following the Arab Spring, it now faces an economy severely damaged by cronies, ineffective state monopolies, and a tax system that captures less than 15% of GDP. Following the revolution, governments expanded public sector job opportunities to quell dissent, creating a workforce of 650,000 public employees that account for nearly half of state revenue. Global challenges, such as COVID-19 halting tourism and diminishing remittances from Europe, combined with rising import costs due to the Ukraine conflict, have compounded these issues. By 2023, subsidies, which consume nearly 10% of GDP, have become crucial for citizens but burdensome for public finances.
Government strategies to prevent economic collapse have devolved into a reactive approach with decreasing effectiveness. Initial import restrictions targeting luxury items broadened to essential products like dairy and vegetable oils, resulting in a black market with prices soaring 300% above official rates. Concurrently, the central bank’s direct financing of deficits has kept state operations running while inflating prices. These initiatives overlooked the fundamental challenges: a privatized sector overwhelmed by bureaucracy, loss-making state-owned enterprises, and an education system misaligned with a struggling job market.
Tunisia’s international debt market isolation, following the faltering IMF negotiations, complicates the country’s financial crisis. President Kais Saied’s rejection of the austerity measures linked to IMF support reflects valid fears of provoking civil unrest similar to past turmoil. Yet, relying on neighboring Algeria and Libya for irregular financial assistance and the European Union for migration-related support only provides limited relief amid a staggering $4 billion annual financing shortfall.
With bond yields exceeding 18% and foreign reserves sufficient for only three months of imports, the proposed budget’s projected growth of 1.9% seems unrealistic. This discrepancy indicates that Tunisia may not be pursuing a recovery path but rather hoping that regional volatility will encourage a bailout with less harsh conditions—an unsettling gamble in a world preoccupied with other crises.
The recently enacted 2025 Finance Law exemplifies a beleaguered government’s strategy to reconcile conflicting demands. The government’s plan includes introducing regressive tax measures and heavy domestic borrowing, such as new taxes on digital services and an increase in bank transaction fees. Aiming to generate $1.2 billion, this strategy risks crowding out private sector loans that are already difficult to secure at manageable interest rates for small-to-medium enterprises, which employ 70% of the workforce.
A significant concern of this law is its reliance on the central bank’s role as a lender of last resort, a position it has maintained since 2022 through treasury bond purchases. This approach, although providing liquidity, risks destabilizing the currency. Having already lost approximately half its value versus the euro since 2020, further depreciation may invalidate the budget’s inflation projections, now anticipated at just above 8% for 2025. With current food inflation at 15%, purchasing power will likely diminish for the majority living below the poverty line. The government continues to assert that maintaining subsidies for bread, fuel, and electricity will alleviate social hardships; however, these support systems primarily benefit smugglers and black market operators rather than citizens.
The Finance Law serves not only as an economic framework but also as a tool for maintaining control. By steering clear of IMF-imposed reforms, such as subsidy cuts or job reductions, which contributed to unrest in Egypt, the government aims to prevent public protests. However, the burdens of new taxes will primarily fall on salaried workers and youth, potentially alienating the middle class while leaving the informal sector, which comprises 54% of the labor force, relatively unscathed. At the same time, the government has intensified legal actions against over 200 opposition members since January 2024 on charges of
In summary, Tunisia’s economic strategies, represented by the 2025 Finance Law, reflect a precarious balancing act amid significant financial challenges. While aimed at maintaining governmental stability, the law does little to address the underlying structural problems that plague the economy. With reliance on inadequate fiscal measures and ineffective taxation strategies, the country is likely to face worsening economic conditions coupled with potential social unrest. These issues highlight the urgent need for comprehensive reforms that target fundamental weaknesses rather than temporary solutions.
Original Source: www.arabnews.com
