The World Bank (WB) forecasts a 2.3% GDP growth in 2023 assuming the adoption of sufficiently ambitious structural reforms, according to “Tunisia Economic Monitor: “Reforming Energy Subsidies for a More Sustainable Tunisia,” published Thursday by the bank.
The forecast also assumes the finalisation of the IMF agreement in the first half of 2023 and sufficient financing to cover external and budgetary needs.
The forecast is based on the growth rate of the last two quarters of 2022 as this was a period with similar conditions to those likely to prevail throughout 2023 in terms of commodity prices and uncertainty around financing conditions.
The growth rate forecasted for 2023 is also aligned with the long-term pre-COVID 19 growth rate (2011-2019).
“The 2023 growth forecast is subject to significant downside risks related to the pace of structural reforms and the evolution of financing conditions,” the report reads.
2023 growth forecast subject to significant downside risks
The 2023 growth forecast is subject to significant downside risks related to the pace of structural reforms and the evolution of financing conditions. Growth projections would be significantly lower should Tunisia not implement decisive fiscal and pro-competition reforms and/or should available financing not be sufficient to cover Tunisia’s external needs, including as a result of protracted delays in finalizing the IMF agreement.
These conditions could generate a shortage of foreign exchange in the economy, a rationing of imports, and potentially lead to a depreciation of the dinar, thus aggravating existing inflationary pressures. Tunisia would also face challenges to fulfill elevated external debt repayments in the second half of 2023. “As a result economic activity and employment could be severely affected,” it indicated.
However, the relatively more benign course of commodity prices along with some expenditure reforms are expected to reduce the current account deficit in 2023, which would, nevertheless, remain difficult to finance without reforms.
“As commodity prices start to stabilise, we expect the trade deficit to decline slightly from 15% of GDP to 14.8%, which would drive some improvement in the CAD (from 8.5% to 8% of GDP). The decline is mainly the result of improved terms of trade with the moderation of global commodity prices.”
More benign commodity prices along with some rationalisation of public expenditures could also help reduce the fiscal deficit to 4.6% of GDP (from 6.6% in 2022), as forecasted by the 2023 Budget Law.
“The agreement on an EFF with the IMF along with the implementation of an ambitious reform agenda would help cover the external financing needs,” the WB said.
According to the bank, implementing an “ambitious” reform agenda to improve the fiscal balance and increase competitiveness remains “crucial” to sustainably financing the deficit.
Medium-term prospects conditional on continuation of an ambitious pace of reforms and sufficient financing conditions
If the pace of reforms and the level of financing remain sufficient, we project a slight uptick in growth over the medium run along with some stabilisation of the macro and fiscal imbalances, the WB underlined.
“We expect the economy to slightly accelerate its pace of growth to 3% in 2024-25.”
Despite subsidy reforms, we expect inflation to decrease somewhat due to the relatively large post-COVID output gap and the mild increases in public wages following the government-UGTT agreement last year.
These conditions along with the continuation of subsidy reforms should help Tunisia reduce its current account and budget deficits, easing financing conditions.
Furthermore, the slight increase in real economic growth should lead to a decrease in the poverty rate below pre-COVID levels by 2025. However, these medium-term prospects are conditional on the continuation of an ambitious pace of reforms and sufficient financing conditions.
Source: Agence Tunis Afrique Presse (TAP)