Following a sharp decline in 2020, GDP is projected to expand at an annual rate of 3 to 3¼ per cent in 2021 and 2022″ in Tunisia, the Organisation of Economic Cooperation and Development.(OECD) said in its economic outlook for 2021 released on May 31.
After a strong rebound in the third quarter of 2020, the tightening of containment measures due to rising infections has particularly affected labour-intensive services sectors. High unemployment will weigh on household incomes, damping private consumption. Investor confidence remains subdued due to little progress on structural reforms and uncertainty related to the financing of the high fiscal deficit, the organisation further said.
The gradual removal of containment measures in Tunisia’s main trading partners will boost merchandise exports, but persisting health risks will continue to weigh on tourism activity and job creation until vaccination becomes widely deployed domestically and in main trading partners.
Monetary policy should remain accommodative if inflation continues to be moderate. Improvements in public spending efficiency − including a reform of public employment and state-owned enterprises, the phasing-out of regressive energy subsidies, a reduction of tax exemptions and an improvement of tax enforcement − would create fiscal space for better-targeted support to vulnerable households and public investments in infrastructure, education and health.
“Lowering administrative burdens on firm entry and growth as well as trade barriers for onshore firms would strengthen competition and innovation, and boost investment and formal job creation, ” the OECD document further reads.
//Measures to contain the pandemic will weigh on sector of services and recovery will be slow in Tunisia//
The slow rollout of the vaccine, and the corresponding need to maintain mobility restrictions into the second half of 2021, will hold back activity in labour-intensive services sectors.
Rising firm bankruptcies as support measures are phased out will keep unemployment high, weighing on household incomes and damping private consumption.
Political uncertainty holds back private investment. Some progress on core structural reforms is expected due to a recently started dialogue with social partners, and investor confidence should improve gradually towards the end of 2021. An improving health situation in Tunisia’s main trading partners will raise exports of goods and services during the second half of 2021.
An improving health situation in Tunisia’s main trading partners will raise exports of goods and services during the second half of 2021. With the gradual lifting of restrictions, employment and private consumption will slowly recover. Due to subdued domestic demand and high unemployment, inflationary pressures will remain contained, but they will rise in 2022 due to the recovery and decreasing energy subsidies.
Besides the difficult health situation, growing political tensions and social unrest pose a significant risk to the recovery. With public financing needs estimated at around 18% of GDP in 2021, a credible medium term plan to reduce the fiscal deficit and progress on structural reforms are fundamental to avoid further deterioration in investor confidence and allow multilateral lenders to help re-financing the high public debt.
A faster-than-expected increase in interest rates in advanced countries could trigger capital outflows and
a strong currency depreciation, raising the risk of a sovereign debt default and a financial crisis.
A faster-than-expected increase in interest rates in advanced countries could trigger capital outflows and a strong currency depreciation, raising the risk of a sovereign debt default and a financial crisis. The foreign
currency debt of both public and private sectors is high, the share of non-performing loans was already high before the pandemic,
Stronger rises in world commodity prices pose an upward risk on inflation, the current account and the fiscal deficit, as Tunisia is a net importer of oil and related products and energy subsidies are still high. On
the upside, a quicker recovery in European economies would boost exports.
Structural reforms are key for macroeconomic stability
To reduce macroeconomic imbalances and related risks, it is crucial that the national dialogue delivers on structural reforms. Improvements in public spending efficiency should include a reform of public
employment and state-owned enterprises and reallocation of resources to necessary public investments in education, health and infrastructure.
Reducing tax exemptions, improving tax enforcement and introducing property taxes could raise more and fairer tax revenue.
Gradually replacing regressive and inefficient energy subsidies by targeted income support for vulnerable households would mitigate the negative effects of fiscal adjustment. Lowering administrative burden for firm entry and growth, strengthening competition enforcement, reducing trade barriers and improving port infrastructure would boost investment and formal job creation.
Source: TAP News Agency