“Reforming energy subsidies can help address Tunisia’s macrofiscal crisis,” says WB

“Reforming energy subsidies would help reduce fiscal and import costs, improve state-owned enterprise (SOEs)’ financial viability and stimulate the green transition; However, it is key to minimise the impact of the reform on the most vulnerable categories,” according to “Tunisia Economic Monitor: “Reforming Energy Subsidies for a More Sustainable Tunisia,” published Thursday by the World Bank.
Energy subsidies have been a significant expenditure in Tunisia’s budget, averaging 6.4% of public expenditures and 2.14% of GDP over the period 2011-21, the WB said. However, the recent global commodity price rally fueled energy subsidies, which in 2022 accounted for 5.3% of GDP and 15% of public expenditures.
“This confirmed the strong correlation of the subsidies with the international oil price and exchange rate,” the WB pointed out.
The WB further indicated that the 2022 imports have satisfied 50% of the demand. This translated into an energy import bill of TND 15 billion, or 10.3% of GDP, which explained the lion’s share of the increase in the current account deficit in 2022.
The WB further indicated that the subsidy system has created major financial challenges for STIR and STEG, as the state is increasingly unable to secure the resources to cover their losses.
“The large swings in international oil prices and the exchange rate result in the actual subsidies being much higher than the budgeted subsidies based on initial fuel price and exchange rate projections, as it was the case in 2022.”
“With an increasingly tight fiscal space, the Government has often been unable to fill these gaps, which resulted in financial deficits and increased indebtedness of the SOEs absorbing the cost of the unpaid subsidies,” the WB pointed out.
These mounting deficits and the inability to control the risks on the cost side impair the SOEs’ ability to plan and invest to ensure the security of energy supply, the WB added.
The financial viability of energy related SOEs is not only fundamental to maintain the sustainability of public finances, but it is also critical to ensure the viability of the sectors.
As such, the WB recommend that a mix of tariff and transfers could help neutralise the transition costs for low-income households.
Moreover, accompanying subsidy reforms with programs to compensate help businesses and households invest in energy efficiency and self-generation can help tame inflationary pressure on households and firms, maintain firm competitiveness and support the green transition.
“Financial restructuring and modernisation of SOEs would be key complements to subsidy reforms to enable energy SOEs to restore their financial viability,” it concluded.
Finally, the WB reiterated the need to develop large-scale renewable energy at it is essential to reduce dependence on fossil fuels and imports, while reducing the cost of electricity production.

Source: Agence Tunis Afrique Presse (TAP)

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