Tunis, Tunisia - The World Bank (WB) forecasts a modest improvement in the Tunisian economy, with growth expected to pick up to 3% in 2025-2026. This prediction was detailed in the WB's Fall 2023 Economic Monitor of Tunisia, released on Monday under the title "Migration amid a Challenging Economic Context."
According to Agence Tunis Afrique Presse, the report indicates a gradual recovery of the Tunisian economy towards a long-term growth trajectory, which was disrupted by the COVID-19 crisis. Additionally, the WB expects a slight drop in inflation, attributed to the post-COVID output gap and minor increases in public wages following last year's agreement between the government and UGTT, Tunisia's main labor union.
Economic reforms, coupled with these factors, are anticipated to help Tunisia alleviate its current account and fiscal deficits, easing financing conditions. The slight increase in real economic growth is projected to reduce the poverty rate below pre-COVID levels by 2025. However, these medium-term prospects hinge on continued ambitious reforms, adequate financing conditions, and international energy price stability.
Drought Impacts Economic Recovery
The Tunisian economy is forecasted to grow by 1.2% in 2023, a significant deceleration compared to the previous two years, with a minor increase to 3% in 2024. Persistent drought, now in its sixth year, poses a significant challenge to recovery, compounded by uncertain external financing and regulatory barriers.
Recovery in the tourism sector is a positive sign, helping to narrow the current account deficit. The trade deficit shrank by 39% to TND 12.2 billion by late August 2023, despite a widening energy deficit. The decrease in the trade deficit, combined with a 47% year-on-year increase in tourism receipts and stable remittances, has reduced the current account deficit in the first half of 2023.
External Financing and Inflation Challenges
Tunisia's reliance on sovereign loans continues due to limited private capital sources, amidst a substantial external debt repayment schedule. External financing needs remain significant, with TND 4.8 billion, or 3% of GDP, due in the latter half of 2023.
Despite these challenges, recent external financing, notably from Saudi Arabia, has alleviated pressure on foreign exchange reserves and the dinar, providing some flexibility in maintaining external balances.
Commodity shortages persist, partly due to the subsidy system and reduced agricultural production. This has also increased the debt of state-owned companies that market subsidized imported goods. Although inflation has decreased, it remains high, particularly in the food sector, as drought and import compression have limited supply in domestic food markets.
Public debt in Tunisia rose to 79.8% of GDP in 2022, with debt servicing reaching 3% of GDP in the first half of 2023. The government's increasing reliance on domestic borrowing has led to a crowding-out effect on private sector credit.
The WB's report underscores the multifaceted challenges facing Tunisia's economy, emphasizing the need for continued reforms and stable external financing to support recovery and growth.