Tunisia’s economic development since the late 1980s has often been described as a miracle. The country sustained economic growth over the past decade has been pointed to by many outside observers, including the European Union, but the fact that such growth had not resulted in improved living conditions for most people has largely been ignored.
The North African nation remains in a contrasts: while important progress has been made on political transition to an open, democratic system of governance uniquely in the Middle East & North Africa (MENA) region economic transition has not kept pace.
Internal constraints, such as the fragmentation of the political party system and related difficulties in reaching consensus on key economic reforms, have combined with external constraints, such as conflict in neighboring Libya, to slow down economic recovery and generate growing social dissatisfaction among Tunisians with the lack of employment. Youth and women have been particularly affected by this: Tunisia is one of the few countries in the world where a higher level of education decreases employability, in particular for women. Poverty and unemployment in Tunisia have soared over the past decade, especially among the young and in rural areas resulting to outward migration of youth poses a threat to Tunisia’s long-term prospects of economic competitiveness.
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Unemployment Rate in Tunisia decreased to 14.90 percent in the fourth quarter of 2019 from 15.10 percent in the third quarter of 2019 [chart above]. Now that the newly appointed ministers are settled into their posts, the main task at hand is rescuing Tunisia from the perilous downward economic spiral of the post-revolutionary years.
However, the coronavirus have posed significant challenges to the newly elected president, Kaïs Saïed, exacerbating already challenging social, political and economic problems. The Tunisian parliament is highly fragmented, which will complicate efforts to respond to the crisis, as well as to address the economic fallout. This will include a sharp economic recession, higher unemployment and widening fiscal and current-account deficits. Planned fiscal consolidation will be sidelined for the time being.
Part of the problem is the International Monetary Fund, which has loaned Tunisia $2.8 billion for economic recovery and disbursed the final $247 million tranche of the loan in June of last year. The IMF is still imposing various forms of austerity (measures) which cannot fix Tunisia by cutting government spending, while the country needs fiscal stimulation.
Tunisia’s economy shrank 1.7 percent from a year earlier in the first quarter of 2020, following a downwardly revised 0.6 percent growth in the previous three-month period. That was the steepest period of contraction since the third quarter of 2011, as the coronavirus pandemic hit hard the country’s tourism sector, which contributes nearly 10% of GDP and is a key source of foreign currency. On a quarterly basis, the GDP slumped 2.0 percent in the January to March period, the steepest decline in a decade.
The economy will have deteriorated even further in the second quarter, after GDP contracted in the first quarter as containment measures impaired domestic production and stemmed the flow of tourist arrivals. The external sector suffered heavily in April–May as exports plummeted and tourism fell sharply as borders remained shut. As such, the unemployment rate is set to spike, with large numbers of private-sector workers taking unpaid leave during May.
Tunisia’s economic freedom score is 55.8, making its economy the 128th freest in the 2020 Index. Economic and social impact of the coronavirus pandemic are explained by four (4) main factors, related to the decrease in economic activity during the period of lockdown, falling consumption and decline in external demand, especially from European countries, and the pressure on the State budget, due to the decrease in tax resources and the increase in public spending, especially related to the exceptional measures taken by the government (social and financial aid).
COVID-19 pandemic lockdown particularly hit the people working in the country’s informal economy who have not been included in the government’s package of economic support measures. According to the International Labour Organization, around 53% of the total labour force of Tunisia works in the informal sector.
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The impact of the COVID-19 pandemic has been felt by private sector enterprises in Tunisia. 35% of the private sector enterprises in activity have stated that they are likely to close down permanently under the current conditions affecting the ICTs (23.0%), mechanical and electronic industries (22.2%) and miscellaneous services (20.1%) sectors are part of the Top 3 sectors which have a BCP, according to the National Institute of Statistics (INS) survey [chart above].
Meanwhile, celebrations of the virus’ containment mask persistent socioeconomic inequalities and regional marginalisation. Moving into the third quarter, a reopening of borders in late June, the continued easing of lockdown restrictions and the approval on 15 June of USD 175 million in budgetary support from the World Bank bode well for both domestic demand and a return of much-needed tourist revenues.
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Prior to the pandemic, Tunisia had amassed a level of public debt equivalent to 77.1 percent of gross domestic product. Tunisia’s foreign borrowing having risen from 50% of the GDP in 2010 to 99.4% of GDP in 2018 resulting to entrenched economic stagnation with according to a German based Census and Economic Information Center data. That number is expected to rise as the country seeks more COVID-19-related loans. This includes $745 million from the International Monetary Fund and $273 million from the European Union, as well as promises of $55 million from Italy and $280 million from the Islamic Development Bank [chart above].
In July 2020, Tunisia expect a decline in the growth of manufacturing industries (-14.8%), non-manufacturing industries (-3.3%), and market services (-10%), against an increase in the growth of non-market industries (0.5%), by the end of 2020 according to the Minister of Development, Investment and International Cooperation, Slim Azzabi, report stated.
Reinforcing a social and solidarity economy
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Tunisia’s annual inflation rate eased to 5.8 percent in June of 2020, decelerating from 6.3 percent in the previous month [chart above]. It was the lowest inflation rate since February, as prices slowed mostly for food & non-alcoholic beverages (4.3 percent vs 4.7 percent in May); transport (1.6 percent vs 3.3 percent); health (7.6 percent vs 9.2 percent); restaurants & hotels (11.8 percent vs 13.5 percent) and miscellaneous goods & services (8.3 percent vs 9.5 percent). In contrast, inflation remained sharp for alcoholic beverages & tobacco (at 27.6 percent) while it edged higher for housing & utilities (5.2 percent vs 4.1 percent) [chart below]. On a monthly basis, consumer prices dropped 0.1 percent, after increasing 0.5 percent in the prior month.
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The decline in the growth rate will lead to a drop in consumption, due to the decrease in family incomes, as well as a decrease in the volume of private investment following the impact of the lockdown decided to limit the spread of the COVID-19 virus, which caused a halt in production and the decline in trade, besides lower tourism revenues and the deceleration of inflation rate 6%, due to the drop in demand and global hydrocarbon prices.
Tunisian legislature recently passed a draft social and solidarity economy, law, which seeks to harmonize public, private, and social, economic institutions, as well as encourage association through cooperatives. It is unclear whether this bill will be enough to improve the lives of Tunisia’s poor.
Public discontent is on the rise, as is the often hazardous pursuit of migration to Europe. Recently, protests re-emerged in Tataouine, where civilians demanded investment in the energy sector. Such lingering marginalisation presents a clear message for many Tunisians: surviving the coronavirus will not save them from economic woes and socio-political exclusion.
The recent draft of organic law approving the agreement establishing the African Continental Free Trade Area (AfCFTA) No.69 of 2019 unanimously passed by the House of People’s Representatives (HPR). This will improve the competitiveness of enterprises after easing trade transactions costs, reducing export linkages of major commodities and consolidating economic and social transition, in order to achieve full growth, industrialisation and sustainable development, in line with the AU’s “Agenda 2063.”
Although growth has emerged in small segments such as tourism and the textile industries since 2016. Since the COVID-19 crisis showed the weakening of the tourism sector by unexpected health crises in Tunisia. The experience of rural retreats, rest areas and agricultural tourist villages, which are based on environmental and organic products and other services, are favoured for local and foreign tourists; they represent alternative tourist products on which Tunisia relies. It requires restoring confidence of Tunisians in their local products, through strengthening domestic tourism and alternative tourism.
The State should support companies affected by the pandemic, by taking exceptional measures, particularly the aforementioned mechanism, which is likely to help preserve the sustainability of jobs and industrial companies active in the sectors of food industries, building materials, ceramics and glass as well as agriculture.
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