Tunisia's Economic Outlook in 4 Charts, study
Due to an exceptional harvest and tourist arrivals that reached levels last seen in 2010, GDP growth in Tunisia have accelerated in the second quarter of 2018 to 2.8 percent, up from 2.5 percent in the first quarter.
Inflation decelerated to 7.5 percent in August, and the current account deficit—when a country imports more goods, services, and capital than it exports—improved by 1 percent of GDP. To protect the ongoing recovery, energy subsidy reforms, stricter controls on public sector hiring and wages, pension reform, and further hiking interest rates to contain inflation should all be considered.
Measurable progress is already being made. For example, the government is implementing regular energy price adjustments to mitigate the impact of the oil price shock. It also introduced competitive central bank foreign exchange auctions to support liquidity in the market. In addition, the recently adopted law in July will facilitate the task of the High Anti-Corruption and Good Governance Authority to monitor the wealth of senior officials of the State. This enhanced transparency will help improve citizens' confidence in the good governance of public affairs, as well as limit the risk of corruption and illicit enrichment.
Below are four key charts that highlight different aspects of the Tunisian economy:
1. Driven by agriculture and tourism, real GDP growth is on track to reach 2.6 percent in 2018.
In fact, growth has been improving over the last three quarters, signaling a certain robustness of the economic recovery. This pickup in growth is due to the agricultural sector (9 percent) and service sector (3.6 percent). The latter is driven by an encouraging performance in the tourism, transport and financial services.
2. Despite a limited scope for further tax reform after the implementation of an ambitious package of tax measures for 2018, the phasing out of tax credits for civil servants will increase revenues from personal income tax next year.
Moving forward, the government intends to include two new measures in the 2019 Budget Law that are important for fairness, rather than immediate impact. First, they plan to eliminate the preferential tax regime for offshore companies for new firms in 2019, and then for all firms in 2021.
The authorities will also seek to increase the value added tax rate for the services of liberal professions from 13 percent to 19 percent. Increased revenue in the coming years will allow for more public investment and a stronger focus on issues such as healthcare and education. In addition, the government intends to further reinforce collection efforts and streamline tax administration, which would entail integrating all tax functions (administration, audit, and recovery) into one umbrella structure.
3. With strong fiscal discipline to offset the impact of the oil price shock, the overall fiscal balance is expected to decline to 5.2 percent of GDP in 2018.
Combined with a flexible exchange rate, this will help reduce the current account deficit to 9.7 percent of GDP. Tightening the fiscal belt would also help stabilize public debt, which is expected to stand at 72 percent of GDP in 2018.
4. Unemployment affects more than 15 percent of the total work force, disproportionately impacting youth and women.
For graduates, the unemployment rate has declined since 2011 but still hovers at 30 percent. For youth, the number is closer to 35 percent, and for women, the number is just under 25 percent. Tackling these issues are critical for economic and societal health.
Strengthening governance and enforcement in the government’s anti-corruption fight, building a competitive business environment, implementing a fairly-valued exchange rate, providing investment incentives to increase productivity, and reducing red tape are all necessary to overcome investor reluctance and build confidence. Doing so will help unleash the potential of the private sector to generate more opportunity and jobs for all Tunisians.