Tunisia has been facing a major economic crisis for several months. The obstacles and challenges that had arisen since the 2011 revolution have increased considerably, making the daily life of the average Tunisian a real ordeal. Shopping or refueling has become a challenge for the middle class.
The most marginalized categories, for their part, thank Habib Bourguiba and his ministers for having established the policy of compensation for food products and the accountability of the State with regard to the well-being of the citizen and the preservation of a minimum of living conditions and social dignity.
Nevertheless, the issue of compensation has become the star of the moment. The situation of public finances and the weight represented by the budget dedicated to compensation can only push towards the implementation of deep structural reforms. The crisis caused by the spread of the Coronavirus and the difficult global context aggravated by the Russian-Ukrainian conflict have demonstrated the failure of the system.
The World Bank’s half-year report, published on September 7, 2022 and entitled “Managing the crisis in times of uncertainty”, focused on the disastrous consequences of the war in Ukraine on the Tunisian economy. He recalled that Tunisia imports a large part of its energy and food needs.
The increase in prices on international markets has caused a considerable increase in the trade deficit. The report mentioned the 56% increase in the trade deficit during the first six months of 2022. It reached 11.8 billion dinars, or 8.1% of GDP. The needs for energy and agricultural products, particularly wheat, constantly put Tunisia under pressure. The value of the trade deficit for agricultural and agri-food products has increased from 1.25 billion dinars to 2.7 billion dinars between 2010 and 2021, i.e. 116% in nearly 10 years.
Even if several sectors such as tourism or finance have shown stabilization of the situation, or even an improvement, in performance compared to the 2019-2021 period, the rise in the price of wheat and petroleum products creates additional pressure on public finances due to the involvement of the State through the compensation system. “Tunisia’s subsidy policy aims to protect the purchasing power of consumers by controlling and maintaining stable the retail prices of a number of products and services”, recalled the World Bank in its publication.
The compensation system has been thought out since the independence of Tunisia. It gave birth to the general compensation fund in 1970. This is an administrative structure whose main objective is to protect consumers from fluctuations in the international prices of imported food products.
In order to ensure that things run smoothly, the State has granted itself the monopoly of certain goods such as rice, coffee, sugar or even wheat. Transactions relating to the latter, as for all cereals, are carried out by the Cereals Office (OdC) or under its supervision. One could say at first glance that Tunisia, through the OdC, has succeeded in the incredible challenge of maintaining low prices for cereals and derived products. Their consumer prices are among the lowest, yet their consumption is one of the highest in the world.
The World Bank has mentioned the overconsumption of wheat. She indicated that, according to the data available in 2017, Tunisia was the second country in the world with the lowest price of bread. At the top of this ranking is Ukraine, which exports more than 70% of its annual production and which is one of the largest wheat producers in the world.
By maintaining low prices for bread and cereal products, Tunisia is putting itself under pressure and further complicating the public finance situation. The World Bank has, moreover, recalled that no revision of the price of bread or other agri-food products has taken place since 2011. In return, Tunisia should continually inject more money into the fund of compensation.
For example, between 2010 and 2022, the compensation envelope for food products went from 730 million dinars to 2,569 million dinars. The World Bank provides additional compensation for food products at around 3% of GDP. The state is paying a high price for the malfunctioning of the system and the balance of payments is beginning to show signs of distress due to the explosion in the import bill.
” Despite the increase in remittances from emigrants and to a lesser degree tourism receipts, the current account deficit deteriorated markedly during the second quarter of 2022. It reached a historic record of 2.6 billion dinars in the month of May alone. 2022… The accumulated deficits of previous years have increased public debt, which rose from 68.2 to 107.8 billion dinars between 2017 and 2021, i.e. an average annual increase of 12%… Inflationary pressures have increased considerably, coming from especially world markets and the increase in administered prices… The inflation rate was particularly high for food products (9.8% in June) despite price controls on a large number of them … With a projected growth rate of 2.7 percent,the economy appears to be on a slightly lower growth path than previously expected remarked the World Bank.
According to available figures, nearly 74% of national cereal needs come from imports. To meet its needs, Tunisia must acquire the necessary quantities on international markets while suffering from price increases and the unavailability of cereals due to the war in Ukraine since 50% of imports come from this country. In addition, official authorities continue to pay compensation and guarantee the overproduction and overconsumption of wheat and cereal products. The compensations reserved for cereals should, according to the World Bank, increase by 63% to reach 3.6 billion dinars. The same source drew up an assessment of the compensation system for cereals and cereal products. The assessment recalled that Tunisia was stocked with wheat, also, on the local market, but that it was buying this product at a fixed price considerably less expensive than that of the international markets. The OdC then proceeds to grant compensation to millers to guarantee continued overproduction. He provides them with the wheat at a price lower than that of the purchase. In addition, the board grants cash to processors based on the quantities produced. The latter sell the processed wheat to bakeries. This operation includes another transfer of the compensation. The bakery buys the flour at a heavily subsidized price to the point that the acquisition price is downright negative, i.e. not only do the mills pay the bakeries to buy the flour, but also that bakeries are subsidized to pay for their inputs (water, electricity, but also labour). Monopolization by the State, exaggerated control of prices, and of the various stages of production have discouraged investors and put an end to the spirit of competition. Grain processors show lower dynamism and productivity than all other food processors. The system increasingly penalizes farmers, who have given up growing wheat. This system had harmful consequences on the Tunisian economy and the cost became unsustainable for the State budget in terms of subsidies and imports. ” the exaggerated control of prices and of the various stages of production discouraged investors and put an end to the spirit of competition. Grain processors show lower dynamism and productivity than all other food processors. The system increasingly penalizes farmers, who have given up growing wheat. This system had harmful consequences on the Tunisian economy and the cost became unsustainable for the State budget in terms of subsidies and imports. ” the exaggerated control of prices and of the various stages of production discouraged investors and put an end to the spirit of competition. Grain processors show lower dynamism and productivity than all other food processors. The system increasingly penalizes farmers, who have given up growing wheat. This system had harmful consequences on the Tunisian economy and the cost became unsustainable for the State budget in terms of subsidies and imports. ” who have given up growing wheat. This system had harmful consequences on the Tunisian economy and the cost became unsustainable for the State budget in terms of subsidies and imports. ” who have given up growing wheat. This system had harmful consequences on the Tunisian economy and the cost became unsustainable for the State budget in terms of subsidies and imports. ” By fixing the margins of each player in the value chain, the system deprives producers of any incentive for competition and innovation. The main way for grain producers to increase their profits is to negotiate higher margins and quantities with the state. This favors overproduction and lobbying efforts rather than productive investments and productivity gains,” the World Bank continued.
The World Bank bulletin considered that the compensation system had become very costly not only in terms of the budget but also in terms of the trade deficit. The same source considered that this system was less and less able to cope with shocks, as illustrated by the current situation. The World Bank has raised the possibility of replacing subsidized consumer grain prices with transfers to households. She felt that this could improve the efficiency of the sector, reduce the budget and import costs and strengthen the resilience of the food system. The same source estimated that a system of cash transfers to households would reduce overconsumption and food waste and would offer a greater variety of choices to consumers and possibilities of substitution in terms of goods consumed. Thus, the wheat sector may witness a decline in consumption and imports. This will reduce the pressure on public finances and reduce the state debt. ” This reform is politically and socially sensitive. The timing and sequentiality of its implementation should be carefully considered,” the World Bank concluded.
