The country’s economy entered a recession at the end of 2023, before returning to a slightly positive level in the first quarter of 2024.
Unlike countries like Senegal, Ivory Coast, or Rwanda, Tunisia will experience “modest” economic growth in 2024, according to the African Development Bank (AfDB). In a report published on May 30, the continental financial institution warns of a deterioration in the country’s medium-term outlook “due to the high risk of debt distress hampering access to external financing” and “social tensions caused by the high cost of living.
In 2023, the Tunisian economy remained at a standstill with gross domestic product growth of 0.4%, the weakest progression since the 2010-2011 revolution (excluding the Covid-19 pandemic), below forecasts. which placed it at 1.8%. The economy even entered recession at the end of 2023 before returning to a positive level in the first quarter of 2024 (+0.2%).
“This is the result of a policy, subject to debate, which favored the repayment of the debt to the detriment of the importation of raw materials,” analyzes Ridha Chkoundali, professor at the Faculty of Economics and Management of Nabeul. The Tunisian economy is very dependent on the outside world in terms of production and we can only produce if we import. Imports declined and this had a very negative effect on growth.”
Tunisia is dependent on imports for its energy supply but also for basic foodstuffs such as wheat, whose national production fell by 60% in 2023 due to drought. These products and derivatives – fuels, oils, flour, pasta, etc. – are maintained at preferential prices thanks to a system of state subsidies. But since Russia invaded Ukraine in 2022, the prices of these resources have increased on international markets, widening the trade deficit of the country which does not export enough to balance its trade balance.
“Unacceptable diktats” from the IMF
Already in debt to the tune of 80% of its GDP, Tunis is struggling to generate liquidity and finds itself juggling between paying its debts and its imports. For Tunisian households, this translates into regular shortages of basic foodstuffs such as flour, sugar, and milk.
To get out of the rut, the country negotiated a rescue plan of 1.9 billion dollars (1.75 billion euros) with the International Monetary Fund (IMF) for which it obtained an agreement in principle in October 2022. The loan, considered insufficient by economists to deal with the crisis, should help convince other international donors to support Tunisia. But, conditional on certain economic reforms, such as the lifting of subsidies on everyday consumer products, it was never ratified, with President Kaïs Saïed denouncing the “unacceptable diktats” of the institution.
The removal of subsidies would cause a rise in prices which would undoubtedly have an impact on the purchasing power of Tunisians, already facing inflation of 7.2% in April 2024 according to the National Institute of Statistics. Since then, negotiations have been at a standstill.
Mr. Saïed has tried to increase state revenue by introducing new taxes in sectors such as tourism and banking, by strengthening tax control, and by promising “criminal reconciliation” to recover improper assets and property. acquired, or by relaunching phosphate exports. However, these initiatives did not achieve the expected results.
Less conditional fundraising
In order to “finance part of the state budget deficit”, Parliament authorized in February the release of 7 billion dinars (2 billion euros) from the Tunisian Central Bank for the benefit of the Public Treasury. To make up the rest of the deficit, the country was forced to seek financing on international markets.
On Sunday, April 28, the Minister of the Economy, Feryel Ouerghi, and Hani Salem Sonbo, the director general of the International Islamic Trade Finance Corporation (ITFC) – an organization attached to the Organization of Islamic Cooperation – signed in Riyadh, in Saudi Arabia, a framework agreement for a loan of 1.2 billion dollars, paid over three years, to enable the Tunisian state to pay for “imports of certain public companies”, in particular, “petroleum products”, the ministry said in a press release.
This will relieve public finances and reduce pressure on the energy supply necessary for production,” predicts Ridha Chkoundali, professor at the Faculty of Economics and Management in Nabeul. We need to find foreign exchange reserves to be able to import raw materials associated with production and promote economic growth.” But no information has been made public “neither on the interest rate, nor on the grace period, nor the repayment period,” notes Mr. Chkoundali. Nothing either on possible reforms requested in return.”
“The framework agreement with the IFTC as well as the ongoing parallel discussions with other parties such as the United Arab Emirates, and Saudi Arabia as well as recent meetings in China are part of the same fundraising strategy less conditional than those of the IMF and other institutional donors, analyzes Bassem Snaije, teacher in economics and finance of the Arab world at Sciences Po Paris and at the Beirut Higher School of Business. However, this remains a strategy for plugging holes without a structural solution. The specter of an imminent cessation of payments is receding a little but remains a threat largely underestimated by everyone.”
In a report published in January 2024, the Tunisian Economic Observatory was already alarmed by the “considerable burden on future budgets” represented by “the increase in the level of debt”, also highlighting the increase in expenditure linked to debt service (payment of interest) by 18.7% to reach nearly 31.7% of the general State budget, an “unprecedented” level.
