TUNISIA

As of 2008, the Tunisian economy grew at a moderate pace under the impact of growing corruption, a development model too dependent on the European market and on specialization in low added-value activities. The Arab spring in 2011 resulted in a recession in activity (-2%) which, coupled with the security risk, weighed on investment dynamics and tourism revenues thereafter. While social transfers and subsidies helped to support consumption over the past few years, recurrent strikes in the phosphate sector partially blocked activity. In 2017 and 2018, agricultural performance and the recovery of the tourism sector led to a slight acceleration in economic activity (+1.9% in 2017, +2.6% in 2018). Yet growth decelerated again to +1% in 2019 because of the the weak performances of both the manufacturing and tourism sectors. Overall, the current growth momentum proves to be insufficient to meet the country's social challenges and remains exposed to security and climate hazards.

Tunisia’s economy has been severely hit by the Covid-19 outbreak through the dramatic decline of tourism activity, private consumption and remittance inflows. We expect GDP to contract by -4.6% in 2020 to its lowest level since independence in 1956. In 2021, we expect growth to rebound moderately by +2.7%, thanks to the gradual recovery of tourism activity and export demand. The expected improvement of the macroeconomic situation in 2021 will depend strongly on the global conjuncture, especially on Europe’s ability to recover quickly from the crisis.

Tunisia’s attractiveness for foreign investors has not significantly improved over the past few years, even under the IMF programme. Reforming the large state-owned enterprise sector and improving the overall business environment still remain key challenges to foster job creation in the private sector.

The World Bank Doing Business 2020 survey ranks Tunisia 78th out of 190 economies, down from the ranking of 60th in 2015, though this overall performance hides some remarkable progress over the past few years in starting new business, protecting minority investors and the simplification of tax and customs procedures. However, the banking sector’s ability to finance the economy has deteriorated due to limited funding resources, as signalled by the decline in credit to private sector since 2017.

Social discontent, which was the origin of the Arab spring, persists after a decade marked by high regional and income inequalities and weak growth. Persistent high inflation reflecting sharp currency depreciations is another source of social tensions in Tunisia. After reaching 7.3% in 2018, consumer price inflation moderated to 6.7% in 2019. We expect inflation to hover around 6%, thanks to the global decline in energy prices. Going forward, facing a large budget deficit, likely cuts in government subsidies may increase energy prices again. 

Unemployment, which was already high in 2019 (15.5% of the working population and 32% of graduates), is likely to soar above 20% in 2020 because of the Covid-19 crisis. New austerity measures together with dire labor market conditions may catalyse social protests and hamper economic activity. On the other hand, Tunisia faces a persistent security risk and periodic terrorist attacks. In June 2019, a double attack on Tunis claimed by the Islamic State hindered tourism activity before the outbreak of the Covid-19.

Continued social tensions fueled by high unemployment and inflation shaped the 2019 presidential and parliamentary elections. The presidential election was won by Kais Saied (73% of the votes in the 2nd), an independent and political newcomer. Regarding the legislative elections, they led to a well-fragmented parliament with the moderate Islamist party (al-Nahda) winning only 52 of the 217 seats. Political uncertainty increased again shortly after the elections with the resignation of the Prime Minister Elyes Fakhfakh on 16 July (following a no-confidence motion). The process of the creation of a new government will possibly delay the reform agenda (key recovery from the economic crisis) and the talks with the IMF for a new financing program.