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Tuesday 20th March 2018

Tunisia: Multiple Crises

Business

7Dnews London - Chokri Ben Nessir

Sat, 11 Aug 2018 14:11 GMT

Tunisia is experiencing a period of profound transformation which has created new challenges and fewer opportunities, particularly for the country’s economy.

In fact the growing economic ills and disparities that led Tunisians to take to the streets in protest last January have been compounded by the adverse impact of a long and protracted period of uncertainty and instability as Tunisians adjust to new-found freedoms.

Though Tunisia faces a number of economic and social challenges, the government is trying to free the economy from the bottlenecks and red tape that have impeded its development, and to establish reforms that create a climate conducive to private initiative and business.

The government is committed to implement such reforms in order to assure foreign investors - as well as Tunisians - of the opportunities that lie ahead, but it’s not easy. People are looking to the government for clear and credible communication of its economic policies and strategies, and how they can translate into action and the good use of public resources; that will help turn expectations into hope and ease social tensions.

Challenges

The economy continued to decline at a more rapid pace during 2018, particularly in industry and services.

Tourism receipts for the first half of 2018 increased by 46.1%, but the building and building materials sector saw a 5.3% decline in growth as a result of the decrease in domestic demand due to a 1% increase in VAT. This has also had an impact on the property sector, with a drop in sales of 7,000 units between 2011 and 2017.

Growth was also down in the mining sector, with phosphate production 38% lower than in the first quarter of 2017, followed by a 24% decline in production by the chemical industry, and finally, a 50% drop in oil production compared to 2010.

In terms of finances, the needs of banks for liquidity continued to shrink with a sharp slowdown in the pace of change in outstanding bank deposits.

Since the terrorist attacks in 2015 spending on security and defense reached 1125 MTD, the equivalent of 1.8 % of GDP.

At the same time, this increase has come at a cost to economic and social development. Finally, the rise in oil prices failed to reinvigorate the national economy as the dinar fell against the dollar.

Regarding Tunisia's share of foreign direct investment (FDI) in North Africa, it has fallen to 6.5% in the last two years. Today, FDI accounts for only 2% of GDP. The conversion of investment into new jobs is quite low and insufficient to reduce unemployment which is stuck at around 15.3%. According to IMF forecasts, the unemployment rate is expected to remain at 15% in 2018 and then fall to 14.8% in 2019 if reforms are implemented.

Alarming debt and inflation

It is an undeniable fact that inflation - currently at 7.7% -is accelerating due to the combined effect of rising production costs and the depreciation of the dinar.

Increases in wages, with no parallel increase in productivity, and the growth of the black economy are also factors.

As for public debt, it was 70% of GDP in 2017, an increase of 29 points since 2010. External debt is at 80% of GDP, with an increase of 30 points. As far as budgetary revenues are concerned, by March 2018 the objectives of the 2018 Finance Act had not been achieved. In particular, revenues from corporate income tax in the first quarter of 2018 amounted to 567 MD against forecasts of 613 MD. The same applies to VAT revenues which are up to 1634 MD against forecasts of 1785 MD.  

Social marginalization

That’s the background to the protests against inflation and the deterioration of purchasing power, which threatens the ability of the middle and lower classes to sustain regular levels of consumption. That’s why failure by the country’s supervisory bodies to manage these economic problems has further exacerbated tensions within civil society.

Several waves of protests also took place with regards to health care. Medical staff led protests for changes in malpractice legislation, while people living in the interior of Tunisia complained about the return of certain diseases which it was assumed had been eradicated, as well as the lack of specialized medical facilities, medicines and medical equipment in hospitals.

In fact, hopes based on the success of the democratic transition, the success of the elections and the stability of political institutions were quickly dissipated in Tunisia. As a result, promises of economic recovery and social stability receded.

The year 201 has seen a lot of uncertainty in all sectors. Bear in mind the significant erosion of the purchasing power of the Tunisian consumer, estimated at 40% and continuing to fall by 10% a year, further widening disparities of income to spread poverty to 21% of the population.

The middle class, the main bulwark of Tunisian society and one of the foundations of stability has fallen from 80% to 60% of the population over the last seven years, according to a survey of the National Institute of Consumption (NIC).

Protests

Public protests highlight the need fors action by the country’s rulers who have so far failed to live up to expectations following ambitious commitments made during election campaigns, and their unwillingness to recognize the deep inequalities that exist across regions of the country.

It is important to point to the persistence of poverty and inadequate access to social services, as well as the inability of the government to provide an effective response to the shortage of drinking water, price inflation, rising unemployment and other conditions that threaten economic, social and cultural rights in Tunisia.

Meanwhile, the government is trying to control public spending, targeting subsidies as well as increasing revenues by broadening the tax base instead of raising rates and reducing public expenditure.


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