Tunisia’s economic challenges: are they insurmountable?

While the Tunisian government is drafting the country’s next budget, Fadhel Abdelkefi, its interim Finance Minister, who heads up the ministry of investment and international cooperation resigned (August 18, 2017) due to an ongoing conflict with the Tunisian customs service.  The very same day, however, Moody’s Investors Service downgraded Tunisia’s long-term rating from Ba3 to B1, and maintained its negative outlook. Moody’s also downgraded other areas of the Tunisian economy, including the Central Bank’s foreign currency debt rating. These blows to the Tunisian economy are taking place amid a crisis in governance that will likely force the Prime Minister and the President to announce a government reshuffle within the next few days.

The country’s finances look awful. With its current reserves, Tunisia can only afford 90 days worth of imports, versus 120 days the same period last year. The government is often blamed for the way it manages the budget as one of the top reasons for such a situation, requiring an increase in borrowing both abroad in the domestic market. But the government is also overwhelmed by the need to keep costly social programs and wages to maintain peace and stability. The salaries paid to public sector workers represent more than half of the government’s revenue, estimated by Moody’s to be 60%. While the government sees this as a necessary measure to insure that the country remains stable, it needs to move very quickly to insure that the country does not go completely bankrupt and fall into chaos.

Indeed, economic growth is stalled as productive investments dip. General consumption is being maintained by artificial measures, which only worsen the trade deficit and the balance of payments. In need to support its budget, the government resorts to more taxes that have a crippling effect on investment.

But there is plenty of skepticism among analysts as to where Tunisia is headed.  Moody’s anticipates continued fiscal overruns, combined with more reductions in foreign exchange reserves. Despite these challenged, we remain optimistic that the Tunisians can find a way out of the crisis. Some interesting statistics point to small progress that need to be expanded. The country’s battered tourism sector is showing signs of recovery.  Foreigners are beginning to return after the deadly attacks that forced them out for a while.  Tourism Minister Salma Elloumi-Rekik told the French media that 4.58 million foreign tourists came to Tunisia since the beginning of the year. The Tunisians’ target is to reach the 6.5 million tourists figure by the end of the year, bringing the country back to its 2010 level.  The number of Europeans entering Tunisia saw a solid increase of 16% year on year, but the number of Algerians rose by an even better 60%.  The financial implications of these entries on the broad economy remain fairly moderate, with Tunisia adding 521 million euros in 1H2017 in foreign tourist revenue. This is not a big number but it was up 19% year on year, showing some momentum toward full recovery.

In the business sector, there are also signs of improvements in the stock market.  Although only 31% of the companies listed in the Tunis Bourse reported their second quarter 2017 results by the July 20 deadline, their combined data show a 9% year-on-year increase in global revenue to TND 7.2 billion. Banks seem to be doing relatively well, with their results up nearly 13%.  Leasing and insurance firms too did well, growing their revenues. The consumer good sector, represented by the three largest corporations, grew 9.37%. Retailers, distributors, and automobile dealers showed flat growth.

Despite our own optimism, the challenges facing Tunisia and its government’s ability to govern should be taken very seriously in a region where all sorts of militant groups are waiting and watching, and ready to strike whenever social unrest escalates.  Tunisia is facing an uncertain outlook and needs all the help it can get.

The North Africa Journal

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