Tunisia-World Bank: Tunisia expecting sharper drop in growth than most of its regional peers

After an expected 9.2 percent contraction in 2020, growth is temporarily expected to accelerate to 5.8 percent in 2021 as the pandemic’s effects begin to abate. However, pre-existing structural weaknesses are expected to drag the Tunisian economy into a more subdued growth trajectory of around 2 percent by 2022. With slower growth, some of the past gains in job creation and poverty reduction will be lost: unemployment is expected to edge up, and the share of the population vulnerable to falling into poverty will increase,” the WB indicates.

The report notes that the fiscal outlook points to a tight budgetary setting and limited room for fiscal stimulus as the impact of the pandemic spills into 2021. In particular, fiscal risks from a still growing wage bill, subsidies, pensions, and underperforming state-owned enterprises may compromise recovery efforts if they are not managed proactively.

«In this difficult context, restoring the credibility of the macroeconomic framework is a critical next step for Tunisia to successfully navigate its way through this crisis and lay the foundation for a more durable recovery in growth» said Shireen Mahdi, World Bank Senior Country Economist for Tunisia.

The report recommends restructuring public finances by containing the size of the wage bill, shifting social assistance from subsidies to more targeted transfers, and addressing fiscal risks from state-owned enterprises to free up resources for public investment and the recovery.

Rebuilding the potential of Tunisia’s firms.

The special focus in this edition of the Tunisia Economic Monitor draws on the recently published enterprise survey for Tunisia to discuss the latest evidence on firm performance and present priorities for a growing and more productive private sector.

The analysis finds that Tunisian firms have lost much of the spring in their step. Looking back over the seven year period between 2013 and 2020, the data shows a number of areas where the environment has improved and where Tunisia performs better than regional peers. But more generally, the evidence shows a weakened private sector landscape. Firms are investing less, they are less innovative, less export oriented, and, therefore, less productive. Although some sectors have been adding jobs to the economy, these jobs are not being created in areas with the highest levels of unemployment.

«With limited fiscal space and a fragile external position, finding ways to finance essential investment is critical, including by using PPP and already committed external funds. This should be combined with the implementation of reforms to boost the private sector, such as the radical simplification of authorizations and improved access to finance. All these are critical elements of the recovery effort» said Tony Verheijen, World Bank Tunisia Country Manager.

The report concludes by discussing some of the most urgent structural measures needed to help bring the private sector back on track. These include increasing the ability of new firms to enter the market and to offer new products or services, tackling structural bottlenecks that complicate firms’ access to finance, dealing with the significant deterioration in customs performance, and building a clear vision for innovation policy to nurture sectors where innovation and comparative advantage are beginning to emerge.