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Tunisia’s Economic Recovery Slows Down Amid the Drought

Tunisia’s economic recovery slowed in the first half of 2023 as the country continued to grapple with persistent drought, external financing challenges, increasing domestic debt build-up of important public service enterprises and regulatory obstacles, according to the World Bank’s Fall 2023 Economic Monitor of Tunisia.  

Despite some encouraging developments, including improvements in trade terms and a resurgence of tourism, Tunisia’s GDP growth for 2023 was forecast to be around 1.2 percent, a modest recovery when compared to counterparts in the region and half the growth rate of 2022. A growth forecast of 3 percent in 2024 is subject to risks created by the evolution of the drought, the financing conditions and the pace of reforms, the report said. Tourism receipts increased by 47 percent as of the end of August 2023, which along with transport services contributed 0.8 percentage points to overall GDP growth and helped to alleviate the current account deficit. 

Tunisia’s economy shows some resilience, despite ongoing challenges. Increased exports in textiles, machinery, and olive oil, coupled with growing tourism exports, have helped to ease the external deficit,” said Alexandre Arrobbio, the World Bank’s Country Manager for Tunisia. “Strengthening competition, increasing fiscal space and adapting to climate change are crucial actions to restore economic growth and build resilience to future economic and climatic shocks” He added.  

The first part of the report addresses economic challenges in Tunisia, where a prolonged drought in the agricultural sector has led to limited growth and a slight increase in unemployment to 15.6 percent in Q2 2023, up from 15.3 percent a year ago. Driven by the reduction in the trade deficit, the current account deficit decreased from TD 7.0 billion (4.1 percent of GDP) in the first half of 2022 to TD 2.7 billion (1.5 percent of GDP) in the same period of 2023. Despite this reduction, Tunisia still faces challenges in securing the needed external financing amid a heavy external debt reimbursement schedule in the short term. That reflects the high public debt, which rose from 66.9 percent to 79.4 percent of GDP between 2017 and 2022. As external financing conditions remain tight, imports have continued to be compressed. That is particularly the case for highly indebted state-owned enterprises (SOEs), which hold the monopoly over the import and distribution of specific products. The system of price control that regulates key staple markets is a key driver of the increasing indebtedness of SOEs as well as shortages. Inflation, meanwhile, has slowed, with year-on-year price inflation decreasing from 10.4 percent in February 2023 to 9.0 percent in September 2023.  

Published under the title Migration amid Challenging Economic Context, the report also looks at the growing significance of migration for Tunisia from a development perspective. In recent decades, emigration has become vital for Tunisians coping with economic hardships. In return to increased emigration, remittance inflows have grown, equivalent to 6.6 percent of GDP in 2021-22, alongside the transfer of valuable skills and capital. Conversely, foreign immigration to Tunisia remains minimal at approximately 0.5 percent of the population. Over the past year, Tunisia has also increasingly served as a significant transit point for irregular migration in the central Mediterranean, with 73,829 irregular arrivals in Italy from Tunisia during the first eight months of 2023. To maximize the long-term benefits of migration, Tunisia could focus on aligning emigrants’ skills with destination countries’ needs, recognizing qualifications, and promoting regular migrant status. Expanding mobility schemes and tailoring labor agreements could further enhance the economic benefits of migration while safeguarding immigrants’ well-being and rights, the report said. 

Source: Modern Diplomacy