Naim Ameur
Last updated: 15 December, 2012

Tunisia’s economic outlook – signs of recovery but risks remain high

Tunisia’s ruling Troika has been much criticized for its inability to turn around the dire situation. But there are reasons for hope as well as concern, writes Naim Ameur in this analysis.

The National Constituent Assembly – NCA ­– members were elected on October 23, 2011, to draft Tunisia’s new constitution throughout the following year. The Islamic party Al-Nahdha, which is the most represented in the NCA, has led a coalition government since January 2012 with two secular parties, Congress for the Republic and Ettakatol. The three parties in coalition have been called the “Troika” and face criticism by the opposition parties for their inability to improve the economic situation.

The voices of the critics were raised when Standard and Poor’s downgraded Tunisia’s sovereign rating in May 2012. However, two months later, the International Monetary Fund (IMF) published an optimistic report about economic recovery in the country, although some risks were highlighted.

The country’s real GDP increased by 4.8 % in the first quarter of 2012, while it contracted by 1.8 % in 2011. This recovery can be explained by the pickup of tourism, investment, and public expenditures. Real GDP growth could reach 2.7 % for the entire 2012, although the worst-case scenario points to about 1 %. The government has been stimulating economic activity by implementing an expansionary policy. In this context, the budget of 2012 was rectified in order to increase wages, subsidies, and public investment. In addition, tax receipts have increased thanks to the facilities of payment and reconciliation opportunities offered by the Ministry of Finance for fiscal debts and tax evasion. In an environment of continuous stability the IMF anticipates 6 % of real growth by 2017.

However, the large wage increases in the public sector, the depreciation of the exchange rate, and the increase of monetary injection would put further pressure on foreign reserves and inflation. In addition, the financial sector is still facing big challenges, seeing that the banks have less liquidity, which could limit their contribution on investment. Moreover, unemployment will remain high since public and private investments are not improving enough to create significant number of jobs. Inflation would exceed 5 % due to exceptional increases of public wages and the last adjustment in fuel prices by about 6.5 %, which would also drive up the production costs and consequently the prices of other products and services.

The fiscal stimulus through public investment could not fulfil its goals with under-execution of public projects. The Finance Ministry reported that the government spent 41% of the current year budget on development expenses. In fact, the post revolution administration has preserved old rules and procedures of public contracts management, which are characterized by their slowness, whereas people in the deprived regions have expected to see infrastructure projects starting quickly. In such context, social tensions will continue threatening security and stability. The political conflicts are negatively influencing the business climate as well.

Post-revolution Tunisia has seen more political conflicts than good governance efforts. The government has focused on political issues while it has responded ineffectively to the general public demands. In terms of reforms, there is slow progress when it comes to rebuilding a new legal and institutional framework that allows better transition toward democracy and growth. In fact, the government has a slow decision process since decisions are taken through an agreement among the coalition parties, so in most cases, long discussions result in slow decisions.

The coordination among the government is weak due to the relatively numerous ministers, state secretaries, and advisors. The government has no clear vision and its poor communication strategy has deepened the rupture with the public. This ambiguity negatively influences the investors’ decisions. However, the Prime Minister Hamadi Jbali (Al-Nahdha party) accused the media, at many occasions, for not covering important government activities and for showing only the bad news. The Troika also accused the opposition parties for being behind strikes and disorder in order to disturb the government’s policies.

The various political forces had committed to complete the constitution before October 23, 2012.However, the NCA did not respect the agreed deadline. The opposition parties have consequently considered that Al-Nahdha, which dominates the NCA and the Troika, has failed in realizing economic growth, employment opportunities, and even their own electoral promises. The opposition has already requested to end the Troika rule and to institute a new government of technocrats.

The risks here are related to eventual conflict and violence between weaker government and stronger opposition parties. The conflict is basically between “Al-Nahdha” and “Nida Tounes,” which is now the biggest opposition party led by Beji Caied Essebsi, the former Prime Minister during the pre-NCA elections period. In October 2012, a survey concerning vote intentions by 3C, a Tunisian survey institute, showed that “Nida Tounes” has an increasing popularity (28.1%), whereas Al-Nahdha has less supporters than before, although it remains the most popular party (30,9%). The gap between the two biggest parties has obviously decreased, so the competition has intensified to the extent that violent incidents already have occurred in some regions.

Political conflicts are threatening stability and security, which are the critical success factors for Tunisia’s political transitional phase and for the economic recovery as well. The economic situation now requires continuous improvement of production to control inflation and currency depreciation. The production capacities output cannot be enhanced in an unstable environment.

The priority now is to elaborate a new schedule that determines a reasonable deadline for the NCA to finish the constitution draft. The government should simultaneously improve its communication system in order to reduce worries among citizens and investors. 

Naim Ameur covers political and economic issues in North Africa, with particular focus on Tunisian and Libyan affairs. The views expressed in this article are the author’s and do not necessarily reflect those of Your Middle East.