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Tunisia Economic Outlook
Real GDP growth rose to an estimated 2.6% in 2018 from 1.9% in 2017, spurred by agriculture (8.7% growth) and market services (3.2%). This trend is projected to continue in 2019 and 2020. On the demand side, investment (5% growth) and exports (2.7%) are projected to be the primary drivers of growth.
Tailwinds and headwinds
The budget deficit and the current account deficit both improved in 2018, and this trend is projected to continue in 2019 and 2020. But improvement will be slow because of a high wage bill as well as the structure of the trade deficit linked to import demand, which increased by 16% in the first eight months of 2018 compared with 2017. The dinar depreciated 19% against the US dollar and the euro in 2018. Inflation rose sharply in 2018 to an estimated 7.4% due to exchange rate passthrough, an increase in the value added tax, and higher oil prices but is projected to decline in 2019 after the central bank tightened monetary policy in the second quarter of 2018. The dinar depreciated 19% against the US dollar and the euro in 2018, stressing foreign exchange reserves.
In the medium term, the main challenge will be to reduce unemployment and regional disparities. Some 15.4% of the working-age population is unemployed, including 31% of college graduates. But there are large differences between coastal regions, where most investment and jobs are concentrated, and interior regions. Reducing social and regional disparities will require updating the existing development model and accelerating structural reforms. The role and scope of the government’s intervention in the economy need to be re-evaluated, with an emphasis on improving public spending efficiency by prioritizing expenditures likely to benefit the broader economy and the private sector in particular. Although public spending has increased considerably since 2011, the fiscal framework, which relies on borrowing to finance current expenditures instead of capital expenditures, remains largely unchanged. The public debt, the majority of which is external (70%), increased by 71% between 2010 and 2018, raising Tunisia’s external vulnerability.
Tunisia has several strengths that can be exploited. In addition to its geographic proximity to Europe, Tunisia also possesses agricultural and agrofood potential, which could spur growth and generate jobs. With an average production of 190,000 tons, Tunisia became the world’s second largest olive oil producer in 2017 behind Spain, and growing global demand could absorb double that amount. Tunisia also has substantial phosphate deposits and was the world’s fifth largest producer until 2011. It also has gas deposits for domestic consumption. The improving security situation is reopening possibilities for new investment in tourism. Finally, Tunisia has a diversified industrial base (aeronautics, chemical industry, and textiles), but it would need to be upgraded to play a decisive role in the structural transformation of the economy.