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A new African Development Bank (AfDB) report entitled “Food Subsidies and Direct Social Transfer: Toward a Better Targeting of Monetary Poverty and Deprivation in Tunisia” has just been launched in Tunis. The new report, produced by the bank’s North Africa Department (ORNA), covers a broad range of indicators from economic indicators, econometric equations to the ground reality of poverty in Tunisia and the subsidies and other social transfer systems put in place in the country.
The 2011 revolution and subsequent social unrest revealed deep inequalities in Tunisia, bringing the issue of poverty to the fore and putting into serious question the performance of social transfer systems. Poverty and extreme poverty are a daily reality in the country: 15.5 per cent of the population was living below the poverty line in 2011.
Yet this 15.5 per cent only received 12 per cent of the entire package of food subsidies delivered by the government. In fact, those Tunisians defined as “poor” benefitted by only 64.8 dinars per year, while those defined as “wealthy” received almost 90 dinars per year.
This puts into question how well today social transfer systems are working in Tunisia is. An analysis of impacts of food subsidies and direct payments to those who are poor or at risk showed that the universal character of such subsidies hurt the efficiency of the mechanisms for fighting inequality and poverty.
The report draws on lessons from international experience, especially those in Iran, India and Morocco, to show there are better ways to ensure the needy are not left behind, ones which could save the Tunisian government millions of dinars per year while at the same time dramatically reducing poverty levels.
The method would help Tunisia identify more precisely those who need or deserve to receive help from the government. The national program for helping needy families would be strengthened at little extra cost. The report sketches out different scenarios and points to ways to combine goals such as poverty reduction, preserving the purchasing power of middle-class families and easing the weight of these social transfers on the state budget.
Each of these scenarios, which explore different combinations for budget allocation and reduction, reveals without exception that indirect subsidies are unhelpful in the war on poverty. Abolishing subsidies and reallocating budget devoted to direct transfers clearly emerges as the best choice.
The report introduces a new method that strikes a balance between targeting the poorest from a monetary point of view and households suffering from deprivation. Although it is quite technical in nature, using this method can have dramatic results: in Tunisia, without any reduction in food subsidies, the new procedure would lead to a drop in the extreme poverty rate from 4.6 per cent to 1.5 per cent. Households living in extreme poverty would receive nearly nine times as much financial aid as today. If the government decides to get rid of the food subsidies and use these savings for direct transfers, extreme poverty could be eradicated.