TUNISIA ECONOMIC MONITOR Economic reforms https://www.shutterstock.com/es/image-photo/sousse-tunisia-augu... to navigate out 9:;< ! % & >(1X of the crisis ( Winter 2021 ) ! " # <%"#)"# !#'="# 4'0;"#+*# (-.,%&*/"0(1+(23>?&$*1@'#0".*A1 0"),)7$8$9:%++(#&+'.72.'0 '8@'#0"+' F$G$HFIH$;J-(,(& $ MM$N!O$B$P!Q<3 ($,*.(1.*" +,-$%#" .$)/0(%1*&$*&/*2/#$ 3&41"#%# 566788 ;#(&*A1$()*+'#*",$.'1$.*#.%,".*A1$&%;(#*'#$"$LMMSMMM *.(1.*"$0(V'#")"W 12/14/21, 3:07 PM Middle East and North Africa Region EXECUTIVE SUMMARY The recovery is slow countries. Indeed hotels, cafe and restaurant and transport are the sectors which have contracted the After the dramatic drop in 2020 (–9.2 percent), most since the start of the pandemic. The losses Tunisia’s economic recovery has been slow in 2021. of these sectors explain a significant portion of the The economy is estimated to grow by 3 percent, which negative effects of the crisis in Tunisia, although they is well below the expectations at the beginning of the do not fully account for such slow recovery. year. As a result Tunisia’s economy has shrunk during The steep restrictions on investments and the Covid-19 crisis (2019–21) more than comparator competition appear another important factor behind countries in the region. The slow recovery has Tunisia’s poor economic performance during the increased further the already high unemployment rate pandemic. These restrictions limit the reallocation by 3.3 percentage point to 18.4 percent by the 3rd of resources across as well as within sectors, which quarter of 2021. The rate is particularly high among is particularly important during a time when new youth, women and in the west of the country. activities need to replace those negatively affected by The Economic Monitor examines four possible the pandemic. The rigidity of the Tunisian economy factors behind Tunisia’s slow recovery. First, the drop is a consequence of the over-regulation of markets, in mobility related to the pandemic may have been both product and factor markets, which is the subject more harmful in Tunisia. However mobility in Tunisia of part B of this Economic Monitor. The financial has dropped to a similar extent as other countries and sector is a case in point of a market where regulations it has now returned to pre-pandemic levels following which constrain the reallocation of resources in the acceleration in the vaccination campaign since the economy. Such rigidities include complex July. If anything the mobility drop in Tunisia has restructuring regulations, obsolete bankruptcy resulted in a lower reduction in economic activity regulation, the lack of institutions that facilitate credit than in comparator countries as Algeria and Egypt. risks assessment and of financial products suitable to Second, it could be that the level of public support viable businesses subject to shocks. to the ailing firms and households may have been particularly low. However at 2.3 percent of GDP, the This has exacerbated fiscal pressures Covid-19 stimulus package in 2020 was in the same ballpark as other comparators in the region. The weak recovery has exacerbated the pressure on Third, the structure of the Tunisian economy, public finances in spite of the reduced budget deficit particularly its reliance on tourism, may have exposed (7.6 percent of GDP in 2021 from 9.4 percent in 2020). it to the negative demand shock more than other The increase in tax receipts—driven by VAT—has xiii outstripped the increase in public expenditures, driven effectiveness in addressing potential new variants, by public salaries, transfers (including growing energy including Omicron; 2) Manage to fiscal deficits subsidies) and debt service. The budgetary deficits and debt repayment and maintain macroeconomic that have accumulated since 2011 have resulted in a stability, which requires an economic, political and sharp increase in public debt from 52 percent of GDP social climate conducive to resource mobilization and in 2015 to 84 percent of GDP in 2021, most of which the confidence of investors, ideally through a new IMF external. The rising debt, the lack of reforms and the program; and 3) address key barriers to the efficient delay in negotiations with the IMF have effectively resource allocation. cut the Tunisian government off international capital Part B elaborates on these barriers, which markets with sovereign ratings plummeting in 2021. explain why ten years after the revolution, the level of As a result the government has resorted in competition between sectors in Tunisia has further the use of Central Bank financing to cover much of decreased, as has the creation of dynamic companies, its debt repayment in 2021. This is crowding out the even compared to the pre-2011 period. These barriers credit to the private sector and has contributed to an fall into three groups. First, the state distorts markets acceleration of inflation, which is now at 6.4 percent. through command-and-control regulation. Tunisia’s On the other hand the pressure on the balance-of- regulations restrict competition in both enabling payments decreased in 2021 despite the deepening sectors and the real sector, limiting entry of new firms trade deficit (17 per cent) and the significant decline and facilitating collusion among incumbents. Second, in services exports. the state displaces the private sector through direct ownership of enterprises and preferential treatment of Pandemic containment and structural SOEs. The Tunisian government owns or favors public reforms are necessary to navigate enterprises in a wide range of commercial sectors, out of the crisis including three out of the four sectors covered in the CPSD. Third, despite recent progress, the institutional According to our forecasts, the recovery will continue and regulatory framework for antitrust remains under to be slow in 2022–23, unless decisive structural development and does not protect market participants reforms addressed the rigidities discussed in this from anti-competitive business conduct. monitor. The gradual decline in the budget deficit is Addressing barriers to competition and expected to continue over the medium term, reaching weak enforcement would be essential to help the 5–7 percent of GDP in 2022–23, given the expected Tunisian economy emerge from the crisis, return reduction in health-related expenditures and provided to a sustainable path and benefit households with that the moderately positive spending and revenue higher employment and lower prices. A wholesale trajectory is maintained. rather than a sector-by-sector approach may be These forecasts are presented with significant needed to remove restrictions to competition as the downside risks, as the recovery will depend on experience of the 2018 reform of the authorizations several factors, particularly the government’s ability regime suggests. Strengthening the Competition to: 1) Contain the evolution of the pandemic through Council is also crucial to ensure the enforcement of the continuation of vaccination efforts as well as the fair competition practices across sectors. xiv TUNISIE BULLETIN DE CONJONCTURE – RÉFORMES ÉCONOMIQUES POUR SORTIR DE LA CRISE 1818 H Street, NW Washington, DC 20433