rising energy prices. Consequently, public TUNISIA and external debt reached respectively 73 Recent developments and 80 percent of GDP (compared to 40 and 52 percent of GDP in 2010). With a In 2017, the economy grew by 2 percent widening current account deficit, de- following 1 percent and 1.1 percent in pressed FDI and large Central Bank inter- Table 1 2017 2016 and 2015, respectively, driven by ventions in the forex market, foreign re- P o pulatio n, millio n 11.4 robust private consumption and a re- serves have continued to decrease, drop- GDP , current US$ billio n 39.7 bound in investment. However, the con- ping below 80 days in early March 2018. GDP per capita, current US$ 3469 tribution of exports and investment to The 2018 Budget Law aims to keep the Natio nal po verty line a 15.2 growth remain significantly below their deficit within 5 percent of GDP mainly Gini co efficient a 30.9 levels before the 2011 Revolution. On the through higher tax revenues (total ex- b 114.2 production side, growth in 2017 was driv- pected yield of tax measures: 1.7 percent Scho o l enro llment, primary (% gro ss) b en mainly by agriculture and services, of GDP) and by containing energy subsidy Life expectancy at birth, years 75.5 while industrial and non-manufacturing costs and lowering wage bill growth. Source: WDI, M acro Poverty Outlook, and official data. industries (i.e., phosphate, oil) have not Unemployment remains high at 15.5 per- Notes: (a) M ost recent value (2015). fully recovered despite the Dinar depreci- cent in 2017 despite a low labor force par- (b) M ost recent WDI value (2015) ation, due to social movements in mining ticipation, at about 50 percent, mainly due regions, low oil prices and reduced invest- to weak participation of women (28 per- ment in prospection. cent). Most of the unemployed are low- Inflation has accelerated to a record 7.1 skilled but university graduates have the percent in February 2018, from 4.2 percent highest unemployment rate, which in- Tunisia has made important strides to in December 2016 fueled by the deprecia- creased from 15 percent in 2005 to 23 per- tion of the Dinar, administered energy cent in 2010 and 31 percent in 2017. Un- advance its democratic transition, but the price increases and wage inflation. In the employment rates are also much higher country remains fragile to economic, se- face of these rising inflationary pressures, among women and in interior regions. curity and social shocks. Growth has been the Central Bank has increased its policy The methodology to measure poverty was too low to make a significant dent in un- rate three times between April 2017 and recently updated by the National Institute March 2018 to 5.75 percent from 4.25 per- of Statistics to better reflect current living employment, fiscal and current account cent, and is expected to continue to gradu- conditions. The official poverty rate esti- deficits are elevated, inflation has risen ally tighten monetary policy in 2018. mate for 2015 was 15.2 percent, down and popular discontent about economic Tunisia faces large fiscal and external defi- from 20.5 percent in 2010 and 23.1 percent conditions is high, particularly among cits. The fiscal deficit (including grants) in 2005. Regional disparities are an endur- youth and in interior regions. The nation- reached 6.1 percent of GDP in 2017, com- ing feature, with the North West and Cen- pared to 6 percent of GDP in the initial ter West showing rates almost twice the al unity government—a coalition of the budget, mainly due to higher wage bill national average. Inequality, as measured main political parties, worker and trade spending. The current account deficit by the Gini index, is estimated at 30.9, unions—has adopted a consensus- reached a record 10.2 percent of GDP in down from 36 in 2005. The dynamics of building reform approach. 2017, reflecting a weak supply response to monetary indicators of welfare appear to the gradual depreciation of the Dinar and be at odds with the perception of lower FIGURE 1 Tunisia / Sectoral value added and GGDP Growth FIGURE 2 Tunisia / Unemployment rate (y-o-y) 20.0 3.0 40.0% 15.0 35.0% 2.5 10.0 30.0% 2.0 5.0 25.0% Percent 0.0 1.5 20.0% 15.0% -5.0 1.0 Agriculture 10.0% -10.0 Manufacturing Non-manufacturing industries 0.5 5.0% -15.0 Services GDP growth (right axis) 0.0% -20.0 0.0 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 Graduates National average Female Sources: Institut national de statistiques, Banque centrale de Tunisie and staff Sources: Institut national de statistiques, Banque centrale de Tunisie and staff computation. computation. MPO 1 Apr 18 standards of living in household surveys. preciation, the VAT rate increase, and the averaging 0.6 (2.4) percent per annum in The national unity government—a coali- increase in prices of certain products (e.g., the same period. tion of the main political parties, the larg- fuels, tobacco, telecom) while monetary est workers’ and trade union formed al- tightening and fiscal consolidation will most two years ago—has set its priority as strengthening the security environment, partly counteract inflationary pressures. The fiscal deficit (including grants) is ex- Risks and challenges improving the business environment, en- pected to remain significant at 5.2 percent suring macroeconomic stability, fiscal of GDP in 2018 but with upward pressure While the government is deploying re- sustainability and restarting growth. It has from increasing oil prices in the absence of sources to improve the security situation, so far adopted a gradual and consensus- reform. Fiscal sustainability will require the high level of youth unemployment building approach to reform in a fragile reining in the public wage bill and the notably in the lagging regions as well as transition phase and in the presence of growing subsidy bill while expanding the rising inflation may reignite social ten- strong workers’ unions and private sector tax base. Pension reform and improved sions. The government also faces the chal- organizations. design of cash transfer programs would lenge of balancing between social stability also create space for increased investment and the need for reform, which highlights and social spending. the importance of promoting greater so- Outlook On the external side, the current account deficit is projected to slightly narrow to cial and economic inclusion to create suffi- cient support for reform. Moreover, re- 9.5 percent of GDP in 2018. In the medium forms to stimulate private sector growth, Economic growth is projected to expand term, the current account is likely to bene- job creation and entrepreneurship are key modestly by 2.7 percent in 2018 through fit from the gradual recovery of industry to creating opportunities and hope for the sustained agricultural and services and services trade, slightly lower energy future. Wage negotiations with unions growth, continued strengthening of tour- imports and competitiveness gains from which are imminent and rising oil prices ism, and gradual recovery of tourism, the depreciation of the Dinar. are substantial risks of upward pressure phosphate and manufacturing. In the me- The World Bank does not prepare poverty on spending and the deficit. dium term, economic growth is projected projections due to unavailability of recent to pick up gradually to 3.5 percent in microdata. It would be informative to 2019/20 against a backdrop of improved understand the drivers of the large drop business climate through structural re- observed between 2010 and 2015 in official forms and greater security and social sta- poverty rates. In particular, it would be bility. important to understand how this drop in Inflation is projected to increase to 6.7 official poverty rate was related to GDP percent in 2018, driven by the Dinar de- per capita (private consumption) growth TABLE 2 Tunisia / Macro poverty outlook indicators (annual percent change unless indicated otherwise) 2015 2016 2017 2018 f 2019 f 2020 f Real GDP growth, at constant market prices 1.1 1.0 2.0 2.7 3.3 3.7 Private Consumption 1.6 1.6 1.5 0.6 1.4 4.6 Government Consumption 4.8 3.8 -2.4 -8.3 2.3 -6.1 Gross Fixed Capital Investment -2.5 2.8 4.4 4.4 4.9 6.2 Exports, Goods and Services -2.8 0.2 4.2 4.7 4.5 3.6 Imports, Goods and Services -2.5 2.0 2.2 -1.1 2.3 2.6 Real GDP growth, at constant factor prices 1.0 0.8 1.7 2.7 3.3 3.7 Agriculture 12.3 -8.5 2.5 5.0 1.9 3.0 Industry -1.5 -0.5 -0.9 3.9 4.6 4.6 Services 0.6 2.9 2.7 1.9 3.0 3.4 Inflation (Consumer Price Index) 4.9 3.7 5.3 6.7 5.6 4.6 Current Account Balance (% of GDP) -8.9 -8.8 -10.2 -9.5 -7.8 -7.2 Fiscal Balance (% of GDP)a -5.6 -6.0 -6.3 -5.6 -3.7 -2.7 Debt (% of GDP) 54.8 61.2 72.9 77.8 77.2 76.2 Primary Balance (% of GDP) -3.7 -3.8 -4.0 -2.9 -1.1 -0.7 So urce: Wo rld B ank, P o verty & Equity and M acro eco no mics, Trade & Investment Glo bal P ractices. No tes: e = estimate, f = fo recast. (a) Fiscal balance excludes grants. MPO 2 Apr 18