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Tunisia’s Economic Environment

August 1, 2018

Tunisia’s Economic Environment

Since the 2011 Jasmin Revolution, Tunisia’s economy has had to deal with a host of problems arising from political divisions, intermittent terror attacks, and strikes led by unions. These factors have badly affected economic growth and Tunisia’s fiscal deficit. In May 2018, the inflation in Tunisia reached a record level of 7.7% since 1991. Economic growth averaged 1.5 % in the post-revolutionary era compared with 4.5 % in the five years before the revolution. The economy grew by 1.9% in 2017 compared to 1.0 % in 2016 and 1.1 % in 2015.

 

Stability under the coalition government

After the general elections of 2014, the secular Nida Tounes obtained 86 seats out of a total of 217, followed by the Islamist Ennahda Movement (69). Later, due to divergences of opinion, a number of MPs left Nida Tounes, bringing down the total seats of the party to 67, thus becoming the second largest party in the parliament, trailing behind EnNahda. After arduous coalition talks, a new cabinet headed by Youssef Chahed from Nida Tounes was formed with the participation of EnNahda, Nida Tounes, and Afek Tounes.

One of the insurmountable challenges of the new government has been to increase Tunisia’s economic growth and grapple with inflation and high unemployment. Unemployment has declined from its peak of 19 % in 2011, right after the revolution, to 15.5 % in 2017, but remains above pre-revolutionary levels (13 percent in 2010).

Under the coalition government, the macroeconomic indicators have not been very promising, especially in the realm of fiscal and external deficits as well as high debt. The Fiscal deficit rose to 6.1% in 2017 due to higher wage spending while the current account deficit reached a record high of 10% in 2017.

The International Monetary Fund (IMF) agreed to lend a $2.8 billion loan to Tunisia in 2016 in order to help the country to stabilize its economy under a series of austerity measures. Tunisia remains under pressure to reduce its budget deficit, which spurred the government to increase gasoline and fuel prices for the third time in a year. Yet, these measures have also given rise to anti-austerity demonstrations in Tunisia protesting against price increases of basic goods, putting Tunisia’s vulnerable democratic success in peril.

 

Overall economic outlook

Overall, Tunisia’s economic performance, in many respects, has been in decline in comparison to the pre-Arab Spring indicators such as growth, budget deficit, and inflation. The country’s currency, dinar, has continued registering a loss of value, which is likely to deepen Tunisia’s economic woes by increasing the country’s foreign debt, which is paid in euros. Finally, the tourism sector, one of the major drivers of the economy has also been in decline. The terrorist attacks of 2015 have largely taken their toll on the Tunisian tourism sector. The sector’s share of the overall GDP has fallen to 8%—in comparison to 10% prior to the Arab Spring.

 

Business opportunities are ripe in Tunisia. Understanding and mitigating risk with the right strategy is key.

 

Vahid Yucsoy for iStrategic