Tunisia’s Fiscal Tightrope: A Delicate Balancing Act in Crisis Management
Tunisia’s economy is currently facing significant difficulties, including high public debt, persistent inflation, and systemic shortcomings in governance and competitiveness. The government’s reliance on stopgap measures suggests a precarious economic state. As the country prepares its 2025 budget without an IMF deal, it faces the challenge of addressing both immediate fiscal needs and deeper structural reforms to secure long-term stability.
Tunisia faces severe economic challenges, marked by high public debt close to 80% of GDP, persistent youth unemployment, and significant inflation impacting households. The government has depended on temporary solutions that merely obscure deeper issues related to competitiveness, tax collection, and public sector efficiency. Lacking an International Monetary Fund agreement, Tunisia’s 2025 budget emerges as both a critical survival strategy and a high-stakes gamble.
The aftermath of the 2011 revolution has exacerbated Tunisia’s fragile economy, which previously appeared as a success story in the Arab Spring narrative. However, its economy has been undermined by prolonged cronyism, inefficient state monopolies, and a tax system that generates less than 15% of GDP. The post-revolution era has seen extensive hiring in the public sector, resulting in unsustainable wage costs that deplete nearly half of state revenues, compounded by external shocks impacting vital economic sectors.
In a bid to avert economic collapse, government strategies have devolved into reactive measures that yield limited effectiveness. Initially targeting luxury items, import restrictions have extended to essential goods, inciting a black market where prices surged excessively. Concurrently, excessive central bank financing of fiscal deficits has inflated state operations while intensifying inflation, neglecting the root causes of significant economic distress.
The absence of favorable international debt markets due to stalled IMF negotiations leaves Tunisia navigating dire financial circumstances with limited solutions. President Kais Saied’s refusal to accept austerity measures tied to IMF funding reflects his awareness of the potential for civil unrest. However, depending on Algeria and Libya for irregular financial support and the European Union for humanitarian aid remains insufficient against a substantial financing shortfall.
With rising bond yields above 18% and dwindling foreign reserves covering a mere three months of imports, the anticipated 1.9% growth rate included in the 2025 budget seems unrealistic. This discrepancy indicates that Tunisia is not advancing toward recovery but may be negotiating for leniency in future bailouts amid broader regional instability, which proves to be a precarious gamble.
The newly enacted 2025 Finance Law emerged in response to these mounting financial pressures, reflecting a government struggling to find a balanced approach. Its measures include increased taxation and domestic borrowing strategies aimed at raising $1.2 billion, despite already substantial state debt burdens on banks, which could hinder access to necessary credit for small and medium-sized enterprises.
A critical flaw in this law is an overreliance on the central bank as a lender of last resort, a status it has maintained since 2022. Such indirect financing has resulted in liquidity increases at the expense of currency stability, raising concerns about inflation rates. Significant inflation is expected to exacerbate conditions for the population already facing challenges meeting daily needs, despite government attempts to sustain essential subsidies.
Politically, the Finance Law serves dual purposes: as an economic policy and a means of maintaining governmental authority. By postponing necessary reforms mandated by the IMF, the government aims to avoid provoking public protests. However, the burden of new taxes largely affects formal employees and young citizens, risking dissatisfaction among the middle class while neglecting the majority in the informal labor sector.
The overall feasibility of the law is contingent on two frail assumptions: improved tax compliance amidst waning public trust and the central bank’s ability to sustain money printing without igniting hyperinflation. Given current financial limitations, including dwindling foreign reserves, the predicted outcomes may merely replicate the existing fiscal imbalance without solving any underlying issues.
Ultimately, the 2025 Finance Law encapsulates a temporary fix rather than a robust economic solution, prioritizing governmental stability over necessary structural reforms. This ongoing reliance on ineffective financial strategies further furthers Tunisia down a precarious path, diminishing its capacity to respond adequately to future economic shocks.
In summary, Tunisia’s economic landscape remains fraught with challenges stemming from high public debt, inflation, and ineffective governmental strategies amidst stagnant growth. The recent 2025 Finance Law illustrates a government caught between immediate fiscal pressures and the need for substantial reform. By prioritizing regime survival over meaningful adjustments, Tunisia risks compounding existing economic faults and diminishing potential for effective responses to future crises.
Original Source: www.arabnews.com
