OECD Economic Outlook May 2019, Country Notes: Tunisia

2

Tunisia Economic growth is projected to strengthen in 2019 and 2020, driven by investment as companies in some sectors, such as the manufacturing industry and information and communications technologies, take advantage of the new law on start-ups. Slower euro area growth will weigh on exports. Inflation is expected to decline as the impact of the tax increases in 2018 runs its course, but it will remain high. The large current account deficit is expected to improve slightly as tourism returns to normal. Unemployment will fall slightly.

The public deficit is expected to decrease as a result of constraints on the government wage bill but, given the high level of public debt, subsidy reforms and better targeting of social programmes are necessary to ensure the sustainability of public finances. Real interest rates are moderately positive. Monetary policy will need to focus on anchoring inflation expectations. The creation of quality jobs, by simplifying the business environment, remains a priority.

Growth is strengthening slowly Industrial output continued to decline at the start of 2019, due mainly to the fall in the production of crude oil and natural gas, and in the agri-food industry. However, there was an upturn in the production of phosphates and derivated products in the first quarter of 2019, and an increase in the number of industrial companies. Foreign direct investments increased in 2018, particularly in the manufacturing sector. The unemployment rate remains high. In 2018, the Tunisian economy created fewer jobs than in 2017.

Tunisia 1 Industrial production has fallen

Inflation has stabilised at a high level

3-month moving average Index Jan2015 = 100 120 ← Total 118 ← Manufacturing 116 Mining → 114 112 110 108 106 104 102 100 98 96 94 92 2015 2016

2017

Index Jan2015 = 100 300 280 260 240 220 200 180 160 140 120 100 80 60 40 20 2018

Y-o-y % changes 10

Non-administered prices Administered prices

9

Total

8 7 6

0

5 4 3 2 1 2015

2016

2017

2018

0

Source: National Institute of Statistics.

OECD ECONOMIC OUTLOOK, VOLUME 2019 ISSUE 1: PRELIMINARY VERSION © OECD 2019

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Tunisia: Employment, income and inflation 2015

2016

Current prices TND billion

Tunisia GDP at market prices Private consumption Government consumption Gross fixed capital formation Final domestic demand Exports of goods and services Imports of goods and services Net exports1

2017

2018

2019

2020

Percentage changes, volume (2010 prices)

84.6 60.4 16.6 16.8 93.8 33.9 43.1 - 9.2

1.1 3.1 2.5 1.1 2.6 0.2 2.8 -1.3

1.9 2.4 0.3 0.3 1.6 4.6 3.5 0.1

2.5 2.1 0.3 2.0 1.7 5.7 4.0 0.3

2.7 2.1 0.5 3.6 2.1 3.8 1.9 0.7

3.0 2.2 0.6 4.7 2.3 3.9 2.3 0.5

_ _ _ _ _

4.8 3.6 15.5 -6.1 -8.8

5.3 5.3 15.4 -6.1 -10.3

6.8 7.3 15.5 -4.9 -11.2

6.4 6.8 15.4 -4.2 -9.9

6.0 6.2 15.2 -3.4 -8.2

Memorandum items GDP deflator Consumer price index Unemployment rate (% of labour force) Central government financial balance (% of GDP) Current account balance (% of GDP) 1. Contributions to changes in real GDP, actual amount in the first column.

Source: OECD Economic Outlook 105 database.

After increasing in 2018, inflation has stabilised at just over 7% since the start of the year, mainly as a result of weaker growth in food prices. The current account deficit, at over 11% of GDP in 2018, began to decline at the start of 2019 on the back of buoyant tourism receipts and remittance inflows.

Tunisia 2 Revenues from tourism and remittances remain important

Public debt has risen

% of GDP 7

% of GDP 90 Tourism

Remittances

85

6

80 75

5

70 65

4 0

0

60

3

55 50

2

45 40

1

35 0

2012

2013

2014

2015

2016

2017

2018

2012

2013

2014

2015

2016

Source: Central Bank of Tunisia; Ministry of Finance.

OECD ECONOMIC OUTLOOK, VOLUME 2019 ISSUE 1: PRELIMINARY VERSION Š OECD 2019

2017

2018

2019

30

4

The implementation of structural reforms is needed to stimulate investment and contain public debt Successive increases in the central bank’s policy rate have raised real interest rates to positive levels.

Public expenditure remained under control in 2018 and tax revenues were higher than expected.

Nevertheless, a further reduction in subsidies is required by continuing to apply the automatic fuel price adjustment mechanism. Eventually, the subsidies will have to be replaced by cash transfers to households.

At over 70% of GDP, public debt remains very high, even if a large proportion is comprised of concessional liabilities. The recently voted pension reform will help to strengthen the sustainability of the public finances.

It is important that structural reforms continue, especially those pertaining to subsidies and social security, in order to guarantee the sustainability of the public finances.

In March 2019, the European Union removed Tunisia from its grey list of non-cooperative tax jurisdictions, which will strengthen the government’s credibility and confidence in the banking system. The general rollout of an on-line e-procurement system (TUNEPS) in September 2019 will reduce the administrative workload for SMEs. Several measures have been put in place to stimulate investment, such as launching a national company register, improving the legal framework of public-private partnerships, and simplifying administrative authorisations. Job creation remains poor. Unemployment is particularly prevalent among young graduates and women. In order to boost the recruitment of women, it is important to start campaigns to raise the awareness of the repercussions of educational and vocational choices on employment opportunities.

Growth is projected to strengthen Growth is expected to be driven by investment, which will benefit from the new law designed to simplify business creation procedures, facilitate access to financing, improve attractiveness for foreign direct investments, enhance corporate governance and strengthen the rights of minority shareholders. High unemployment will continue to weigh on private consumption. The growth slowdown of the main trading partners will impact exports but the country’s membership of the Common Market for Eastern and Southern Africa (COMESA) will provide new markets and is expected to strengthen exports of agri-foods and services such as healthcare. A more severe slowdown in the euro area and an increase in oil prices would increase the current account deficit.

OECD ECONOMIC OUTLOOK, VOLUME 2019 ISSUE 1: PRELIMINARY VERSION © OECD 2019