Summary:

On 26 December 2023, senior officials from Tunisia’s Ministry of Finance presented the 2023 budget which was tailored to begin a controversial economic reform process. The budget presumes finalization of the $1.9 billion loan deal with the International Monetary Fund (IMF) and introduces tax increases, as well as cuts to the civil service workforce and government subsidies. The proposed measures would aim to cut the budget deficit down from 7.7% of GDP in 2022 to 5.2% of GDP in 2023. In making the announcement, a senior Finance official acknowledged that 2023 would be a challenging year for Tunisians.

The announcement noted that a 26.4% cut in subsidy spending would be targeted in addition to a 1.1% reduction in public service wages. Tax increases will target several key labor groups including lawyers, engineers, and accountants who will see their tax rate rise from 13% to 19%.

Many commentators and interest groups have expressed concern about the budget. The Union Generale Tunisienne du Travail (UGTT) promised to peacefully resist the austerity measures. Professional groups representing those groups subject to increased taxes alluded to plans to boycott tax payments. And economists expressed concern that the budget lacked a cohesive underlying strategy.

Outlook:  

The 2023 Finance Law codifies the long-expected and long-critiqued initial steps toward economic reform. We anticipate a period of volatility within Tunisia as the key unions, labor groups, and political leaders formulate their response to the economic reforms. There will likely be an increased presence of security forces and larger and more frequent protests. Furthermore, plans for labor strikes by the UGTT will create disruptions and uncertainty around key services, such as transportation.

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