Summary:

This week, the World Bank issued its Spring 2023 Economic Monitor report for Tunisia, simultaneously highlighting economic potential and the necessity for substantive economic reform. While some key economic indicators are returning to pre-pandemic levels, the report insists that “an ambitious reform agenda” will still be necessary for long-term economic stability and sustainability.

Entitled “Reforming energy subsidies for a more sustainable Tunisia,” the report takes a close look at the energy sector and current dependence on costly government subsidies. The cost of energy subsidies reportedly rose to 5.1% of GDP in 2022. The report calls for energy subsidy reform as a potential means of addressing systemic deficits in the national budget.

The report traces economic disruptions during the COVID-19 pandemic that have been exasperated by the Russian war in Ukraine and the global rise in prices. However, these conditions have merely highlighted existing challenges in the Tunisian economy that will require reforms to achieve long-term sustainability.

This report follows the announcement in early March of plans by the World Bank to delay discussions of future loan programs with Tunisia because of concerns about inflammatory comments made by President Kais Saied regarding sub-Saharan migrants.

Outlook:  

The details of the World Bank report, taken together, are an indictment of the systemic issues in the Tunisian economy, particularly the government’s subsidy obligations. The government’s ability to continue to service existing debts, while borrowing to pay for costly subsidies may be coming to an end. And the turn toward domestic lending only makes the state of the economy more precarious as many domestic lenders are at least partially nationalized.

Italian leaders have increasingly called for flexibility from the International Monetary Fund (IMF) as it relates to insisting upon reforms in exchange for a large-scale loan. However, the painful reforms will likely be necessary in the long-term to avoid addressing a similar crisis in the coming years.

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