Tunisia’s Economic Prospects Dim Amid Political Turmoil and High Inflation

Tunisia’s economy is expected to display the lowest growth in the southern Mediterranean, with forecasts predicting only 1.8% growth in 2025 and 2.2% in 2026, according to EBRD estimates. Inflation reaches 16%, fiscal deficit is at 6.3% of GDP, and the government has declined a significant IMF deal. Reliance on domestic loans amidst increased foreign debt raises concerns over economic stability.

The Tunisian economy remains significantly affected by President Kais Saied’s consolidation of power, positioning it as the lowest performer within the southern Mediterranean region, as reported by the European Bank for Reconstruction and Development (EBRD). The anticipated economic growth for Tunisia stands at a mere 1.8% for 2025 and 2.2% for 2026, starkly contrasting with the region’s projected growth of 3.7% in 2024 and an improvement to 4.1% by 2026.

Macroeconomic indicators present a concerning outlook, with inflation soaring to 16% in the latter half of 2024. Additionally, the fiscal deficit is projected to reach 6.3% of GDP this year, compounded by a public payroll that constitutes 13.3% of GDP. The Tunisian government’s rejection of a $1.9 billion International Monetary Fund (IMF) deal, which sought reform in subsidies and civil services, has further strained the economy.

In response to these challenges, the Tunisian government has opted to rely on domestic loans as external debt escalates to 82.2% of GDP. To facilitate this, President Saied has sought to extend his influence over the central bank, advocating for parliamentary approval of a law allowing direct lending to the treasury. This strategy resembles the money-printing approaches of Algeria, which have historically weakened the dinar’s value.

Currently, Tunisia’s foreign exchange reserves are stable at 25 billion dinars (approximately $7.6 billion), sufficient to cover 3.5 months of imports, indicating some levels of fiscal management amidst ongoing economic strife.

In conclusion, Tunisia’s economic prospects remain bleak, with the EBRD forecasting the lowest growth rates in the southern Mediterranean region. Coupled with high inflation, a growing fiscal deficit, and a failure to secure IMF support, the situation necessitates urgent reforms and careful management. The government’s reliance on domestic loans further complicates the economic landscape, amid efforts to consolidate powers within key financial institutions.

Original Source: northafricapost.com