Tunisia’s Fiscal Tightrope: Navigating Economic Challenges and Political Control

Tunisia’s economy is in a precarious state, facing significant challenges such as high public debt near 80% of GDP, persistent inflation, and youth unemployment. The government’s reliance on stopgap measures fails to address systemic issues. The 2025 budget reflects a risky survival strategy amid ongoing financial crises, lacking substantial reforms to stabilize the economy.

Tunisia’s economy is currently in dire straits, suffering from years of sluggish growth, rising debt, and social unrest. As of now, public debt is alarmingly close to 80% of the GDP, youth unemployment remains high, and persistent inflation continues to burden households amidst shortages of subsidized goods. The government’s dependency on temporary measures merely conceals deeper issues concerning competitiveness, tax collection, and public sector efficiency. Furthermore, the lack of an agreement with the International Monetary Fund has restricted Tunisia’s access to affordable external financing, necessitating the development of a high-risk 2025 budget.

Following the 2011 revolution, Tunisia’s economic decline has served as a cautionary tale regarding unmet aspirations and structural failures. Once celebrated as a prime example of the Arab Spring, the country currently faces economic turmoil exacerbated by decades of cronyism, ineffective state monopolies, and tax systems contributing less than 15 percent to the GDP. Subsequent governments expanded public sector employment as a method of appeasing unrest, leading to a wage bill where 650,000 public employees consume nearly half of the state’s revenues. This model is unsustainable, especially as global shocks, such as the impact of COVID-19 on tourism and rising import costs due to geopolitical tensions, mount.

In an attempt to avert economic collapse, the government has resorted to reactive policymaking that has yielded diminishing returns. Measures such as import restrictions on essential goods have spurred a black market in which prices have skyrocketed. Additionally, direct financing of deficits by the central bank has supported state operations but has fueled inflation. These superficial solutions do not address profound challenges, such as excessive bureaucratic hurdles for the private sector, substantial losses from state-owned enterprises, and an education system that fails to fit labor market needs.

Amidst negotiations with the IMF failing, Tunisia faces heightened economic challenges with limited solutions. The government’s rejection of austerity measures associated with IMF funding reflects valid concerns about provoking public discontent similar to that experienced in 2013. Nevertheless, dependence on sporadic credit from neighboring countries and the European Union offers only marginal relief against an expressive annual financing gap of $4 billion, leaving Tunisia precariously balancing its fiscal requirements.

The assumptions outlined in the 2025 budget appear disconnected from current realities, with soaring bond yields and depleted foreign reserves. The projected growth rate of 1.9% over the upcoming fiscal year seems optimistic given underlying economic conditions. The budget reflects a strategy of government dependency on external factors rather than a genuine plan for economic rehabilitation.

The recently enacted 2025 Finance Law exemplifies the government’s struggle to address pressing financial constraints while maintaining control over an agitated populace. The government aims to raise significant funds from new taxes, which disproportionately burden salaried workers and youth without effectively targeting the informal economy that employs a large portion of the workforce. Additionally, stricter prosecutions of dissenters, under the guise of anti-terrorism laws, suggest political motivations behind these economic measures rather than genuine reform.

Furthermore, the Finance Law’s effectiveness relies on unrealistic assumptions regarding improving tax compliance and the ability of the central bank to continue financing without inciting hyperinflation. With encapsulating tax evasion and dwindling foreign reserves, the probability of successful implementation remains low. Even if enacted, this legislation would minimally alleviate the fiscal deficit and place the public debt on a trajectory to exceed 85% of GDP.

In conclusion, the 2025 Finance Law is more indicative of a political strategy than an effective economic response, prioritizing the government’s survival over necessary structural reforms. Without addressing the inefficiencies within the public sector or revising the subsidy framework, Tunisia remains entrenched in its downward economic trend. The lack of substantive reform suggests that this temporary solution may ultimately heighten the state’s vulnerability to future shocks, demonstrating a significant disconnect between government actions and the urgent needs of the population.

Ultimately, Tunisia’s 2025 Finance Law epitomizes a government reaction focused on immediate political stability rather than long-term economic recovery. By neglecting necessary reforms, it perpetuates fiscal mismanagement and deepens reliance on superficial measures. As the country faces inevitable external shocks, its ability to respond adequately diminishes, while escalating government repression signifies a recognition of the precarious state of affairs and the growing discontent among citizens.

Original Source: www.arabnews.com