Tunisia faces severe economic challenges, marked by high public debt and inflation. The 2025 Finance Law introduces regressive taxes and heavy borrowing but lacks fundamental reforms needed for recovery. The government avoids IMF austerity measures yet relies on unsustainable monetary practices, risking further economic decline and social unrest amid rising public dissatisfaction.
Tunisia’s economy is facing significant challenges as it starts 2023 with high public debt, which is at 80% of GDP, persistent inflation, and sky-high youth unemployment. The government’s dependence on temporary solutions exposes its weak competitiveness and poor tax collection, and the lack of an IMF agreement has left Tunisia in need of alternative financial strategies for its 2025 budget, reflecting both survival tactics and high-risk choices.
The economic decline following Tunisia’s 2011 revolution illustrates a history of unmet expectations, marked by cronyism and inefficient state monopolies. The country, once seen as the Arab Spring’s success story, now struggles with economic slowdowns and a tax system that raises less than 15% of GDP. Expanding public sector employment to quell dissent has resulted in half of state revenue being spent on public employee wages, which has become unsustainable amid external shocks like the COVID-19 pandemic and rising global commodity prices.
As Tunisia’s economic situation worsens, the government has resorted to a pattern of reactive and ineffective policymaking, which includes imposing harsh import restrictions and financing deficits directly through the central bank. These approaches have only exacerbated inflation and prompted a burgeoning black market for essential goods, while failing to address the longstanding issues of regulatory burdens and inefficient public enterprises.
The halted IMF negotiations have positioned Tunisia towards a precarious financial future. President Kais Saied’s rejection of austerity reflects the risk of igniting civil unrest similar to past uprisings. Reliance on sporadic aid from Algeria, Libya, and the EU offers little respite against a pressing $4 billion financing gap, further complicating the budget forecasts.
In the face of staggering bond yields and scant foreign reserves, the government’s projected economic growth of 1.9% in 2025 seems increasingly unrealistic. This points to a greater tendency to rely on regional instability or external conditions for favorable bailout terms rather than solid economic recovery strategies, risking severe consequences.
The 2025 Finance Law reveals the administration’s attempts to confront fiscal dilemmas through regressive taxation and heavy domestic borrowing. New levies and increased transaction taxes aim to generate $1.2 billion, yet risks arise as state debt occupies almost a quarter of banks’ assets, potentially sidelining private credit access for small businesses that employ the majority of the workforce.
The central bank’s role in financing deficits has transitioned into a quasi-fiscal tool, creating liquidity at the expense of the dinar’s value. With projected inflation rates potentially undermined by food price surges, the government defends maintaining subsidies as a means to alleviate social suffering. However, these measures disproportionately favor black market operators, failing to assist the distressed populace adequately.
Politically, the Finance Law serves as a mechanism for control, sidestepping IMF-recommended reforms while attempting to avert societal unrest. Although it seeks to address financial concerns, it predominantly impacts wage earners and younger populations, risking disaffection among the middle class while leaving the informal economy unharmed.
The viability of the Finance Law hinges on two flawed assumptions: improved tax compliance in a context of declining public trust, and the central bank’s ability to print money without inciting hyperinflation. With substantial informal economic practices thriving, neither scenario appears plausible, and fiscal constraints are anticipated to persist, pushing public debt potentially beyond 85% of GDP.
Ultimately, the 2025 Finance Law is primarily a political maneuver rather than a genuine economic reform plan, perpetuating reliance on fiscal tactics that are unsustainable. Without necessary reforms in public sector efficiency and subsidy management, Tunisia is poised to continue a downward spiral, increasingly vulnerable to future crises as social discontent escalates.
Tunisia’s economic outlook remains precarious as the government navigates fiscal challenges without robust reforms. The reliance on regressive taxation and domestic borrowing in the 2025 Finance Law reflects a strategy prioritizing political stability over necessary economic adjustments. Continued avoidance of foundational reforms and overreliance on monetary policy threaten the country’s ability to manage future economic shocks, leading to an environment of growing public frustration and potential unrest. Without addressing deep-seated economic inefficiencies, Tunisia risks entrenching its economic decline while jeopardizing its social fabric.
Original Source: www.arabnews.com
