Tunisia’s Economy One Year after the Jasmine Revolution

Op-Ed Al Hayat
Summary
The Tunisian economy faces falling tourism, a bad labor market, and increased current account deficits. The new government must develop a comprehensive economic strategy to deal with these challenges.
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Before the fall of President Zine el-Abidine Ben Ali and his regime, Tunisia’s economic growth was expected to reach 5.4 percent in 2011. The budget deficit was not expected to exceed 2.5 percent of gross domestic product (GDP), and the public debt ratio was predicted to remain below 40 percent. Tunisia’s elected government must now deal with a very different economic outlook: the country’s revolution had negative effects on the economy, not to mention the side effects associated with the Libyan revolution and the economic crisis in the European Union, Tunisia’s main economic partner. 

Since the outbreak of the Jasmine Revolution, tourism, Tunisia’s largest source of foreign currency, has fallen by more than 50 percent. Foreign direct investment has fallen by 20 percent, and more than 80 foreign companies have left the country. 

Meanwhile, the labor market has worsened. Worker layoffs have increased, and after the outbreak of the Libyan revolution, Tunisian workers in Libya returned home, compounding the unemployment problem. The number of unemployed has risen to 700,000 compared with less than 500,000 at the end of 2010. The unemployment rate is now 17 percent; before the revolution, it was 14 percent. 

The budget and current account deficits have also increased, and the country now faces a double-sided obstacle: a lack of liquidity and a high cost of external financing that resulted from the downgrading of sovereign debt ratings. With the economic cost of the revolution at an estimated 5 percent of GDP, growth is not expected to exceed 0.2 percent in 2011, according to the Ministry of Planning and International Cooperation. 

The interim government made two sets of key decisions in an attempt to address this situation. 

First, in April, the government announced a short-term economic and social program consisting of seventeen actions intended to have an immediate economic impact without damaging the economy’s future prospects. The program has five priorities: security, job creation, support for economic activity and access to finance, the promotion of regional development, and the provision of targeted social aid. But except for job creation and support for economic activity through fiscal and financial incentives, most of the other measures have seemed vague and without any firm schedule.

Second, the interim government amended the 2011 State Budget, and a complementary budget bill was approved in June 2011 with the objective of readjusting state resources, so as to take into consideration the financial impact of the exceptional measures taken after the Jasmine Revolution. Public projected spending was increased by 11 percent. 

The interim government faced three constraints. First, it had a short and uncertain time horizon. Second, it had limited resources for absorbing the economic cost of revolution and facing the negative impact of the Libyan turmoil, while still responding to the high expectations of large segments of society. And third, it also had to confront the issue of its legitimacy and deal with ambiguity about the exact boundaries of its mission. From the government’s discourse, this mission tends to be skewed more toward managing daily concerns and paving the road for free and fair elections than toward engaging in broad reforms. In practice, however, there are differences among the Interim Cabinet’s various members. 

The period after the revolution has been very difficult for Tunisia, given the sharp decline in domestic economic activity, as well as regional instability and high prices for fuel and food on the international market. Yet despite these difficulties, the interim government led by Beji Caid Essebsi from February through December 2011 has managed to keep the economy growing, preserve a decent level of foreign exchange reserves, and control inflation. Now, Tunisia’s first elected government will have the chance to try to get the country back on course.

The moderate Islamist Ennahda party won the largest percentage of seats in October’s elections and dominates the new coalition government, which was formed nearly two months after the elections. Party leaders promised to pursue liberal and business-friendly economic policies. 

The economy, however, is expected to continue to face difficulties in light of the economic recession in Europe, which is responsible for 80 percent of Tunisian trade. And those dismal 2011 GDP growth estimates included the growth of the Tunisian economy by 1.5 percent in the third quarter. But according to the draft budget, the economy is expected to recover and grow by 4.5 percent in 2012. 

The new government must develop a comprehensive and coherent economic strategy while fostering a credible public discourse, setting specific targets, and laying out concrete timetables for reaching those targets. The government must pay special attention to this strategy with emphasis on four main pillars: 

First, the government must create decent job opportunities by stimulating a strong and competitive private sector. 

Second, policymakers should direct resources toward high-value-added and knowledge-intensive sectors. 

Third, those responsible for public finance should work to eradicate tax fraud and evasion and achieve social justice through fair taxation and more effective social spending.

 Fourth, decisionmakers need to develop a comprehensive strategy to ensure regional development. They must provide the provinces and local councils with prerogatives for effective policies, and then make sure those bodies have sufficient human and financial resources to deal with their responsibilities. 

Only then will the government be able to begin to overcome the challenges it faces.

 

This article was originally published in Arabic in Al-Hayat.

End of document
 
Source http://carnegie-mec.org/2011/12/27/tunisia-s-economy-one-year-after-jasmine-revolution/d5uz

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