Tunisia's budget aims to restore growth

04 January 2012

Tunisia’s 2012 spending plan aims to stimulate economic growth after the sharp deceleration last year. Libya’s reconstruction effort is expected to play a key role in the recovery

Key fact

Tunisia’s budget allows for total spending of TD22.9bn, a 20 per cent increase on the 2011 spending

Source: MEED

Capping off a year of momentous change, on 30 December, Tunisia’s newly elected constituent assembly approved the state spending plan for 2012, drawn up by the interim leadership.

The budget allows for total spending of TD22.9bn ($15.4bn), a 20 per cent increase on the 2011 spending set by former president Zine el-Abidine Ben Ali. In the 2012 spending plan, TD13.5bn has been allocated for administrative expenditure and TD5.2bn for development projects.

During the past year, all of Tunisia’s main economic indicators have deteriorated

Prime Minister Hamadi Jebali has already said he considers the capital expenditure allocation to be insufficient and expects it to increase by at least a quarter. The additional funds, he said, will be covered through improved tax and customs collections, reducing public costs and increasing transparency and regulation, rather than borrowing. It is estimated that TD15bn was lost each year under the former regime due to customs and tax fraud.

Main targets

The main targets set out in the budget is for the economy to grow by 4.5 per cent in the year ahead and the exports of goods and services to increase by 7 per cent. It also commits to creating 75,000 new jobs, of which 20,000 will be in the public sector.

Europe’s demand for imported goods and services has fallen over the past year as a result of the … uncertainty

Tunisia’s economy has experienced a sharp deceleration in the past 12 months. Growth for 2011 is expected to be almost flat at about 0.2 per cent, after averaging nearly 5 per cent over the past decade. Gross domestic product (GDP) growth in 2010 was 3 per cent.

During the past year, all of Tunisia’s main economic indicators have deteriorated. According to the central bank, the current account deficit reached 6.5 per cent of GDP at the end of November. Foreign currency reserves had dropped to TD10.5bn by 13 December, equivalent to 113 days of imports, from about 147 days at end 2010. As of October, Tunisia’s outstanding public debt was 44.4 per cent of GDP, up from 40.4 per cent in 2010. A budget deficit of 5.1 per cent of GDP is expected for the year, compared with 3 per cent during the height of the economic crisis in 2009 and 1.3 per cent in 2010. Inflation, meanwhile, is about 3.5 per cent.

Tunisia GDP by sector, 2010
Agriculture & fishing8
GDP=Gross domestic product. Source: Ministry of Finance

The slowdown in the Tunisian economy is the result of a combination of internal and external factors. Domestically, labour disputes in the wake of the revolution have hit industrial production and earnings from the tourism sector have fallen as visitors have stayed away due to political instability. Meanwhile, Tunisia’s two key trading partners, Europe and Libya, have had major problems of their own to contend with over the past year.

Throughout 2011, economic activity in Tunisia was hindered by labour unrest. According to the Tunisia Union of Industry, Trade and Handicrafts (Utica), 360 strikes were held between January and October, compared with 240 in 2010.

Wildcat strikes and sit-ins caused industrial production to slump by 2.5 per cent during the first nine months of 2011. The phosphate industry has been hit particularly hard. In 2010, Tunisia produced 8.1 million tonnes of lime phosphate. Output in the first five months of 2011 was down 72 per cent year-on-year.

By late December, the state-owned Compagnie des Phosphates de Gafsa (CPG) said it had lost TD400m due to the industrial action and warned that it would not be able to pay its 5,500 employees within three months if the sit-ins continued. Its total output for the year was down 60 per cent at about 3 million tonnes. The protests disrupted extraction at mines and paralysed transportation networks.

Reduced profits

The operational activities of Groupe Chimique Tunisien (GCT), which focuses on production of phosphate derivatives such as fertilisers, were also impacted by the strikes, with output down 45 per cent year-on-year. The company was even forced to import product to meet its local sales commitments.

The reduced output prevented the companies from taking full advantage of the rise in phosphate prices last year. Globally, rock phosphate increased from $75 a tonne in 2010 to $117 a tonne, according to US ratings agency Fitch Ratings. The firms’ joint chief executive officer, Kais Dali told a press conference on 27 December that CPG and GCT’s profits for the year would not exceed TD200m, compared with TD825m in 2010. He added that with the rise in phosphate prices, profits could have reached TD1bn, had it not been for the strikes.

The labour unrest has had wider ramifications. According to Utica, 120 foreign companies shut down their operations in Tunisia over the past year due the strikes, resulting in the loss of more than 40,000 jobs. The latest closure came in December as Japan’s Yazaki announced it was permanently shutting its cable manufacturing operation at Om Larayes in the Gafsa governorate. The firm has five production plants in the Gafsa region, employing about 2,200 people.

Tourism slowdown in Tunisia

The CPG and GCT are Tunisia’s largest public enterprises, but the tourism sector is the main provider of foreign currency reserves. Its performance has been severely impacted by the revolution that overthrew the Ben Ali regime, along with the popular uprisings elsewhere in the Middle East and North Africa. At the start of December, earnings from the tourism sector were down 33.7 per cent year-on-year, representing a loss of TD1.3bn to the economy.

External factors have also played their part in the stagnation of the Tunisian economy.

The country’s main trade partner is Europe and its economic performance heavily influences that of Tunisia. The 27 countries that form the EU provided 67.2 per cent of Tunisia’s imports in 2010 and absorbed 74.5 per cent of its exports. The combined trade flows between the two were worth more than E20bn ($26bn) that year. Europe’s demand for imported goods and services has fallen over the past year as a result of the economic uncertainty caused by the Eurozone sovereign debt crisis, contributing to the rise in Tunisia’s current account deficit and fall in foreign currency reserves.

Libya is Tunisia’s second largest trade partner, accounting for 5.8 per cent of all exports and 2.9 per cent of imports in 2010, a relationship worth E1.18bn. Tunisia’s exports to Libya mainly comprise construction materials, iron and steel and food products. Oil accounts for 92 per cent of Tunisia’s imports from Libya and this supply represents 25 per cent of its total crude imports.

In 2011, Libya’s economy was decimated by nine months of civil war, with obvious consequences for bilateral trade with Tunisia. Libya was also an important provider of jobs for Tunisians. The outbreak of war forced thousands of workers to return home to unemployment and cut off the supply of remittances to the Tunisian economy. In 2009, remittances from Libya totalled TD50.2m, according to the African Development Bank.

In light of these internal and external challenges, the Tunisian Central Bank has tried to keep the economy growing by making saving less attractive and encouraging banks to keep lending to businesses. During the year, it cut its key interest rate from 4.5 per cent to 3.5 per cent and also lowered banks’ reserve requirement to 2 per cent, from 12.5 per cent. As a result, corporate financing increased 11.8 per cent over the first 10 months of 2011, while deposits increased by just 3.6 per cent. The central bank intervened regularly throughout the year to ease the resulting pressure on liquidity by injecting funds into the banking system.

The target of 4.5 per cent GDP growth set out in the 2012 budget is based on the problems that held back the economy last year being resolved. All being well, this looks achievable. In mid-December, President Moncef Marzouki appealed for a six-month halt to strikes and sit-ins to allow the new government a chance to tackle the country’s social and economic problems. His words appear to have been heeded with production now resuming at phosphate mines that had been unable to operate for several months. The performance of CPG and GTC should quickly recover. The firms’ contribution to the economy is also set to increase in the next couple of years due to expansion projects under way.

Eyeing recovery

The tourism sector also began to pick up in the second half of 2011 and, provided there is no further unrest in Tunisia, arrival numbers should continue to rise this year. While a recovery in the Eurozone economies is beyond the control of the Tunisian authorities, they intend to maximise every opportunity to be involved in the reconstruction of Libya now that the civil war there has ended. Estimates put the cost of rebuilding the country at LD80bn ($64bn) in the short term and LD400bn in the long term. Economic ties between the two had been growing in recent years and this looks set to continue now that the conflict is over. A representative of Libya’s National Transitional Council visited Tunisia in December and Marzouki made his first overseas trip as president to Libya in early January.

It is no small irony that Libya’s armed uprising, which was triggered by its neighbour’s peaceful revolution, could provide a lifeline to the Tunisian economy over the next few years, while the country’s largest trading partner Europe battles its own financial problems. 

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