Draft budget highlights Tunisia’s social and fiscal problems
Tunis - In attempting to overcome the country’s socio-economic woes and undertake crucial reforms, the Tunisian government faces opposing pressures from powerful trade unions and international financial institutions.
The main employer group, the Tunisian Union of Industry, Trade and Handicrafts (UTICA), objects to the country’s draft budget as do many lawyers and business interests while supporters of the left-leaning Popular Front coalition took to streets in Tunis advocating a “budget for the poor” as an alternative to the government’s proposals.
The draft budget expects spending of $14.5 billion for 2017, up 11.5% versus 2016 and forecasts a growth rate of 2.5% of gross domestic product (GDP) after an expected growth of 1% this year. The draft budget was compiled after assuming oil prices of $50 a barrel. The 2016 budget was against a $40 per barrel price.
The government projects a budget deficit at $2.3 billion, $713 million higher than the deficit expected for 2016.
No political leaders from the seven political parties, who voiced support when the government led by Prime Minister Youssef Chahed was appointed in July, backed the budget proposals, leaving the government essentially alone to face the political and social challenges.
“If we do not rescue public finances, the economic situation will not evolve,” Chahed has said.
Tunisia’s economy is enduring its worst crisis since 1986, with ballooning domestic and foreign debt, high inflation and unemployment rates and a weakening currency.
If the government were to surrender to the demand of the Tunisian General Labour Union (UGTT) to raise wages as agreed to by its predecessor, it risks losing credibility with the International Monetary Fund (IMF), with which Tunisia signed a deal that includes a provision to freeze salaries.
“The government faces two opposing commitments: A May 2016 deal with the IMF and the accords of salary increases worth around 5 billion dinars ($2.23 billion) signed with UGTT,” said financial expert Ezzeddine Saidane.
“If the government fails in its commitment to the IMF, Tunisia will hit an impasse — a complete asphyxia of the public finances and of the whole Tunisian economy, a full strangulation of the economy over all its levels,” he said.
Saidane’s comments came at a conference on the draft budget organised by the main ruling Nidaa Tounes party. Chahed is a top official of the party founded by President Beji Caid Essebsi.
The Islamist Ennahda party, another member of the seven-party coalition government, earlier had a similar conference.
Ennahda President Rached Ghannouchi said, in an oblique criticism of the budget, that he hoped for a “compromise over the budget draft” before the end of December when the parliament, dominated by Ennahda and Nidaa Tounes, votes on the budget proposals.
The IMF approved a four-year, $2.9 billion loan to Tunisia in June, saying it supported the country’s economic agenda aimed at promoting more inclusive growth and job creation while protecting the most vulnerable households.
Chahed and financial experts said if Tunisia loses the support of IMF, it risks losing opportunities to borrow at relatively low interest rates.
“What will be left is borrowing from private investors at 14%,” Chahed warned.
Tunisia’s debt has ballooned from 40% of the budget in 2010 to an expected 53% this year and a projected 64% in 2017.
“The government has no big policy leeway on 82% of the budget, as 45% of it goes to salaries and 37% to pay back debt. The remaining 18% is for investment, where its flexibility is limited,” Saidane said.
Mohamed Salah Ayari, a tax expert, said the “government is being squeezed between the IMF and social organisations over the budget for 2017″.
“One percent of business firms pay 80% of total corporate taxes to the government,” he said, attributing this to widespread tax evasion often due to lack of manpower to fight the problem with only 1,600 government tax controllers monitoring 700,000 taxpayers.
“Workers are disappointed and business leaders are disappointed as well as other quarters of the society because of the evasion problem,” said lawyer Taieb Ben Jemaa.
Nabil Abdellatif, a financial expert, argued that the “government’s forecast of 2.5% GDP for 2017 growth is a big dream. It aims to meet the demand of IMF to stop the part of salaries at 14% of GDP”.
“The same play [is seen] with figures for investment forecast of 6.4 billion dinars ($2.86 billion) while the real possibility to achieve investments do not exceed 3 billion-4 billion dinars ($1.34 billion-$1.78 billion),” he added.
Chahed, underscoring the problem his government faces, said: “We asked the UGTT to give us one year of respite during which we will work to achieve 3% growth. When we reach such rate of growth, we will satisfy the union claim.”
UGTT leader Houcine Abassi countered, saying: “Putting off the wage rises is an impoverishment of workers and an injustice. The government had taken the decision without searching for alternative solutions like fighting tax evasion, smuggling and corruption.”