Draft budget highlights Tunisia’s social and fiscal problems

Sunday 06/11/2016
A file picture shows Tunisian Prime Minister Youssef Chahed delivering his speech at the Parliament in Tunis, on August 26th, ahead of a confidence vote. (AP)

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.”