Tunisia plans spending hike, budget deficit cut for 2019 election year

The Tunisian prime minister must walk a tightrope to implement IMF-backed reforms aimed at fixing state finances without driving social unrest.
Wednesday 03/10/2018
Tunisian Prime Minister Youssef Chahed gestures as he speaks during a national conference over 2019 budget in Tunis, Tunisia, September 14, 2018. (Reuters)
Tunisian Prime Minister Youssef Chahed gestures as he speaks during a national conference over 2019 budget in Tunis, Tunisia, September 14, 2018. (Reuters)

TUNIS - Tunisian Prime Minister Youssef Chahed, emboldened by renewed support in parliament after a failed bid to oust him from power, outlined a draft budget that would increase spending during next year’s elections while cutting the deficit to secure foreign funding.

Chahed’s government, which has seen increases in tax revenue and GDP, said it expects to secure a lower budget deficit without raising taxes.

However, Chahed must walk a tightrope to implement International Monetary Fund (IMF) reforms aimed at fixing state finances and liberalising the economy without driving social unrest and angering labour groups, which have called for nationwide strikes to air economic grievances.

Tunisia needs an IMF loan instalment to replenish depleted foreign currency reserves and plug budget and current account gaps.

An IMF team concluded a 2-week review of Tunisia’s progress in implementing economic reforms on August 31. It said a $257 million instalment, scheduled to be disbursed by the end of September, would be conditioned on Tunisia carrying out “reforms of untargeted energy subsidies, managing carefully the public wage bill and putting the public and private pension funds on a sustainable basis.”

The tranche is part of Tunisia’s $2.9 billion loan agreement with the IMF reached in 2016, $1.3 billion of which has been received.

"There are some encouraging signs that economic activity is picking up. The Tunisian economy grew 2.6% (year-on-year) in the first half of this year, with robust performance in agriculture, tourism and services,” the IMF said in a statement.

“The authorities’ commitment to reducing fiscal imbalances is also bearing fruit. The execution of the budget in the first six months of 2018 is consistent with achieving a significant deficit reduction this year,” it added.

However, the IMF pointed out that “long-standing economic imbalances continue to pose significant risks to the Tunisian economy. Inflation declined marginally in July but, at 7.5%, it remains considerably higher than in previous years.”

Tunisian Finance Minister Ridha Chalghoum said the government forecast a budget of $14.6 billion in 2019, about $1.8 billion higher than what was projected this year.

“There will be no increase of taxes for the citizens,” Chalghoum said, adding that the budget deficit was expected to decline from 4.9% this year to 3.9% in 2019.

The government plans to cap foreign debt at 70.9% of GDP next year, down from an expected 71.7% in 2018.

Tunisia also plans to borrow $3.4 billion next year, mostly from abroad, compared to $2.8 billion last year, most of which came from the domestic market.

Up until 2010, Tunisia generally kept its budget deficit between 1-3%. However, following the ouster of former President Zine el-Abidine Ben Ali in early 2011, the government’s debt burden grew from 39.2% in 2010 to 55.7% in 2015 to 60% the following year, official figures show.

The country’s efforts to keep debt under control have been strained by demands from the country’s powerful labour group, the Tunisian General Labour Union (UGTT).

The UGTT called for nationwide strikes on October 24 and November 22 to protest what it referred to as government plans to privatise failing enterprises, delayed salary negotiations and the declining value of the dinar.

The UGTT, which views itself as acting in defence of the people’s interests, has sought significant wage increases for the public sector, which employs about half of the country’s workforce of 4.1 million, in negotiations with the government.

The UGTT and the Tunisian Union of Industry, Trade and Handicrafts (UTICA), the country’s main employers group, also entered negotiations with the government to secure a 6.5% salary increase for private sector employees for 2018-9. UTICA President Samir Majoul said: “Entente with the UGTT is crucial for social peace.”

The UGTT’s planned strikes would coincide with debate in parliament over Chahed’s draft budget. It will be a test of his bloc’s strength ahead of presidential and parliamentary elections next year.

Given the political dynamics, many view those strikes as an attempt by the UGTT’s leaders to save face. They had staunchly backed Chahed’s rivals within the secularist Nidaa Tounes party who sought to push him out of government and thwart his presumed aspirations for the presidency.

Chahed appeared to come out on top of the internal party dispute that pitted him against Nidaa Tounes Executive Director Hafedh Caid Essebsi, who is the son of Tunisian President Beji Caid Essebsi, after the two publicly traded barbs.

Several Nidaa Tounes PMs joined a parliamentary bloc composed of 43 members in support of Chahed’s government. Nidaa Tounes figures called for “negotiation and compromise,” warning that party infighting was a threat to all “democrats and progressives,” implying that the Islamist Ennahda Movement could benefit from the discord.

“Backed by Ennahda and by a number of figures of his own camp who cut ties with a Nidaa Tounes party that lost its points of reference as well as by small political groups, Chahed is no longer busy with the resistance. He shows that he becomes the master of his own destiny,” said political writer Nejib Ouerghi.