Tunisia’s 2020 budget reflects pressures on economy

40% of the budget is earmarked for wages and about 22% is meant for debt payments.
Saturday 19/10/2019
Containers at a port terminal in Bizerte. (Reuters)
Slow recovery. Containers at a port terminal in Bizerte. (Reuters)

TUNIS - Through its recently ratified budget, the Tunisian government is trying to send reassuring messages as to its ability to address the country’s financial imbalances despite uncertainties created by its electoral process.

The 2020 budget of about 47 billion Tunisian dinars ($17 billion) is the largest in Tunisia’s history but it does not hide fears that, given slower than expected economic growth, higher wages and other issues, the government will end up relying on cosmetic stop-gap solutions, analysts said.

The new budget is about 15.7% higher than the 2019 budget of about $14.5 billion. A bigger budget means more spending.

The main objective of next year’s budget is to reduce the deficit to be able to control public debt, which has reached record levels.

Tunisia’s budget “embodies the policy of forging ahead,” said economist Mongi Mkaddem, adding the budget increase “is unreasonable given the weak growth potential and slowing economic activity.”

Mkaddem said 40% of the budget was earmarked for wages and about 22% was meant for debt payments, which means it is far from being an “austerity” budget. He also said budget items were not based on correct estimates and do not open new horizons for development.

He said he expected heated debate in parliament before the budget being officially approved.

Tunisian Finance Minister Ridha Chalghoum said the government’s main concern was to reduce external debt that had reached 70% of GDP, which analysts consider a major threat to the country’s economy.

The budget deficit rate was 6.1% in 2017 and was 4.8% last year. Although in the last five budgets each increased, overall economic growth rates have not kept pace, raising fears of financial difficulties ahead. The government targeted a growth rate of about 2% during the next year.

Tunisians are awaiting the outcome of a visit by the International Monetary Fund (IMF) to Tunisia. Based on its follow-up on the reforms implemented, the IMF should be releasing the sixth instalment of a $2.9 billion loan agreed to in May 2016.

The minister in charge of the major reforms, Taoufik Rajhi, said in a statement quoted by the official TAP news agency that the IMF is expected to disburse a $450 million tranche to complete the five previous instalments of about $1.8 billion.

The challenges in the next budget are not limited to deficits and foreign debts but also to the rise in the wage mass, which amounts to $7 billion after the government signed agreements with the

Tunisian General Labour Union, the largest trade union in the country, to increase public sector wages.

The size of wages in successive state budgets since the 2011 uprising has increased significantly because of expansive hiring in the public sector.

Salaries represent 14% of GDP this year, which, analysts said, would be a heavy burden on struggling public finances. Rajhi said that about $1.9 billion was set aside for subsidies; a little more than $2 billion was allocated for development and about $4.2 billion to service debts.

The estimates are subject to the effects of expected major political changes in Tunisia following legislative and presidential elections. The future government may not share the visions of the current government.

The government is going to have to borrow $1 billion from the domestic market and $3 billion from the foreign market through funding from international financial institutions, which provide soft loans with interest rates of up to 2%.

“Tunisia needs foreign funding of about $2.96 billion and intends to launch euro-denominated bonds next year,” a senior government official told Reuters.