Tunisia’s ‘election budget’ does not address country’s woes

For 2019, Tunisia will need an influx of about $3.6 billion, $2.5 billion of which will be borrowed from international financial markets.
Sunday 21/10/2018
Tunisia’s Prime Minister Youssef Chahed speaks during a national conference over 2019 budget in Tunis,  on September 14.                                                                                (Reuters)
Toing and froing. Tunisia’s Prime Minister Youssef Chahed speaks during a national conference over 2019 budget in Tunis, on September 14. (Reuters)

Tunisia’s proposed 2019 budget, expected to soon be discussed in parliament, reflects the government’s great confusion in finding the best way to improve the country’s economic conditions.

Shortly after the cabinet’s adoption of the budget, economic experts sounded the alarm that the budget was based on assumptions derived from unsteady indicators and that it would not solve the chronic economic problems that have been hurting Tunisians.

Economists said the government should have resorted to non-conventional solutions to alleviate the financial pressure that squeezes the budgets of Tunisian families with inflation hovering at the rate of 7.4%.

The economists warned that funding gaps in the budget would soon surface because of the increase of more than $1.1 billion compared to the current budget. A total of $13.4 billion was approved for 2019, which represents a 7% increase over 2018. The proposed budget shows that the Tunisian government was aiming to reduce the deficit to 3.9%, compared to 4.9% expected this year.

The biggest worry in next year’s budget remains public debt, even though it was projected to fall to about 70.9% of GDP in 2019, compared to the 72% expected for this year.

Neji Jalloul, director-general of the Tunisian Institute for Strategic Studies, said Tunisia’s government adopted traditional solutions to draft the 2019 Finance Act to get out of the current economic situation. “This is an election budget and the government is working to calm the situation and has deliberately passed the buck to the next governments,” he said.

Jalloul, who was alluding to elections scheduled for next year in Tunisia, explained that the proposed budget would not solve the country’s major economic problems, including unemployment and the decline in the standard of living, plus low appropriations for development and the aggravation of public debt.

The government usually makes budgetary projections based on assumptions, notably the economic growth rate, the local currency exchange rate and the price of crude oil on world markets.

Although the government did not plan on raising taxes or levying new ones to support the country’s empty coffers next year, the unstable indicators on which the budget was built seem troubling enough, especially considering the rapid depreciation of the Tunisian dinar and the rise in oil prices.

Economist Fethi Nouri agreed with Jalloul in that the 2019 budget is an election project. He pointed out that it did not provide for tax increases nor did it include measures to reform the subsidy system and direct it to vulnerable groups.

It seems that the pressure created by Tunisia’s trade deficit, which has exceeded $4.4 billion in the first nine months of this year, and the rise in debt service payments in foreign currency would further complicate the government’s task of achieving fiscal balances in 2019.

Tunisia agreed to a loan with the International Monetary Fund (IMF) of $2.9 billion in instalments to help the Tunisian government carry out painful economic reforms.

For 2019, Tunisia will need an influx of about $3.6 billion, $2.5 billion of which will be borrowed from international financial markets. For this year, however, Tunisia failed to secure $1 billion from international markets because of economic uncertainty in the country.

Nouri explained Tunisia’s difficulties with international lenders stem from its inability to negotiate an interest rate in line with its economic capacities, in addition to financial markets weary of lending to Tunisia. He added that Tunisia’s internal political quarrels complicated matters and that is pushing the Tunisian government to depend more on financing from the IMF in exchange for carrying out economic reforms.

The government expects the debt service next year to reach $3.3 billion, an expected increase of $531 million from this year. Experts, however, disagree and say that it could go well beyond that.

Economic growth was expected to reach 2.6% this year but growth in Tunisia continues to be slow because several sectors, especially phosphate, are shrinking, with the exception, perhaps, of revenues from tourism. Given these realities, the government’s goal of a 3.1% growth for next year seems difficult to achieve.

The Tunisian dinar has fallen to record levels, losing more than half of its value, and is likely to fall further against the euro and the dollar by the end of the year. Such prospects could bring about tremendous problems, affecting especially the trade balance.

The most troubling assumption in the budget remains the price of a barrel of oil, which was set at $72, while it has surpassed the $80 mark.

In the proposed budget for 2019, one third of the government expenditures will go to wages; $8.9 billion, equivalent to 14.1% of the GDP, was hence allocated to public sector salaries.