The World Bank prescribes to Tunisia an improvement of the business climate

TUNISIA. In a bulletin on Tunisia, entitled "Economic reforms to emerge from the crisis " published Monday, January 24, 2022, the World Bank calls for the "implementation of decisive structural reforms" and "improvement of the business climate". According to the institution, these prescriptions are the essential remedies to "put Tunisia back on the path of sustainable growth, create jobs for young people who constitute a growing part of the population and achieve better management of public debt."

The forty-two page report in French (with summaries in English and Arabic), indicates a GDP growth forecast of 3% in 2021 (after a decline of 9.2% in 2020). "The weak recovery in Tunisia has exacerbated the pressure on already stressed public finances, with the budget deficit remaining high at 7.6% in 2021, despite a slight contraction from 9.4% in 2020. The gradual decline in the budget deficit is expected to continue to reach between 5% and 7% of GDP in 2022-2023, thanks to the reduction in health-related expenditure and provided that the moderately positive trajectory of expenditure and revenue is maintained," the note says. It says that "Tunisia's growing public debt will be difficult to finance without decisive reforms of public finances and the economy".

The report identifies two main factors explaining the slowdown in economic recovery: the country's dependence on tourism and transport services, and the rigidity of the business climate, including restrictions on investment and competition that limit the reallocation of resources in the economy.

The World Bank, referring to the 114 people linked to former President Ben Ali who took 21% of all private sector profits in Tunisia, does not hesitate to write that "in 2021, the revolution remains unfinished". It thus indicates that "ten years later, the level of competition between sectors in Tunisia has further decreased, as has the creation of dynamic companies, compared to the pre-2011 period". The institution goes on to say that "the market distortions that created significant rents under Ben Ali's regime persist" and even that "market concentration has increased after the revolution, except in sectors previously dominated by Ben Ali-linked firms" (see graph above). The beneficiaries of the rents have just changed, but the mechanisms remain almost identical. The opposite phenomenon is true for production.

This is mainly attributed to regulation. "The government sets prices in several markets, thereby reducing profit margins and limiting competition," the paper notes. In addition, state-owned enterprises in competitive sectors are supported in ways that private competitors are not and are protected from competition by regulation.

"As elsewhere, Covid-19 has had a negative impact on the Tunisian economy and has highlighted the need to address long-standing challenges, such as improving the business environment, to ensure sustainable growth," comments Alexandre Arrobbio. According to the World Bank's resident representative in Tunisia, "to emerge from this crisis, Tunisia must adopt decisive reforms to promote private sector development, boost competitiveness and create more jobs, especially for women and youth."

The unemployment rate rose from 15.1 to 18.4% in the third quarter of 2021, slowing down the country's economic recovery. Those most affected are young people, women and people living in the western regions (see graph above).

Read the World Bank's Economic Reforms to Exit the Crisis report