Econostrum | Economic News in the Mediterranean

Tunisia's 2022 budget deficit forecast at 9.7% of GDP vs. 6.7% expected

Written by Frédéric Dubessy on Wednesday, May 25th 2022 à 11:15 | Read 256 times

The Central Bank of Tunisia is trying to curb both inflation and its budget deficit, as purchasing power continues to decline in the country due to the permanent increase in prices. The Tunisian government is counting on a loan from the International Monetary Fund conditional on unpopular reforms, especially since the President of the Republic has been in power for almost a year.

The sharp rise in prices will push up inflation in Tunisia and widen the budget deficit (photo: F.Dubessy)
The sharp rise in prices will push up inflation in Tunisia and widen the budget deficit (photo: F.Dubessy)
TUNISIA. According to the Central Bank of Tunisia (BCT), the budget deficit is expected to reach 9.7% of the country's gross domestic product (GDP), compared to 6.7% previously forecast. The institution explains this gap by the rise of the dollar (the Tunisian dinar was depreciated by 7% against the US currency) and the strong increase in cereal and energy prices.

According to the governor of the BCT, Marouan Abassi, who spoke Friday, May 20, 2022 in Sfax, "an agreement with the International Monetary Fund (IMF) becomes imperative." He said that Tunisia needs an additional 5 billion Tunisian dinars (€1.55 billion) in 2022, due to the effects of the war in Ukraine, he said. This brings the country's needs in this area to 25 billion dinars (€7.75bn) to balance its budget. And it will be difficult to find them locally while an economic, social and even political crisis is raging in Tunisia.

The country is facing high inflation. According to figures from the National Institute of Statistics (INS), it is up by 7.5% in April 2022, 7.2% in March and 7% in February.) But also to a sharp decline in purchasing power. The price of food products rose by 8.7% in April 2022, mainly due to the increase in the price of eggs (+20.4%), edible oils (+20.4%), fruit (19.5%) and fresh vegetables (+12%). The price of services also rose by 4.8%, driven by price increases in restaurants, cafés and hotels (+7.2%) and health (+3.4%).

Scheduled increase in foodstuffs

A few days ago, Elyes Hamza, the Tunisian Minister of Agriculture, revealed that the Tunisian government was preparing an increase in the price of foodstuffs, particularly milk, eggs and poultry, in response to an insistent request from farmers who have been heavily subjected to the increase in the price of animal feed since the war in Ukraine. And who intends to pass it on. For several months, Tunisian President Kaïs Saïed has been fighting against speculation on food products, which makes things even worse. At the beginning of March 2022, the head of state announced that he wanted to wage "a merciless war against these speculators who aim to starve Tunisians and undermine social peace."

According to the Tunisian Electricity and Gas Company (STEG), electricity and gas prices should be readjusted by 12% and 16% respectively.

In this context, the Board of Directors of the Central Bank of Tunisia decided on 17 May 2022 to raise the key rate by seventy-five basis points to 7.0% from 18 May 2022. This will lead to an increase in the deposit and marginal lending facility rates to 6.0% and 8.0% respectively. At the same time, the BCT is raising the minimum rate of return on savings by 100 basis points.

Tunisia wants a €4bn loan from the IMF

This tightening of its monetary policy, intended to counter inflationary trends, responds to an observation: "Despite the downward revision of global activity, prices continue to evolve according to the developments of the said crisis because the almost generalized surge in international commodity prices and the persistent disturbances at the level of supply chains have increased, fuelling inflationary pressures at the level of the entire price chain. These pressures could be more sustainable than expected," said a BCT statement.

The current account deficit amounted to -2.7% of GDP in the first four months of 2022, against -1.7% in 2021. The deterioration of the trade balance explains this decline, while foreign exchange reserves are at 23.65 billion dinars (124 days of imports) and were at 23.31 billion dinars (133 days) at the end of 2021. 

Talks are already underway with the IMF to try to obtain a loan of the desired amount of $4bn (€3.79bn). However, the Bretton Woods institution is demanding reforms in exchange for this new money. They must focus, in particular, on reducing expenditure, freezing salaries and abolishing subsidies. As the population is not ready to accept them, the leaders will have a hard time making them swallow. Especially in the current circumstances. However, on 16 May 2022, the BCT Council emphasised the "need to undertake, as soon as possible, the structural reforms necessary to put economic growth back on an upward trend in order to ensure macroeconomic stability and the viability of public debt".

"The implementation of reforms will not be easy, but it is not impossible".

In an interview granted on Friday 20 May 2022 to France 24, Samir Said was reassuring on this subject. For him, it is normal that discussions with the IMF take time. "It is an insurance to ensure the conditions of reforms that have been delayed for a long time. Today, we are obliged to carry out these reforms and we no longer have the right to make mistakes. I think it is a matter of weeks before we reach an agreement with the financial institution in question," said the Tunisian Minister of the Economy and Planning.

Disclosing that the International Monetary Fund had expressed its satisfaction with the government's preparation of reforms, he said he did not "deny the problems we are currently facing, but the Tunisian economy is not in danger of collapsing (...) the implementation of reforms will not be easy, but it is not impossible.

The Tunisian General Labour Union (UGTT) has made it known that it rejects these reforms. The union has even demanded the start of new social negotiations for public sector wages. It is threatening to call a national strike in the public services and state-owned companies if it does not get its way.

Legislative elections in December 2022

Eleven years after its revolution, Tunisia is in a delicate situation from the point of view of its governance. President Kaïs Saïed, elected in October 2019, decided to take full power in July 2021 by successively dismissing his Prime Minister Hichem Mechichi (since replaced, in September 2021, by Naja Bouden Rhomdane), pronouncing the freezing of the activities of the Assembly of the People's Representatives (ARP - National Assembly) and the lifting of the immunity of deputies, then the dissolution of the Superior Council of the Judiciary in February 2022.

In mid-April 2022, the President of the Tunisian Republic reaffirmed his promise that a popular referendum would be organised on 25 July 2022 and that legislative elections would be held in December 2022, based on a new voting system. While Kaïs Saïed did not specify the details, he assured that it would be organised "with the participation of all parties, to express their opinions and views on the nature of the political regime.

Read also: The EBRD forecasts a slowdown in economic growth in the South and East of the Mediterranean
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