Tunisia’s economy grew by 0.6% in the first half of 2024, following a limited increase in performance in 2023, according to the latest edition of the World Bank’s Economic Monitor. An improvement in the external balance and a reduction in inflation are among the positive signals. At the same time, some key sectors, including oil and gas, apparel, and construction, continue to struggle, although agriculture is showing signs of recovery.
The report, entitled “Equity and Efficiency of the Tunisian Tax System”, predicts growth of 1.2% in 2024. The current economic slowdown comes in the context of a long-term decline in growth over the past decade, with limited investment and savings rates. The report underlines the urgency of increasing investment to support growth and facilitate competition.
One sector where investment and competition are starting to increase is renewable energy, where Tunisia is pushing ahead with an ambitious programme. This includes the construction of 500 megawatts of capacity through solar projects in Kairouan, Sidi Bouzid and Tozeur. The government plans to add a further 1,700 megawatts by 2026, to make renewables 17% of the electricity mix and save 1 million tonnes of oil equivalent in gas imports – around 30% of total gas imports in 2023.
Thanks mainly to improved terms of trade, including falling energy import prices, rising olive oil export prices, and a recovery in tourism, Tunisia has managed to contain its current account deficit. The trade deficit narrowed by 3.4% year-on-year in the first nine months of 2024 and now accounts for 7.8% of GDP, down from 8.8% in 2023. Inflation fell to 6.7% in September 2024, its lowest level since January 2022, although food inflation remains at 9.2%.
Domestic debt will increase from 29.7% of total public debt in 2019 to 51.7% in August 2024, as Tunisia increasingly relies on domestic sources of financing. This development diverts a growing share of bank funding towards the government’s needs and away from the rest of the economy. It also poses risks to currency and price stability.
The second part of the report reviews Tunisia’s tax system and it emphasizes the importance of achieving more balance between labor and capital taxation to foster a more equitable approach. The current heavy tax responsibility on labor – including large social security contributions even for low-income earners – may encourage informality, discourage hiring and reduce wages. Additionally, the report highlights the need to enhance transparency within the system to ensure fairness and accountability. The introduction of an annual property tax and the increase in taxes on fuels in 2023 were positive steps, and Tunisia could achieve better outcomes by rebalancing its tax structure and strengthening its carbon tax mechanism, thereby fostering a more balanced and sustainable economic framework.
“Despite persistent challenges, Tunisia‘s economy continues to demonstrate resilience, and new opportunities are emerging,” said Alexandre Arrobbio, World Bank Country Manager for Tunisia. “The World Bank remains committed to supporting Tunisia in addressing the challenges underscored in the report, especially to support growth and private sector development.”
TunisianMonitorOnline (WB)
