Tunisia’s economy struggles with high public debt, sluggish growth, and social unrest. The government has resorted to reactive policies focusing on short-term relief rather than addressing structural deficiencies. The 2025 Finance Law reflects these challenges, emphasizing regressive taxation and reliance on the central bank, which may entrench economic difficulties rather than provide sustainable solutions.
Tunisia’s economy faces severe challenges characterized by enduring sluggish growth, high public debt, and socio-economic instability. At the onset of 2023, public debt approached 80% of GDP, youth unemployment remained troublingly elevated, and inflation continued to impose hardships on households reliant on government-subsidized goods. The government’s temporary measures have failed to address systemic issues in competitiveness, tax collection, and public sector performance, further complicating efforts to sustain economic stability without an International Monetary Fund (IMF) agreement for support.
The aftermath of Tunisia’s 2011 revolution reveals a series of unfulfilled promises and persistent structural issues. Once celebrated as a successful instance of the Arab Spring, Tunisia now struggles with a weakened economy, plagued by graft and ineffective monopolistic practices. Efforts by successive governments to expand public sector hiring exacerbated the wage burden, with 650,000 public employees consuming nearly half of state revenues, unsustainably weighing down the fiscal landscape amid global economic disruptions.
In response to escalating economic pressures, the government’s approach has devolved into reactive policies yielding diminishing results. Initial import restrictions on luxury items expanded, inadvertently impacting essential goods and encouraging black market inflation. Concurrently, the central bank’s direct financing of deficits has supported state functions but has aggravated inflation levels, leaving larger issues unaddressed, including a hindered private sector and declining educational outcomes.
Exacerbating Tunisia’s fiscal challenges is its isolation from global debt markets, stemming from stalled IMF negotiations. President Kais Saied’s refusal to accept austerity measures linked to potential IMF support showcases his concerns about provoking unrest reminiscent of previous uprisings. Alternatively, limited engagement with Algeria and Libya offers only sporadic financial relief against a substantial annual financing shortfall of $4 billion.
The 2025 budget showcases a perilous fiscal strategy. It includes regressive taxation and increased domestic borrowing, targeting new levies on digital services and doubling transaction taxes. Such strategies aim to secure $1.2 billion in revenue, even amidst a banking sector already burdened with significant state debt. This potentially crowds out necessary private credit, especially for small-to-medium enterprises that require accessible financing.
Another concern with the 2025 budget lies in its dependence on the central bank as a financier of last resort, a role institutionalized since 2022. This financing mechanism risks compromising currency stability, evidenced by the dinar’s significant depreciation against major currencies and bleak inflation projections. Plans to maintain subsidies on essentials create fiscal strain and inadvertently benefit smugglers more than ordinary citizens, raising questions about the budget’s social impact.
Politically, the Finance Law serves dual purposes, functioning as a fiscal strategy and a means of maintaining control. By evading required reforms such as subsidy cuts, the government aims to avert social unrest. However, the new tax framework disproportionately affects salaried individuals and may alienate middle-class constituents, leaving the burgeoning informal sector largely unaffected while intensifying government crackdowns on dissent.
The viability of these economic strategies hinges on overly optimistic assumptions about enhancing tax compliance and the central bank’s capacity to sustain monetary expansion without triggering hyperinflation. The pervasive culture of tax evasion coupled with dwindling foreign reserves renders these goals implausible. Even with implementation, the actions may only minimally reduce fiscal deficits, keeping public debt projections ominously elevated.
Ultimately, the 2025 Finance Law represents a short-term political fix rather than a sustainable economic solution. By prioritizing regime stability over essential structural reforms, it perpetuates reliance on unsustainable fiscal practices without addressing the core public sector inefficiencies and subsidy misallocations that fuel ongoing economic decline. Although it may delay an immediate crisis, the approach ensures that Tunisia’s government remains ill-equipped for future external shocks, reflecting a deeper recognition of the limited room for political maneuvering to satisfy an increasingly desperate populace.
In summary, Tunisia’s economic situation is precarious, marked by high public debt, unemployment, and inflation. The government’s reactive measures have failed to resolve deep-seated structural challenges, while the 2025 Finance Law emphasizes short-term political stability over necessary reforms. As Tunisia navigates this turbulent fiscal landscape, the absence of comprehensive solutions jeopardizes the nation’s economic future and its ability to respond effectively to external pressures. The political implications of the law also highlight the risks of alienating key constituents while suppressing dissent, raising fears about ongoing instability.
Original Source: www.arabnews.com
