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Tunisia

An improved outlook amidst an isolating economy

Last update – October 2024

Country rating 


HIGH RISK FOR ENTERPRISE
Economic risk

High risk of payments disruption
Business environment risk
Serious risk of payments disruption
Political risk

High risk of payments disruption
Commercial risk
Serious risk of payments disruption
Financing risk
High risk of payments disruption
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Form of state
 Republic
Head of government
 Kaïs Saïed (President)
Next elections
 2029, presidential

Strengths & weaknesses

  • Diversified economy with educated workforce and known capabilities in manufacturing, plastics, petrochemicals, transportation, agriculture and tourism
  • Easy access to the European market and strategic position in the Mediterranean Sea
  • Prospects of additional production of phosphates and fossil fuels
  • Increasing deterioration of the banking sector due to higher exposure to the sovereign
  • Massive youth unemployment (~40%), coast-inland inequality, talent flight and fragile social stability
  • The President’s power grab could backfire, with more social unrest

Economic overview

Improved domestic outlook while debt sustainability pressures remain

Growth in Tunisia is expected to improve but remain low at +1.6% in 2024, and +1.5% in 2025, given the easing cycle throughout major central banks and an improved agriculture output compared to the previous years. Inflation is expected to slightly decrease from 7% in 2024 but will remain elevated at 6.7% in 2025. However, inflation risks are on the rise, given the Government’s recent bill that diminishes the independence of the Central Bank of Tunisia (BCT), while financing needs remain elevated, given upcoming Eurobond maturities.

Debt sustainability remains among the top concerns in Tunisia. Debt service equaled 9.1% of GDP in 2024 and is projected to continue increasing by 0.3pp in 2025 and forecasted to reach 10.3% of GDP in 2028. Debt service is projected to equal USD9.5bn between 2025 and 2026 with an increasing servicing cost as the yields of both Eurobonds maturing in the short- (USD1.2bn maturing in January 2025) and mid-term (USD760m in July 2026) have seen a sharp increase.  Considering Tunisia’s latest withdrawal of USD850mn of foreign reserves from the central bank in February 2024 to repay a maturing Eurobond, we can expect similar monetary engineering in the next repayment. International reserves have since increased again above USD8.6bn. As Tunisia will most likely meet its short-term repayment requirements, it will be deteriorating long-term output by increasing the cost of financing for both businesses and the government. This in turn will increase the chances of an imminent currency devaluation, while continuing to reduce investors’ appetite for the Northern African economy.

An economy being unplugged from the rest of the world

The debt-to-GDP ratio of the Tunisian economy is projected to reach 83.7% in 2024 and 84.3% in 2025. More than 40% of the total debt is hard currency issued, which raises concerns of a possible devaluation of the dinar. The Government is currently striving to reduce its foreign debt share by focusing on domestic financing via its commercial banks and the central bank. Commercial banks, which already hold sovereign debt amounting to 12% of GDP, are increasingly buying more sovereign bonds, thereby raising their exposure to sovereign risk in case of default. In parallel, the BCT is financing the commercial bank’s operations by liquidity injections and supporting the government to meet its foreign currency maturity obligations. A new bill passed in Parliament in October 2024 only reinforces the lack of independence of the central bank.

Tunisia’s fiscal stance remains under pressure even if some improvements are materializing. The fiscal balance, which stood at -6.9% of GDP in 2023, is projected to decrease to -5.9% of GDP in 2024 and -5.1% in 2025, a fiscal consolidation of almost 1% of GDP per year. The government has also decelerated on the borrowing side as a 1% annual consolidation is expected, to -6% in 2024 and -5.1% in 2026, given the sustained improvement on government revenues since 2022, among the highest in the region. In parallel, global commodity prices have decreased the bill for energy and food subsidies, but the Tunisian budget remains highly vulnerable to external commodity shocks. Investment in renewable energy could be an important asset to reduce such import reliance but the lack of appetite for the Tunisian economy is preventing further improvement on this front.

The current account balance has been improving since 2022 and it is now projected to decrease below -3% of GDP in 2024, and -2.7% in 2025, a significant improvement from the 2010-20 average of -6.2%. However, Tunisian trade remains structurally unbalanced, Tunisian exports to the EU – its main trading partner – remain agriculture-based and lower value added, while its imports continue to be higher value added and expensive. The latest improvements have been driven by both a decrease of imports and a boost in agricultural exports. The exports boost is the result of a recovery in agricultural output and a surge of olive oil exports (+55% y/y), thanks to the surge in global prices and better rainfall. Cereal production has also increased by +60% y/y, reducing imports and improving the external position. Meanwhile, capital and financial transfers have improved from the previous decade, thanks to greater number of remittances, as well as a partial recovery of tourism arrivals, even though they remain below the pre-Covid peak. Bilateral support from donors has remained elevated; Italy and France have announced millions of euros of loan and aid to the current government in exchange for stricter borders. Multilateral transfers have been reduced as Tunisia denied the signature of a new program with the International Monetary Fund due to the opposition to reduce subsidies for essential goods. Such reforms would have improved Tunisian finances, but also increased inflation and most likely enhanced social tensions.

Over the last two decades, Tunisia has experienced a slow process of de-industrialization as services account for an increasing share of the economic output. Industry’s contribution to the economy has slowly decreased from 26% to 19%, while services has risen from 58% to 66%. The agricultural sector has remained stable at around 10% over the same period. Yet, agriculture employment has declined to about 14% of the country's workforce from 18% two decades ago, while services has increased its employment rate and that of industry remained stable.

Business reforms nowhere to be found among the President’s priorities

Presidential elections in October 2024 extended President Kais Saied hold of power after a crackdown on the opposition and a doubtful electoral process, according to different right groups. Turnout of the election was at 30%, but more than 2.4mn supporters remain organized to sustain his support. Saied, who took control in 2019 after years of instability following the Arab Spring, has transformed the constitutional setup, taking central stage of all the country’s decision and policy making. While the Tunisian General Labor Union (UGTT) remains an important organized block within Tunisia, with over 1mn affiliates, it has had mix results opposing the government and pushing for its priorities. In April 2024, the UGT called for a national strike that was partially followed. It is expected that the UGTT will continue to pressure the government for higher wages and pro-labor reforms, but its influence is in decline.

Saied has put at the core of his Presidency his populistic message on independence from foreign powers, hence the refusal to accept funds from the IMF or the EU with strings attached. This message closely aligns with the stance of the Algerian regime, with whom Saied has strengthened ties. Several of the economic policies enacted since he took office have pushed the economy to reduce imports, with import-substitution-like policies. The results have been mixed: domestic production has increased in agricultural products such as grains and vegetable oils, but non-agriculture or higher value products have not seen a significant positive impact, due to the increase on tariffs to products necessary to produce higher-end products.

The current administration has emphasized economic policies aimed at increasing self-sufficiency and reducing reliance on foreign imports. This includes measures to boost domestic production, particularly in agricultural sectors such as grains and vegetable oils. While there have been positive outcomes in these areas, the impact on non-agricultural and higher value-added products has been limited, partly due to increased tariffs on essential production inputs. The administration has also focused on promoting renewable energy initiatives, which could benefit from enhanced foreign investment and reforms in the electricity market. These efforts are part of a broader strategy to improve the country's economic resilience and reduce external vulnerabilities.

Trade structure by destination/origin

(% of total, 2023)

Trade structure by product

(% of total, 2023)

Contact 

Lluis Dalmau
Allianz Trade
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Contact Allianz Trade
Economic Research Team
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