TUNIS: Tunisia’s economy needs at least three more years of painful and politically difficult reforms, including tax changes and subsidy cuts, to revive growth after the damage it suffered during the 2011 revolution, Prime Minister Mehdi Jomaa said.
Parliamentary elections scheduled for October 26 and a presidential poll next month are designed to complete a difficult and sometimes violent transition to democracy. If the elections go smoothly, domestic and foreign investment could start to revive — a step towards boosting economic growth back to the 5 percent area which analysts believe is needed to cut unemployment, now around 15 percent.
But in an interview for the Reuters Middle East Investment Summit, Jomaa said a sustained recovery would not happen without a string of policy and regulatory reforms, some of which authorities have barely begun to tackle.
His comments underlined the obstacles still faced by many economies in the region three years after the Arab Spring. The uprisings hurt tax revenues and prompted governments to boost spending sharply to buy social peace, swelling budget deficits; private sector business confidence took a long-term hit.
“Because of continuing internal and external pressures, we expect only 3 percent gross domestic product growth in 2015,” said Jomaa. “The economy does not grow through pressing a button — it will take some time. So we need at least three years of painful reforms to revive the economy.”
The government now expects GDP to grow between 2.3 and 2.5 percent this year, well below an initial forecast of 4.5 percent. Annual growth averaged about 4.4 percent in the 10 years though 2010.
Tunisia signed last year to obtain a two-year, $1.78bn loan programme from the International Monetary Fund on the understanding that it would pursue economic reforms.
Since then it has taken several steps. In July it cut fuel subsidies, raising petrol prices by 6.3 percent, in order to trim the budget deficit; this month it imposed new taxes, including a departure levy on foreign travellers. It has been allowing the dinar to depreciate in order to rebuild foreign reserves from dangerously low levels.
Jomaa said much more remained to be done. “We need urgent reform that requires a lot of boldness and courage, including tax reform and the restructuring of public institutions, subsidy reforms, and steps to improve the investment climate.”
Jomaa added: “The next government should also continue energy reforms, and reform the banking sector via the restructuring of public banks to make them more competent and specialised.”
big trade deficit
Tunisia’s economy is weighed down by a big trade deficit that is swelled by energy imports; boosting oil production and limiting consumption could spur GDP growth. Asset quality at many banks is weak and some are undercapitalised, making the financial sector a source of risk.
Jomaa predicted improvement in some key economic indicators next year, saying Tunisia could cut the state budget deficit to 5.0 percent of GDP in 2015 from an estimated 5.8 percent this year, and inflation to 5 percent from about 6 percent.
However, Tunisia is likely to remain heavily dependent on foreign financing, both aid and borrowing from the international markets, for years. To finance the 2015 budget, the government will need a total of 8bon dinars ($4.5bn) of which 5bn dinars will come from foreign sources, Jomaa said.
“We have already started new discussions with the IMF on financing part of next year’s budget,” he said. Last week, Tunisia said it had issued a $825m bond on the domestic Japanese market.
Reuters
