Blog

By Elyès Jouini*

The Tunisian economy is currently in very bad shape.  An economic policy focused on rent-seeking for the benefit of a minority with cozy ties to the political power has replaced a consumption-driven economic policy, based on short-term concerns.

The social situation is worrisome given that discontent is growing.

The time has come to think about/establish to a new economic policy framework.

Stocktaking: the starting point

First, the most obvious observations: the external drivers of growth have disappeared, mainly because of heavy reliance on Europe, which is in the throes of a crisis. Tourism has fallen off.  Investment has fallen to its lowest level. Foreign investors have fled and even local investors are retreating, as evidenced by scaled back investment intends (for example, -57 percent in Siliana and -43 percent in Jendouba). Public investment is beset by financing problems and social unrest in the regions, as well as the inevitable procedural and administrative red tape.

The only policy to which attention is paid is consumption with, in particular, an increase in the public sector wage bill, price controls, and the supply of imported consumer products.  This policy is supported by an accommodative monetary policy based on low interest rates.  The modest economic uptick resulting from this policy has not, however, been enough to keep the lid on social protest.

In the fiscal policy sphere, the deficit is growing and although the debt-to-GDP ratio is not yet raising serious concerns in absolute terms, tepid growth coupled with an uncontrolled increase in current expenditures could raise it to a critical level in the medium term.

The Central Bank’s accommodative monetary policy cannot be maintained for much longer in a context of rising inflation. 

How did we get to that point?

The growth model adopted by the previous regime has prevented the country from moving forward.  While this model was in essence liberal (boosting investment and economic growth through market forces and private initiative), it placed patronage interest above economic efficiency, by granting of various permits and contracts or tempering with the rules of competition, thus leading to favoritism and corruption and stifling free competition.  Companies with close ties to the regime therefore engaged in unfair competition in the domestic market.

Added to this unfair competition was unequal access to credit.  Capital was rarely allocated based on economic criteria.  The resources of the financial sector were channeled solely toward enterprises with ties to the State.

These factors combined paved the way for the emergence of a form of capitalism that was non-competitive, risk-averse, and not encouraging innovation.

Furthermore, the social justice was neglected by the State.  The social policies implemented were not able to address the real economic and social problems, namely:

• Steadily rising unemployment among young graduates whose skills are not in line with those sought by enterprises;
• Territorial and social inequalities that split the country in two;
• A growing informal sector, leading to unfair competition vis-à-vis the enterprises that meet their fiscal and social obligations;
• A complex and economically inefficient tax system unsuited to the needs of SMEs.

Despite being in the doldrums, Tunisia is endowed with many assets to tackle these challenges.

These assets should not serve as a basis for naive and self-righteous debate, as happened in the past.  They should rather be used to formulate a development strategy or model that links growth with redistribution.

Tunisia’s most important asset is, no doubt, the path on which it has resolutely embarked toward creating an increasingly participatory democracy. Public spirit is emerging.

The different economic agents, enterprises and households, must contribute to the national endeavor.  Tunisia needs this to address quickly its new challenges.  The country’s future prosperity depends on it.

A new economic policy for Tunisia first entails fiscal policy reform aimed at the fair distribution of the tax burden, without eroding the purchasing power of the middle class and weakening the competitiveness of national enterprises.

The path to recovery

Among the measures available to the State, the one that should be most quickly implemented and expanded is the tax base. Currently, few enterprises pay taxes. Salaried workers and employees who pay do not do so voluntarily, since taxes are withheld at source.  There is a widespread sense that people are not paying taxes in a uniform manner and that the tax burden is unfairly distributed.

However, such a reform can only succeed if it is widely accepted. A more extensive and credible information program should tangibly demonstrate to citizens the benefit to the country of paying taxes.

The additional resources obtained by the State could be reallocated to two sources:

• First, to those with the greatest need, while at the same time gradually reforming the Caisse de compensation, i.e. the universal subsidy scheme.
• Second, to job-creating infrastructure projects which are economically justified. Because when both foreign and domestic investors are uncertain about the expected return on their investments, it is therefore up to the State to invest in projects that pave the way for transition toward an export-led growth model.

These urgent investments should be launched through dedicated ad hoc entities. An emergency situation calls for emergency entities. They would be able to create employment in the poorest regions to support economic growth and meet pressing social needs.  Furthermore, they would provide an opportunity for Tunisian SMEs to develop their businesses on the “natural” market (in a manner similar to the American and European Small Business Act) and facilitate improvement in the country’s logistical services needed to strengthen its competitiveness in the area of exports.

Similar to the Moroccan experience, the recently established Caisse des dépôts could provide a portion of the needed capital.

If the economy is to develop, the financial sector must also play a truly active role to support entrepreneurship and risk taking.

In order to ensure that Tunisia adopts an active export-led growth strategy, a new inclusive industrial and services model must be developed with a focus on:

• Facilitating more upscale tourism
• Developing the jobs of the future in the textile, agrofood, and automobile and aeronautical industry, as well as business services

This new policy will place Tunisia firmly on a path toward accelerated, sustainable and balanced growth among the different economic sectors and agents, in a way that redounds to the benefit of all Tunisians.