Tunisia faces a dire economic situation with high public debt, stubborn inflation, and ongoing social unrest. The 2025 budget reflects survival strategies in response to systemic failures and a lack of IMF support. Government measures are increasingly reactive and risk worsening economic conditions, with a focus on regressive taxation and borrowing that threaten long-term stability and public trust.
Tunisia’s economy faces significant challenges as it grapples with high levels of public debt, which stands at approximately four-fifths of GDP, alongside persistent inflation and youth unemployment. The government’s dependence on temporary solutions has failed to address fundamental issues such as low competitiveness, inefficient tax collection, and shortcomings in public sector operations. With no current agreement with the International Monetary Fund (IMF), Tunisia has been compelled to construct a 2025 budget that serves as a dual purpose: a survival strategy and a gamble for future stability.
Since the 2011 revolution, Tunisia’s economy has deteriorated, marked by unmet expectations and ongoing structural flaws. Once regarded as a leading success of the Arab Spring, it now suffers from legacies of cronyism, inefficient state monopolies, and a tax system that captures less than 15 percent of GDP. Government efforts to increase public sector employment have led to an unsustainable model, with a wage bill for 650,000 public sector employees absorbing nearly half of government revenues. Additionally, global disruptions have exacerbated the situation, with tourism suffering due to COVID-19, reduced remittances from Europe, and spiking import costs linked to the Ukraine war.
The government’s response has manifested in reactive policymaking mechanisms that yield diminishing returns. Measures such as import restrictions on essentials have inadvertently fostered a black market, inflating prices drastically. Concurrently, the central bank’s financing of fiscal deficits has sustained state operations while intensifying inflation, revealing deeper systemic problems including bureaucratic bottlenecks that stifle the private sector and an overloaded education system.
Lacking access to international debt markets following failed IMF negotiations, President Kais Saied has resisted austerity measures related to IMF support, fearing potential civil unrest. Reliance on intermittent credit from neighboring Algeria and Libya, as well as the EU, offers only limited relief against a substantial $4 billion financing shortfall.
With bond yields exceeding 18 percent and foreign reserves dwindling, the government’s projections of a mere 1.9 percent growth for the 2025 budget appear overly optimistic. This disconnection from economic reality suggests Tunisia is seeking external financial aid under more lenient terms rather than genuinely plotting a sustainable recovery, posing significant risks amid a complex global climate.
The recently enacted 2025 Finance Law reflects the government’s precarious strategy to balance fiscal needs with public discontent. It includes new taxes aimed at raising $1.2 billion through levies on digital services and banking transactions, which could impair private lending for small and medium enterprises already burdened by high-interest loans. This pattern reveals a troubling approach of over-reliance on the central bank to finance deficits, undermining currency stability as the dinar depreciates substantially against the euro.
While maintaining subsidies on basic necessities remains a government priority to alleviate social hardship, these measures are criticized for disproportionately benefiting those operating in the black market over genuine consumers in need. Politically, the Finance Law serves as an instrument for the government to control dissent, avoiding necessary reforms under international scrutiny that could lead to public unrest.
The efficacy of this fiscal strategy rests on two shaky assumptions: improved tax compliance in a climate of dwindling public trust and the central bank’s ability to manage monetary policy without triggering hyperinflation. Current rates of tax evasion underscore the challenges of enforcement amidst a pervasive informal economy. Without substantial reforms, the measures proposed would only minimally mitigate Tunisia’s fiscal deficit, leaving public debt alarmingly on course to surpass 85 percent of GDP by the following year.
Ultimately, the 2025 Finance Law represents a short-term political maneuver rather than a true economic solution. By prioritizing regime stability over necessary reforms, the law perpetuates Tunisia’s fiscal troubles and undermines the country’s resilience to future economic shocks. The rise in security measures against dissent reflects that the government recognizes the limited efficacy of its current economic policies in addressing an increasingly agitated populace.
Tunisia’s economic plight is characterized by high public debt, inflation, and systemic weaknesses that the government’s short-term fiscal strategies have failed to remedy. The 2025 Finance Law represents an attempt to navigate these challenges without enacting substantial reforms, risking the entrenchment of existing economic issues. As Tunisia grapples with these crises amidst regional instability, the sustainable recovery remains uncertain, and public discontent may escalate as socio-economic hardships persist.
Original Source: www.arabnews.com
