Economy

World Bank drops growth forecast for Tunisia further

October 6, 2023, 1:59 PM

Drought in Tunisia is a hurdle recognised by the World Bank — A worker waters drought-stricken trees in Tunisia. The World Bank sees the drought as one of the factors affecting GDP growth

Growth forecast down to 1.2%
Finances ‘fragile’ without IMF deal
Tunisia paid 74% of external debt

Tunisia’s economic growth forecast has been downgraded further by the World Bank amid concerns over the drought-hit agricultural sector, as well as uncertainties over debt financing and the weak momentum of structural reforms.

In its report, Balancing act: Jobs and wages in the Middle East and North Africa when crises hit, the World Bank noted that the Tunisian economy appears to be slowing “significantly” compared with trends in 2021 and 2022.

As a result, its growth forecast for the North African country has dropped to 1.2 percent for 2023, down from a preliminary estimate of 2.3 percent in June. The World Bank cites “very uncertain prospects”.

The bank previously revised its growth projections down by 1 percent for this year.

In the absence of agreements with the IMF and external financing, coupled with an uncertain global environment, Tunisia’s public finances and external accounts will remain “fragile”, the World Bank said.

Bailout talks with the IMF have stalled since last October, when a preliminary agreement for a 48-month loan worth close to $2 billion was reached.

Tunisian president Kais Saied’s government refused to accept the terms of the proposed deal, which fuelled speculation over an imminent default on the country’s debt.

The budget deficit is expected to narrow to 5.6 percent of GDP this year, down from 6.6 percent last year, according to the World Bank, as a result of the reduction in energy subsidies, lower real wages and an increase in tax revenues.

However, the bank predicts that gross financing needs will increase further to 16 percent of GDP in 2023, from 12.6 percent in 2022, “due to significant external debt repayments”.

Debt and deficit

It was revealed last month that Tunisia had repaid 74 percent of its cumulative external debt due this year.

As of September 10, the amount of debt repaid was TND6.6 billion ($2 billion), compared with TND8.9 billion forecast for the year in the 2023 budget, as reported by Agence Tunis Afrique Presse, citing data from the country’s central bank.

The current account deficit is projected to narrow to 4 percent of GDP in 2023 – from 8.6 percent in 2022 – thanks to tourism and favourable terms of trade.

“If Tunisia manages to overcome the drought and difficulties in external financing, it should reach a growth rate of 3 percent in 2024 and 2025,” the report said.

Saudi Arabia in July announced it would provide Tunisia with $400 million as a soft loan – one with no interest or a below-market rate – and $100 million as a grant.

Riyadh has pledged more financial support in the near future but this has yet to materialise.