Accelerating structural reforms will be the key for Tunisia to recover fully from the COVID-19 recession, overcome economic vulnerabilities and raise living standards for all, according to a new OECD report.
The latest OECD Economic Survey of Tunisia highlights the country’s success in fighting poverty and reducing gender imbalances in education and well-being in the past decade. This progress provides a solid base for an inclusive recovery from the 2020 recession.
A pickup in commodity prices seen since the beginning of the war in Ukraine and the Omicron and potential new variants of COVID-19 could slow the recovery and exacerbate structural challenges. In the short term, it is very important to raise the vaccination rate, maintain support for the most vulnerable, and overcome political uncertainties. In the long term, reforms are needed to improve the business climate, education, professional training, and active labour market policies. Ensuring macroeconomic stability – already threatened by large budget and balance of payments deficits, a large debt stock, and rising inflation – would help to improve the country’s credit ratings and reduce financial vulnerability.
“Tunisia should keep the policy momentum going, to expand its vaccination campaign and to support vulnerable households and firms until the economic recovery from the COVID-19 pandemic is well underway,” OECD Secretary-General Mathias Cormann said, presenting the Survey at a virtual launch with Minister of Economy and Planning Samir Saïed. “Well-implemented structural reforms would help Tunisia to benefit more from its human and geographic assets and kick-start growth. Priorities include improving business conditions and labour policies, and putting public finances back on a sustainable path.”
“A stable political environment based on democracy and the rule of law is essential for economic success »
“A stable political environment based on democracy and the rule of law is essential for economic success,” the Secretary-General said.
The COVID-19 crisis hit an economy already weakened from several years of sub-par growth. GDP contracted by an unprecedented 8.8% in 2020. The Survey sees GDP recovering slowly, while inflation could accelerate in 2022, due to price developments in global commodities markets, supply chain bottlenecks and public sector wage pressures. Given the inflationary pressure, it is important to avoid a monetary financing of the fiscal deficit and to prepare the transition towards inflation targeting.
Fostering political stability, concluding the institutional transition in Tunisia and consolidating the foundations of good governance and the rule of law would strengthen the recovery. The Survey recommends containing the public sector wage bill, reforming state-owned enterprises and the subsidy system, improving integrity and enhancing tax enforcement. Such measures would help to strengthen public finances while freeing up resources for much needed public investment in infrastructure, education and health.
Adapting its energy mix
Reforms should aim at making better use of Tunisia’s skilled workforce and its proximity to Europe. Lowering barriers to domestic competition and international trade and reducing administrative burdens for firms and the tax burden on labour would foster business dynamism and formal job creation. Better adapting the content of vocational training and education to firms’ needs and strengthening employment services would help to reduce unemployment, which remains particularly high among youths. Improving selection as well as initial and continuous teacher training in basic education and vocational training, with a focus on pedagogical skills, would raise teaching quality and particularly benefit children from disadvantaged households.
Tunisia is highly exposed to climate change on its Mediterranean coast and in its Southern desert regions. A sustainable recovery will require adapting its energy mix to fit with the Paris Agreement objectives, in particular by increasing the share of solar power and other renewables. Attracting private investment in green infrastructure and technology will require removing obstacles to competition, including access to the electricity transmission and distribution network, simplifying administrative procedures and cutting import barriers for relevant equipment.
