World bank projects modest economic growth for Tunisia amid persistent challenges

The Tunisian economy is forecast to grow by 1.2% in 2024 and by 2.3% in 2025 and 2026, according to the latest economic update from the World Bank.

The report, titled “Equity and Efficiency of Tunisia’s Fiscal System”, notes a modest growth of 0.6% for the first half of 2024, showing a slight improvement compared to the previous year.

Positive trends such as a reduced external deficit and declining inflation offer a glimmer of hope.

However, key sectors like oil, gas, textiles, and construction continue to grapple with significant obstacles.

The World Bank emphasizes the need for increased investment to sustain growth and improve Tunisia’s economic competitiveness.

While agriculture is showing signs of recovery, other vital industries still face headwinds, underscoring the urgency for reform and development.

Renewable energy stands out as a sector with promising expansion potential. Tunisia’s national program aims to add 500 megawatts of new solar capacity in Kairouan, Sidi Bouzid, and Tozeur, with a target of 1,700 megawatts by 2026.

This initiative is projected to increase renewable energy’s share of electricity production to 17%, cutting gas imports by approximately 1 million tons of oil equivalent—equivalent to nearly 30% of gas imports in 2023.

Tunisia’s current account deficit has also shown improvement, benefiting from factors like lower energy import costs, higher olive oil prices, and a recovery in tourism.

The trade deficit fell by 3.4% during the first nine months of 2024, now representing 7.8% of GDP compared to 8.8% in 2023.

Inflation dropped to 6.7% in September 2024, marking its lowest point since January 2022, while food inflation remains stable at 9.2%.

In financing, Tunisia is increasingly reliant on domestic borrowing, with public domestic debt rising from 29.7% in 2019 to 51.7% in August 2024.

This shift, while necessary, poses challenges by diverting bank lending away from the broader economy, raising risks for currency stability and inflation.

The second part of the report delves into Tunisia’s fiscal system, advocating for a fairer tax balance between labor and capital to promote equity.

High social security contributions, even for lower-income earners, drive informality and limit employment and wage growth.

Greater transparency in the tax system is recommended to enhance accountability and fairness.

Recent measures such as a property tax and higher fuel taxes are positive steps, but further tax restructuring, including an enhanced carbon tax, is advised for long-term stability.

“Despite ongoing challenges, Tunisia’s economy remains resilient, with new opportunities emerging,” said Alexandre Arrobbio, World Bank Country Manager for Tunisia.

He affirmed the Bank’s commitment to supporting Tunisia’s economic transformation, particularly in fostering growth and expanding the private sector.