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AfDB’s scenarios for economic growth of Tunisia

The Revolution presents great potentials for Tunisia and its long term fruit may well be significant in terms of economic growth and social equity and cohesion. 

The political situation remains fragile. This is the main conclusion of a Brief on Economic Outlook developed by the African Development Bank (AfDB) on the new political and economic reality created by the Revolution of January 14. 

AfDB experts find that the government is facing short-term emergency situation immediately caused by a narrowing of the margin of financial freedom and growing social requirements, while problems related to unemployment of youth, regional disparities and economic exclusion cannot remain unresolved. 

The authorities said that during the recent disturbances a loss of 5 to 8 billion dinars (about 4% of GDP) was recorded, with tourism revenues strongly affected, major Investment suspended and thousands of jobs lost. 

Three scenarios were developed by the Bank, and in all of them it is estimated that the growth of GDP is affected by a decline in demand for tourism services, disruption of economic activity and reduction of foreign direct investment. 

The average scenario suggests a GDP growth of 1.1% in 2011, followed by a slight economic recovery to 3.3% in 2012. Private investment will contract, while current public spending, including wages and salaries, will rise significantly due to increasing social demands. 

The financial deficit will amounts to 5.2% of GDP in 2011. The current deficit will increase to 7.6% of GDP, under the effect of increased imports and a decline in tourism revenues.
Similarly, inflation could grow to stand at least 4.7%. 

The growth rate of GDP could post an increase, standing a 3.6% in 2011, followed by a rapid recovery to 4.2% in 2012, in case of rapid normalization of the economy and revival of the tourism sector, supported by solid external funding and foreign direct investment and a well-targeted financial recovery plan.
The fiscal deficit will remain limited at 3.9% of the GDP, but the current account deficit will reach 6.1% of the GDP, due to the increase in the trade balance deficit – Export of manufactured goods sparking a rise in imports, and a decline in tourism revenues. Inflation will be controlled to 4.2 %, though high level of international prices of food and oil put pressure on the trade balance and the current account. 

However, if political and social instability is prolonged, the economy could shrink by 2.5% in 2011. The public and private investment will contract, while a massive recruitment and 
wage increase in the public sector will have a negative impact on the financial deficit, which  could reach 6% of GDP. 

The government will try, In this case, to respond only to social demands, to the detriment of a balanced budget, the current payment balance and the fight against inflationary pressures. 
The current deficit will increase to 8.9%, due to the significant loss recorded in tourism revenues and increased imports prompted by increased consumption and lower 
exports. Inflation could reach at least 6.4 %, under the effect of salary increase, depreciation, and high international food and oil prices which would impact on the country despite the high level of subsidies.

Under the low case scenario, a slow positive growth of 2.4% is expected in 2012. 

Cautious Optimism 

The first two months following the departure of Ben Ali call for cautions optimism, and longer term benefits of the revolution could be more important, in terms of economic growth, equity and social cohesion,” AfDB believed.

If the strategy applied during the first months of the revolution continues and leads to free and orderly elections, the economic growth potential of Tunisia is likely to gain significantly as the drag of predatory corruption is lifted and a socio-political environment more conducive to individual liberty and private economic enterprises takes hold. 

Nevertheless, serious challenges remain in the months ahead before the full potential presented by the Tunisian Revolution can be realized.

Besides, the political and security-related challenges that need to be navigated as the country moves towards parliamentary and presidential elections, the real economy and fiscal balances will be under pressure as a result of the drop in economic activity that surrounded and followed in the wake of the Revolution.
Moreover, the underlying social discontentment that drove the Tunisian Revolution—notably youth unemployment, particularly among young graduates, and regional disenfranchisement—remain.
There is thus little doubt that political stability and social peace—indeed, the very credibility of the interim government—hinges critically on early and decisive progress on these fronts. Concerted and significant early support from external development partners such as the AfDB, the World Bank, the EU and others constitutes a critically important element in bridging Tunisia’s short term challenges to the longer term opportunities, concludes the AfDB Brief.


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