External debt: Tunisia has highest rate in North Africa in 2020

Tunisia’s external debt accounted for 97.2% of GDP in 2020, the highest rate in North Africa, according to the estimates of the 4th edition of the report “North African Economic Outlook 2021 / Debt Dynamics: the path to recovery Post-COVID”, published by the African Development Bank (AfDB).

The report presented at a webinar held Wednesday highlights that Tunisia remains more vulnerable to exogenous shocks than other North African countries due to its heavy dependence on external debt, which increased by 42.4 points between 2012 and 2020.

As for public debt, the bank warns that it will become “unsustainable” if Tunisia does not undertake solid and credible reforms with broad domestic support.

Gross public debt could reach nearly 100% of GDP

In the absence of a credible framework of reforms, the gross public debt should reach nearly 100% of GDP in the medium term, the same source estimates. It added that the risks related to debt sustainability are aggravated by financing risks, the overvaluation of the real effective exchange rate and contingent liabilities (government liabilities that become due) and guarantees of public enterprises.

According to the report, gross public financing needs would remain in a high range of 14 to 18 percent of GDP on an annual basis. Public debt, 70 percent of which is external, has exceeded 80 percent of GPD in 2020, continuing the rapid upward trend that began in 2011, added the report.
Debt service costs absorb 28% of the budget, which limits other development spending, the same source said.

As for state enterprises, their financial difficulties are another concern, said the African financial institution, noting that their debt represented 13% of GDP, in 2019.
AfDB said these enterprises, which benefit from “significant guarantees not yet cleared,” represent significant budgetary and financial risks, adding that 30% of them show a stock of debts of nearly 40% of GDP, of which 20% are due to banks and suppliers and the rest to social security funds, other state enterprises and the government.

“As of mid-2020, these state enterprises have received government guarantees estimated at 15% of GDP. If the debt of state-owned enterprises is added to that of the central government, the total public debt would be well over 100% of GDP,” the same source noted.

To improve public debt management and strengthen domestic resource mobilisation, Audrey Verdier-Chouchane, regional economist for North Africa, emphasised the need to put in place mechanisms and institutions to balance the benefits and costs of additional debt.

She also called for better debt transparency and careful monitoring of contingent liabilities, emphasising the need to restructure state-owned enterprises and to use debt effectively to finance productive investments.