Fitch Ratings, the international rating agency, expects Tunisia’s budget deficit to narrow to 5.8% of GDP in 2023, down from 6.9% in 2022, thanks to a rationalization of wage spending, tax reform measures and an improvement in government resources.
In a recent note, the rating agency highlights that in the first half of 2023, Tunisia posted a budget surplus of TND 58.8 million (around 0.4% of GDP) in 1H23, influenced by lower-than-expected spending, which reached only 38% of the full-year budgeted level. Subsidies and transfers expenditure in 1H23 were only 27% of the budgeted annual amount.
Fitch expects energy and food subsidy costs to fall to around 6% of GDP in 2023 from 8% last year, supported by lower international prices and domestic fuel and electricity price adjustments in 2022.
However, Fitch Ratings warns that the budget surplus should not be considered stable as “some costs related to subsidies and transfers over the period have not yet been captured in the budget figures”.
The rating agency also highlights that the agreement reached with the Tunisian General Workers’ Union (UGTT) in August 2022 to control the growth of the wage bill remains in place, allowing the government to keep wage spending in line with the budget in 1H23. The agreement is factored into Fitch’s forecast that the budget deficit will fall to 5.8% in 2023 from 6.9% in 2022.
It is worth noting that the state budget recorded a surplus of 58.8 million dinars in 1H2023, compared to a deficit of 687 million dinars in the same period of 2022, according to the document ‘Provisional Results of the State Budget Execution’ recently published by the Ministry of Finance.
This improvement is attributed to a 6.6% increase in budgetary resources, which will reach TND 20.58 billion by the end of June 2023, mainly due to an increase in tax revenues (8.3%) compared to a near-stabilization of wage expenditure (2.8%).
Tunisia’s external debt fell from TND 5607.7 million at the end of June 2022 to TND 2710.3 million in the first half of 2023, the first such decline since 2011.
In the same vein, the Ministry of Finance reported a decline in domestic debt, demonstrating that the Tunisian government has managed to avoid a heavy reliance on debt, which has worsened over the past decade, bringing public debt to TND 119.8 billion, of which TND 57.1 billion is external debt.