Tunisia’s economic freedom score is 58.9, making its economy the 95th freest in the 2010 Index, according to The Wall Street Journal and The Heritage Foundation Economic freedom Index. Its score is one point higher than last year, reflecting improved scores in half of the 10 economic freedoms. Tunisia is ranked 12th out of 17 countries in the Middle East/North Africa region, and its overall score is just below the world average.
Tunisia has pursued structural reforms to maintain a prudent macroeconomic framework, liberalize domestic prices and controls, and reduce the public sector’s role in economic activity. Regulation is more efficient and streamlined. Property rights are largely respected even though the executive branch is the supreme arbiter. Tunisia has been able to keep its fiscal deficits relatively low.
Despite these reforms, however, a number of institutional challenges remain to be addressed. Tunisia scores low in trade freedom and investment freedom. Excessively high tariffs, import restrictions, and licensing requirements limit trade freedom. Protectionist investment policies and cumbersome bureaucracy stifle a more stable inflow of foreign investment. The financial sector and judiciary are subject to political influence, and corruption remains significant.
Here are freedoms as rated in the index:
Business Freedom 80.2
The overall freedom to start, operate, and close a business is relatively well protected under Tunisia’s regulatory environment. Starting a business takes 11 days, compared to the world average of 35 days. Obtaining a business license takes much less than the world average of 218 days, but costs are fairly high. Bankruptcy proceedings are easy and straightforward.
Trade Freedom 53.5
Tunisia’s weighted average tariff rate was 18.3 percent in 2006. Import restrictions, some prohibitively high tariffs, import taxes and fees, import licensing requirements, export-promotion programs, and inconsistent customs administration add to the cost of trade. Ten points were deducted from Tunisia’s trade freedom score to account for non-tariff barriers.
Fiscal Freedom 74.4
Tunisia has a relatively high income tax and a moderate corporate tax. The top income tax rate is 35 percent, and the top corporate tax rate is 30 percent. A special tax scheme applies to financial institutions and the hydrocarbons sector. Other taxes include a value-added tax (VAT), a property transfer tax, an inheritance tax, and a vehicle tax. In the most recent year, overall tax revenue as a percentage of GDP was 20.9 percent.
Government Spending 78.5
Total government expenditures, including consumption and transfer payments, are relatively low. In the most recent year, government spending equaled 26.8 percent of GDP. The state-owned mobile and fixed-line telephone enterprise is slated for sale to a French telecommunications company.
Monetary Freedom 76.5
Inflation has been moderate, averaging 4.5 percent between 2006 and 2008. The government can set prices for subsidized goods and influences prices through regulation, subsidies, and state-owned utilities and enterprises. Ten points were deducted from Tunisia’s monetary freedom score to account for policies that distort domestic prices.
Investment Freedom 35.0
Tunisia restricts foreign investment in some sectors to minimize the impact on domestic competitors. Foreign investment is screened. Investments in non-tourism onshore companies with a capital share larger than 49 percent require government authorization. In general, domestic trading can be carried out only by a company in which the majority of the share capital is held by Tunisians and management is Tunisian. Residents and non-residents may hold foreign exchange accounts, subject to restrictions and approval. There are some restrictions on capital transactions, payments, and transfers. Foreigners may not own agricultural land.
Financial Freedom 30.0
Financial supervision and regulation have been brought up to international standards, but the financial sector remains underdeveloped. The government maintains control of the three largest banks. Despite some recent progress in reducing non-performing loans, they still account for over 15 percent of total loans. Five banks control around 70 percent of deposits. Over the past five years, the government has made progress in privatizing and consolidating a number of banks, but it remains the controlling shareholder in half of Tunisia’s 20 banks. State-mandated lending and the legal difficulty of settling with debtors have hurt financial development. Capital markets are small and dominated by government securities. The stock exchange, which has been managed by the government-run Financial Market Council, has become more active with increased foreign participation and about 50 firms listed.
Property Rights 50.0
The executive branch is the supreme arbiter of events in the cabinet, government, judiciary, and military. Commercial cases take a long time to resolve, and legal procedures are complex. Tunisia’s intellectual property rights law is designed to meet the WTO’s Trade-Related Aspects of Intellectual Property Rights (TRIPS) minimum standards. Customs agents do not investigate copyright violations without a complaint by the copyright holder.
Freedom from Corruption 44.0
Tunisia ranks 62nd out of 179 countries in Transparency International’s Corruption Perceptions Index for 2008. Corruption is less pervasive than in neighboring countries.
Labor Freedom 67.4
Tunisia’s labor regulations are relatively rigid. The non-salary cost of employing a worker is high, and dismissing an employee is difficult.
Source: Heritage Foundation