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Tunisia: when public sector payroll inflates, investments fall

The increase in the wage bill and the excessive recruitments that were made in the public service in the years after the Revolution pose problems and deepen the economic crisis in the country.

The increase in the budget allocated to public service salaries and expenditures was made to the detriment of public investments, which could not be properly achieved for these and other reasons.

These are the main findings of the latest economic paper published by the stock exchange broker MAC SA entitled “Innovative mechanisms for financing productive public investment for more economic growth in Tunisia.”

It shows that there is a need to increase productive public investment to increase growth and jobs.

The weakness of the public authorities’ room for maneuver to finance these investments does not mean that other sources of funding should not be sought.

The innovative financing mechanism is easier to justify to the population than direct taxes.

Global experience shows that the five innovative mechanisms have contributed in large part to the financing of productive public investments.

Thus, it is important for Tunisia to take advantage of these experiences to leverage additional budgetary resources that will be devoted to financing productive sectors such as education, health, renewable energy and infrastructure.

These mechanisms deserve further reflection in order to put them in a project framework based on national solidarity.

Indeed, Tunisia is going through a difficult period. Tax revenues do not keep pace with rising public spending.

This situation led to more deficit and more debt. In addition, an overwhelming share of public spending is irrepressible and devoted to paying civil servants’ salaries and external and domestic debts, leaving the government with relatively limited leeway to finance productive public investments that would help promote the growth of the private sector and create jobs.

This explosion in the wage bill is mainly due to two factors: The first is in relation with the increase in recruitments since 2011 which aimed to absorb the discontent of the unemployed.

The number of civil servants increased from 445 thousand to 604 thousand between 2011 and 2015, i.e. an increase of 35.79%.

The second relates to the rise in nominal wages to compensate for the loss of purchasing power following the rise in inflation. The average monthly gross salary increased from 1,127.5 TD in 2011 to 1,388.9 TD in 2015, an increase of 23.18%.

In addition, the share of capital expenditure in the state budget continues to decline. It went down from 24.06% in 2010 to around 15.65% in 2018.

The 2019 budget provides for a share of 14.76%. This downward trend limits the creation of wealth. In contrast, non-productive expenditures increase. The share of expenditure on the wage bill of civil servants in the state budget has increased from 37.94% in 2010 to 39.33% in 2018 and the budget projects a ratio of 40.54% in 2019.

Theoretical and empirical studies show that productive public investment, especially in infrastructure, education, renewable energy and health, increases public capital and promotes economic growth.

The elasticity of GDP relative to public investment is estimated between 0.08 and 0.17 depending on the country.

In Tunisia, the low level of these investments partly explains the decline in the economic growth rate.

Indeed, the resources allocated to these investments through state budgets are increasingly limited following the increase of the wage bill and the payment of the debt on the one hand and the difficulty to fight against tax evasion and to improve recovery, on the other hand.

In this context, it is important to design a policy that can leverage additional fiscal resources to drive growth through productive public investment through the introduction of innovative financing mechanisms.


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