Tunisia: Concern over worsening dual deficits and their funding problems

The effects of the Russian-Ukrainian crisis will have a severe impact on the Tunisian economy and worsen the imbalances of the country’s large economic scales. In addition to the impact of imported inflation, especially as citizens see their purchasing power eroding, the Tunisian government faces the alarming severity of these economic indicators.

The effects of rising prices on energy and agricultural products will exacerbate the budget deficit provided by the current budget law. According to Marouane el Abassi, governor of the Central Bank of Tunisia (BCT), the budget deficit is projected to be 9.7% of GDP by 2022, up from 6.7% projected by current fiscal law.

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This deterioration is explained by the rising prices of agriculture, food and energy products. As such, the price of a barrel of oil is currently trading at $ 112, up from $ 130 last March ($ 128 on March 8), when the fiscal law was established on the basis of $ 75. Also, since the beginning of the year, the price of a barrel has never fallen below $ 75. This gap between prevention and real prices exacerbates the budget deficit. Similarly, the rise in subsidized grain prices, especially wheat, led to a significant increase in the compensation bill.

To make matters worse, the value of the dollar rises sharply, increasing the cost of energy imports. “A one-dollar increase in oil prices will lead to an increase of 137 million Tunir dinars (MDT) in compensation costs. Similarly, a $ 10 increase in grain prices would add an additional 88 million Tunis dinars to the compensation fund,” the governor said.

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At the same time, the current account deficit is expected to increase to 10% of GDP in 2022, up from 6.8% and only 6.1% in 2021. The trade deficit will worsen this year as the health crisis erupts in 2020 and oil and agricultural commodity prices rise. For example, Tunisia bought 125,000 tons of wheat last March at an average price of $ 500.64 a tonne, while its price traded at half the same level last year.

As a result, the country expects the trade deficit to widen significantly under the combined effect of the trade deficit, which could worsen, while tourism has not really managed to regain its momentum due to the epidemic and the Ukrainian crisis. Reduce tourist arrivals in Russia and Ukraine.

As a result, the funding for this deficit is very serious. This, especially the Tunisian International Monetary Fund (IMF) could not find a common reason for opening up a huge debt of $ 4 billion. Tunisia will have to carry out structural reforms before any agreement with Bretton Woods at this time.

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However, the Tunisian leaders want the reforms demanded by the company to be very unpopular (reducing public service, freezing recruitment and salaries, phasing out subsidies for basic needs, privatization, etc.) before any deal. Requirements that the powerful Tunisian General Workers Union (UGTT) does not want to recognize. Moreover, it said it did not have the conversation recommended by the president and was one of the rare organizations invited to the table. That is, the agreement with the IMF is not guaranteed to be essential for borrowing and therefore to exit the international credit market very easily.

However, time is not on Tunisia’s side. Moreover, as the rating agencies have downgraded it, the country finds it difficult to borrow in the international capital market. It is therefore the wish of the Governor of BCT that an agreement be reached with the IMF as soon as possible. According to Abbas, the IMF says borrowing is “essential” to deal with a swollen budget deficit and debt.

>>> Read more: Morgan Stanley also argues that after the rating agencies, Tunisia is heading towards default.

Already, by the end of 2021, debt has reached 100 billion Tunisian dinars, or 30 billion euros, more than the stability limit set by financial institutions at 70%. The situation was exacerbated by the unsustainable credit service to Tunisian public funds. This means that deficit funding is a real thorn in the side of President Gaius Syed, who alienated everyone.