Tunisia’s growth forecast subject to significant downside risks, without decisive fiscal reforms (World Bank)

Tunis: Tunisia's growth forecasts for 2024-2026 are subject to significant downside risks. These forecasts would be even lower if the country does not implement "decisive" fiscal and "procompetition' reforms and/or if available financing is insufficient to cover its external needs, said the World Bank (WB). Growth is expected to reach 2.4% in 2024 and 2.3% in 2025-2026, assuming a moderation of the ongoing drought and slightly more benign financing conditions, the World Bank said in a report. If these reforms do not materialise, it could be difficult to secure enough foreign exchange for the economy, the bank said. This could lead to pressure on exchange rates and prices, with negative effects on economic activity and employment. In addition, if the drought persists, projections could be revised downwards, given the negative impact on agriculture and the trade balance. With regard to Tunisia's public finances and external balance, 'they will remain fragile in the absence of sufficient external financing', notes the international financial institution, adding that 'the fiscal deficit is expected to narrow somewhat, reaching 6.1% of GDP in 2024'. According to the bank, this is mainly due to a decline in subsidies and the wage bill in real terms, as well as a moderate increase in tax revenues. As for the current account deficit, 'it should remain stable at 2.4% of GDP in 2024, with continued growth in travel exports and stable terms of trade'. Foreign borrowing should continue to finance the current account deficit, with stable foreign direct investment and very low portfolio investment. For the World Bank, financing the deficits will require a significant increase in external financing, given the 'heavy' external debt reimbursement schedule. Limited access to foreign capital markets Despite the reduction in deficits, gross financing needs are expected to increase further, at 16.1 percent of GDP in 2024 (from 13.8 percent in 2023) due to significant external debt service. In fact, almost Two thirds of the f inancing is expected to be amortization. 'This also increases Tunisia's dependence on external sources of financing, which are expected to account for about 57 per cent of total financing,' the report said. With FDI stable and portfolio investment minimal, government borrowing is expected to continue to cover external financing needs", while "Tunisia still has limited ability to tap into foreign capital markets.' If the pace of reform and the level of financing are adequate, the WB predicts sustained growth in the medium term and some stabilisation of macroeconomic and fiscal imbalances. However, these medium-term prospects are conditional on the continuation of an ambitious pace of reform, sufficient financing and stable international energy prices, especially oil. Source: Agence Tunis Afrique Presse