Tunisia’s economy is struggling with high public debt, unemployment, and inflation as it faces a financial crisis without an IMF deal. The government’s reactive measures, outlined in the 2025 Finance Law, focus on regressive taxes and domestic borrowing. However, these strategies risk further economic decline and social unrest, indicating a failure to address underlying systemic weaknesses.
Tunisia faces significant economic challenges, burdened by sluggish growth, rising public debt at 80% of GDP, high youth unemployment, and persistent inflation. The government’s short-term relief strategies have failed to address deeper issues within tax collection, competitiveness, and public sector efficiency. Without an International Monetary Fund (IMF) agreement, the nation remains isolated from affordable financing, resulting in a 2025 budget that serves as both a survival guide and a high-risk gamble.
Since the 2011 revolution, Tunisia’s economic situation has deteriorated, transitioning from an admired Arab Spring success to a victim of corruption, inefficient state monopolies, and a tax system that collects less than 15% of GDP. Past government decisions to expand public sector employment to placate social unrest have created an unsustainable wage structure, with public employees consuming nearly half of state revenues. The economy has been negatively impacted by global disruptions, including a decline in tourism due to COVID-19, decreasing remittances from abroad, and increased import costs spurred by global conflicts.
Government responses have reverted to reactive measures that yield diminishing benefits. Import restrictions expanded from luxury goods to crucial items, such as dairy, inadvertently establishing a black market with prices soaring far above official rates. Furthermore, the central bank’s methods of financing government deficits have exacerbated inflation while overlooking the deeper issues hampering the private sector and the education system, leaving graduates unprepared for the job market.
Tunisia’s isolation from global debt markets compounds this crisis, especially after stalled IMF negotiations. President Kais Saied’s rejection of austerity measures linked to IMF assistance, fears of provoking unrest reminiscent of 2013 upheavals, and insufficient alternatives from Algeria, Libya, and the EU for aid highlight the precarious situation. With bond yields exceeding 18% and insufficient foreign reserves, the assumptions for growth in the 2025 budget seem disconnected from reality, suggesting dangerous reliance on external factors for financial solvency.
The new 2025 Finance Law reveals a government strategy characterized by regressive taxation and aggressive domestic borrowing, including levies on digital services and increased bank transaction taxes. While these measures aim to generate significant revenue, they pose risks of crowding out private credit crucial for small enterprises. This strategy relies heavily on central bank financing, which could destabilize currency value amid a backdrop of rampant food inflation already affecting low-income households disproportionately.
The Finance Law’s design serves dual purposes: it addresses economic policy while also functioning as a tool of political control. By sidestepping necessary reforms, the government aims to prevent unrest. However, new taxes impact salaried workers and the youth, potentially alienating the middle class and leaving a substantial informal economy largely unaffected. The ongoing prosecution of opposition figures for economic critique signifies a troubling trend in response to dissent.
The law’s success largely depends on unrealistic assumptions regarding tax compliance and the central bank’s ability to manage monetary policy without leading to hyperinflation. High rates of tax evasion paired with dwindling foreign reserves further threaten fiscal stability, with public debt levels expected to increase significantly.
In conclusion, the 2025 Finance Law may serve as a temporary measure to address Tunisia’s immediate financial difficulties but fails to provide a solid economic foundation for future stability. Its focus on maintaining regime power over actual economic reform highlights a short-sighted approach that is likely to exacerbate economic decline in the face of inevitable external shocks, ultimately diminishing the government’s ability to address public grievances effectively.
The 2025 Finance Law illustrates Tunisia’s precarious economic landscape, emphasizing a mixture of regressive taxation and reliance on domestic borrowing without addressing deeper systemic issues. These measures, while intended to stabilize immediate fiscal challenges, risk reinforcing unsustainable practices and ignoring necessary reforms. Consequently, the absence of substantial progress in governance and economic restructuring leaves Tunisia vulnerable to further crises, particularly in an international context characterized by instability and competing priorities.
Original Source: www.arabnews.com
