- A new review of Tunisia's economy reveals a solid and sustainable economic growth in the North African country, which is expected to continue in 2008 and '09. Tunis authorities seem set to be able to maintain the purchasing power of Tunisians through subsidies on food and fuel products as these are hiking on international markets.
An International Monetary Fund (IMF) mission headed by Abdelhak Senhadji visited Tunis during the last week to conduct an annual review of the economic policies of the country. Their conclusion of Tunisia's economic situation was surprisingly good, despite the many challenges facing the country as food and petroleum prices are hiking. Tunisia is a large importer of both products, and authorities are subsidising prices to avoid social disruptions.
"Good economic management and social policy are continuing to yield results, as evidenced by accelerated growth and improved social indicators, and a stable macroeconomic position," said Mr Senhadji after having consulted with authorities and analysed statistical data presented by government agencies.
Tunisia recorded an excellent economic performance in 2007, these data revealed. Growth in real GDP accelerated to 6.3 percent, contributing to lower unemployment. Authorities and the Fund agree that growth will continue this year and next year. The IMF expects Tunisia's economy to grow by 5.5 percent in 2008 and by 5.9 percent in 2009. This is enough to foresee further reduction in unemployment - the greatest threat to political stability in the region.
The Tunisian Central Bank's prudent monetary policy contributed to reducing inflation to 3.1 percent. However, inflation recently picked up again, "primarily on account of new increases in world prices for food and petroleum products," according to the IMF. The current account deficit, while remaining sustainable, deteriorated from 2 percent of GDP in 2006 to 2.6 percent in 2007, largely on account of declining terms of trade. The current account deficit has nonetheless been comfortably financed by foreign direct investment.
"The challenging international environment is expected to slow down economic activity to some extent but the outlook remains encouraging," Mr Senhadji advised. "Real GDP growth in 2008 is expected to remain relatively strong and inflation should be around 5 percent," he added.
The Fund warned that rising world prices of food and petroleum products "will bring about a significant increase in subsidies." In Tunisia's case, however, the IMF does not advise strongly against such subsidies. The country can afford them, and "the fiscal deficit should be kept within the budget limit of 3 percent."
Also the medium-term outlook of Tunisia's were said to remain favourable, with ongoing mega-projects expected to support growth. "The major challenge at present is to limit the impact on inflation and growth from rising world prices of food and petroleum products and global financial turbulence in order to further reduce the unemployment rate which is still relatively high, particularly among young graduates," the IMF held.
Authorities are faced with a delicate trade-off between the need to maintain the purchasing power of Tunisians in the face of rising international prices of food and petroleum products while preserving fiscal sustainability over the medium to long term. "Given the very rapid increase in direct and indirect subsidies related to these products [which the authorities currently estimate at 7.1 percent of GDP] and the strong likelihood that the current high world prices will persist, the ongoing reform of the subsidy system to improve its targeting should be continued in conjunction with the implementation of the energy conservation policy," Mr Senhadji said.
Economic growth, social welfare and a sustainable level of unemployment have been the key elements of the authoritarian Tunisian regime to maintain stability and peace in the country for decades. Tunisia has avoided the political and terrorist crises that have hit other North African nations, much due to these prudent polices. However, the price has been high for Tunisians, who are denied any political rights.
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