Tunisia

Growth in Tunisia is expected to improve but remain low at +1.6% in 2024, and +1.5% in 2025, given the easing cycle throughout major central banks and an improved agriculture output compared to the previous years. Inflation is expected to slightly decrease from 7% in 2024 but will remain elevated at 6.7% in 2025. However, inflation risks are on the rise, given the Government’s recent bill that diminishes the independence of the Central Bank of Tunisia (BCT), while financing needs remain elevated, given upcoming Eurobond maturities.

Debt sustainability remains among the top concerns in Tunisia. Debt service equaled 9.1% of GDP in 2024 and is projected to continue increasing by 0.3pp in 2025 and forecasted to reach 10.3% of GDP in 2028. Debt service is projected to equal USD9.5bn between 2025 and 2026 with an increasing servicing cost as the yields of both Eurobonds maturing in the short- (USD1.2bn maturing in January 2025) and mid-term (USD760m in July 2026) have seen a sharp increase.  Considering Tunisia’s latest withdrawal of USD850mn of foreign reserves from the central bank in February 2024 to repay a maturing Eurobond, we can expect similar monetary engineering in the next repayment. International reserves have since increased again above USD8.6bn. As Tunisia will most likely meet its short-term repayment requirements, it will be deteriorating long-term output by increasing the cost of financing for both businesses and the government. This in turn will increase the chances of an imminent currency devaluation, while continuing to reduce investors’ appetite for the Northern African economy.

Presidential elections in October 2024 extended President Kais Saied hold of power after a crackdown on the opposition and a doubtful electoral process, according to different right groups. Turnout of the election was at 30%, but more than 2.4mn supporters remain organized to sustain his support. Saied, who took control in 2019 after years of instability following the Arab Spring, has transformed the constitutional setup, taking central stage of all the country’s decision and policy making. While the Tunisian General Labor Union (UGTT) remains an important organized block within Tunisia, with over 1mn affiliates, it has had mix results opposing the government and pushing for its priorities. In April 2024, the UGT called for a national strike that was partially followed. It is expected that the UGTT will continue to pressure the government for higher wages and pro-labor reforms, but its influence is in decline.

Saied has put at the core of his Presidency his populistic message on independence from foreign powers, hence the refusal to accept funds from the IMF or the EU with strings attached. This message closely aligns with the stance of the Algerian regime, with whom Saied has strengthened ties. Several of the economic policies enacted since he took office have pushed the economy to reduce imports, with import-substitution-like policies. The results have been mixed: domestic production has increased in agricultural products such as grains and vegetable oils, but non-agriculture or higher value products have not seen a significant positive impact, due to the increase on tariffs to products necessary to produce higher-end products.

The current administration has emphasized economic policies aimed at increasing self-sufficiency and reducing reliance on foreign imports. This includes measures to boost domestic production, particularly in agricultural sectors such as grains and vegetable oils. While there have been positive outcomes in these areas, the impact on non-agricultural and higher value-added products has been limited, partly due to increased tariffs on essential production inputs. The administration has also focused on promoting renewable energy initiatives, which could benefit from enhanced foreign investment and reforms in the electricity market. These efforts are part of a broader strategy to improve the country's economic resilience and reduce external vulnerabilities.