TUNISIA ECONOMIC MONITOR Renewed energy to the economy Spring 2024 Tunisia Economic Monitor Renewed Energy to the Economy Spring 2024 Middle East and North Africa Region © 2024 International Bank for Reconstruction and Development / The World Bank 1818 H Street NW Washington DC 20433 Telephone: 202-473-1000 Internet: www.worldbank.org This work is a product of the staff of The World Bank with external contributions. The findings, interpretations, and conclu- sions expressed in this work do not necessarily reflect the views of The World Bank, its Board of Executive Directors, or the governments they represent. The World Bank does not guarantee the accuracy, completeness, or currency of the data included in this work and does not assume responsibility for any errors, omissions, or discrepancies in the information, or liability with respect to the use of or fail- ure to use the information, methods, processes, or conclusions set forth. 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TABLE OF CONTENTS Acknowledgements . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . v List of Acronyms . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .vii Executive Summary . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . ix Résumé Analytique . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . xiii ‫ موجز تنفيذي‬. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . xvii Part A: Recent Economic Developments . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1 1. Tunisia’s already modest economic recovery came to an abrupt halt in 2023 amidst a severe drought, uncertain financing conditions, and the slow pace of reform . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .1 2. The growth slowdown amplifies the challenges Tunisia faces in covering its significant external financing needs despite the improvement in the external balance . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3 3. Tunisia’s increasing reliance on domestic sources to fill the external financing gap raises concerns on the stability of the Dinar and of prices . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .5 4. The rising role of domestic financing of the public debt heightens the pressure on the domestic banking system . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6 5. Shortages of basic products persist amidst import compression and declining agricultural production . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8 6. Inflation moderated from the record levels of early 2023 but it remains elevated, particularly for food . . .9 7. The budget continues to be under pressure as the low growth affects tax revenues . . . . . . . . . . . . . . . . .11 8. We expect a moderate growth rebound in 2024–25 assuming drought conditions ease, but economic prospects remain uncertain . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11 Part B: Accelerating the Power Transition to Renewable Energy . . . . . . . . . . . . . . . . . . . . . . . . 15 Summary . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15 List of Figures Figure 1 Tunisia’s Elusive Economic Recovery . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2 Figure 2 Tunisia’ Economic Recovery has Been Slow . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2 Figure 3 Value Added in the Agricultural Sector Fell Sharply in 2023 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3 Figure 4 Agriculture Drove the Slow-Down in Growth in 2023 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .3 Figure 5 Labor Participation Down, Unemployment Up . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3 iii Figure 6 Tunisia Experienced Net Job Losses in 2023, Particularly among Women . . . . . . . . . . . . . . . . . . . .3 Figure 7 Mechanic Industries Led the Moderation of the Merchandise Trade Deficit in 2023 . . . . . . . . . . . .4 Figure 8 The Main Tunisian Exports Benefited from Price Hikes in 2023 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4 Figure 9 The Trade Deficit Along with Tourism Receipts Helped Reduce the Current Account Deficit . . . . 5 Figure 10 With Weak FDI and Portfolio Flows, Tunisia Relied on Sovereign Borrowing to Cover its  External Needs . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5 Figure 11 Rising Reserves, Stable Dinar . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .7 Figure 12 The Large Potential for Reserve Losses in 2024 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7 Figure 13 The Rapid Decline of Private Capital Markets in Tunisia’s Debt Financing . . . . . . . . . . . . . . . . . . . . . . .8 Figure 14 Tunisia Increasingly Relies on Domestic Financing of the Debt . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8 Figure 15 The Share of Net Government Receivables in Total Credits Continues to Increase as Credit Growth Falters . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8 Figure 16 Hard Wheat Imports Did Not Increase Sufficiently to Compensate the Drop in Domestic Production . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9 Figure 17 Inflation Started to Decline in 2023 but it Remains High . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10 Figure 18 Profits are Driving the Recent Inflation Hike . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10 Figure 19 Tax Revenues Under-Performed in 2023 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12 Figure 20 A Tale of Two Expenditures: Subsidies Versus Capital Expenditures . . . . . . . . . . . . . . . . . . . . . . . . 12 Figure 21 Energy Account for an Increasingly Dominant Share of the Trade Deficit . . . . . . . . . . . . . . . . . . . . 16 Figure 22 The Cost Advantage of Renewables for Electricity Production . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 17 Figure 23 The Projected Growth of Renewable Energy in Installed Capacity… . . . . . . . . . . . . . . . . . . . . . . . . 19 Figure 24 … and in Power Generation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .19 Figure 25 The Transition to Renewable Energy is Projected to Yield Large Economic Gains . . . . . . . . . . . . 19 List of Boxes Box 1 The New Central Bank Financing Facility and its Possible Macro-Fiscal Risks . . . . . . . . . . . . . . . . . 6 Box 2 Tunisia CCDR Scenarios for the Electricity System Simulations . . . . . . . . . . . . . . . . . . . . . . . . . . . . 18 List of Tables Table 1 Key Macroeconomic Indicators, 2020–26 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13 iv TUNISIA ECONOMIC MONITOR – RENEWED ENERGY TO THE ECONOMY ACKNOWLEDGEMENTS T he Tunisia Economic Monitor (TEM) is a (Senior Operations Officer, Tunisia) and Fatma report that provides information on recent Marrakchi Charfi (Consultant, MTI), and — for part B economic developments and policies in Tuni- — Amira Klibi (Senior Energy Specialist, Energy) and sia, as well as the country’s economic outlook and Moez Cherif (Lead Energy Economist, Infrastructure). challenges to its development. The report is aimed The report was prepared under the direction of Jesko at a diverse audience, including policy makers, busi- Hentschel (Country Director, Maghreb), Eric Le Bor- ness leaders, financial market actors, and analysts gne (Practice Manager, MTI), Alexandre Arrobbio and professionals working on or in Tunisia. It is pro- (Resident Representative, Tunisia), and Abdoulaye Sy duced by the North Africa and Middle East depart- (Lead Economist, MTI), with administrative support ment of the World Bank Group’s Macroeconomics, from Jawhar Abidi (Consultant, MTI). Trade and Investment (MTI) global practice. The opinions and conclusions expressed in Each issue of the TEM contains a section on this report are those of the World Bank staff and do recent economic developments and a discussion not necessarily represent the views of members of the on the economic outlook, followed by a special sec- World Bank Board of Directors or the countries they tion based on the World Bank’s analysis of Tunisia. represent. The report was originally published in English with the For information on the World Bank and its title “Renewed energy to the economy” and was first activities in Tunisia, please visit: https://www.world- published in 2024. In case of any discrepancy, the bank.org/en/country/tunisia or https://www.albank- original English language version prevails. aldawli.org/ar/country/tunisia (Arabic). For questions The report is authored by a team led by or comments on the content of this publication, please Massimiliano Calì (Senior Economist, MTI) and contact Massimiliano Cali (mcali@worldbank.org) or Mohamed Habib Zitouna (Consultant, MTI). The Eric Le Borgne (eleborgne@worldbank.org). team also includes Riadh Ammari (Communications The deadline for input and forecast preparation Specialist, External Affairs), Asma Bouraoui Khouja is April 5th, 2024. v LIST OF ACRONYMS GDP Gross Domestic Product CPI Consumer Price Index CAD Current Account Deficit VAT Value-Added Tax FDI Foreign Direct Investment UGTT Union Générale Tunisienne du Travail SOEs State-Owned Enterprises OECD Organisation for Economic CCDR Climate Change Development Report Co-operation and Development US United States INS National Institute of Statistics OdC Office des Céréales Mtoe Million Tonnes of Oil Equivalent TD Tunisian Dinar MW Megawatt IMF International Monetary Fund GW Gigawatt CBT Central Bank of Tunisia TD/TOE Tunisian Dinar/Tonnes of Oil Equivalent STEG Société Tunisienne de L’électricité SDDP Stochastic Dual Dynamic Programming et du Gaz UNDP United Nations Development STIR Société tunisienne des industries de Programme raffinage BAU Business As Usual vii EXECUTIVE SUMMARY Tunisia’s already modest economic The growth slowdown amplifies the recovery came to an abrupt halt in challenges Tunisia faces in covering 2023 amidst a severe drought, tight its significant external financing financing conditions, and a modest needs despite an improving external pace of reform balance Tunisia’s already modest economic recovery almost Boosted by favorable changes in international prices, halted in 2023, amidst a severe drought, tight financ- Tunisia’s merchandise trade deficit improved in 2023, ing conditions and the modest pace of implementing declining to 10.8 percent of GDP from 17.5 percent in reforms. With this slowdown, the Tunisian economy in 2022. At the same time, the energy deficit widened 2023 was still below its pre-Covid level, marking one despite more favorable prices, continuing to account of the slowest recoveries in the Middle East and North for the bulk of the merchandise trade deficit. The African region. Agriculture was the main driver of the narrowing trade deficit along with the rebounding of 2023 economic slowdown, declining by 11 percent as tourism exports lowered the current account deficit the drought forced the government to introduce irriga- (CAD) in 2023. While the lower CAD eases the pres- tion restrictions. This highlights the urgency for Tuni- sure on external financing needs, these remain signif- sia to adapt to climate change. The weak domestic icant, especially due to the burdensome debt service. demand and the fiscal consolidation appear to have Tunisia continues to depend on sovereign lending to added to the drought-related losses, with the declines finance its external needs, as it cannot access interna- in construction and commerce sectors offsetting some tional capital markets, and Foreign Direct Investment of the gains from export markets, particularly tour- (FDI) and portfolio flows remain limited. These limited ism. The growth slowdown–especially in labor-inten- capital inflows are consistent with a high degree of sive sectors–translated into higher unemployment and controls on capital outflows, which the government is lower labor force participation. currently planning to revise. ix Tunisia’s increasing reliance on and weak domestic demand. Inflation is now lower domestic sources to fill the external than the nominal interest rate for the first time since financing gap may put pressure on July 2021. However, inflation is still high, particularly the Dinar, on prices, and on the for food, as the drought and import compression domestic banking system reduced the supply in domestic food markets. The recent government measures to contain food prices With declining external financing, the government has focused on hoarding behavior and enhancing price turned increasingly to monetary financing to cover controls but food inflation remains elevated. New anal- external needs, notably through the use of foreign ysis shows that most of the recent inflation episode is reserves from the Central Bank. While both the Dinar driven by rising profits and import prices, pointing to and foreign reserves have proven resilient so far, the the important role of competition and trade policy to continued use of monetary financing of the external fight inflation. needs could have adverse impacts on currency and price stability. The budget continues to be under The reimbursement of the latest Eurobonds pressure as the low growth affects consolidated the recent hike in Tunisia’s bond prices, tax revenues which reflects the perceived reduced risk of default on public external debt to private markets in the short The budget deficit was stable in 2023 (6.7 percent term. The drying up of external financing sources of GDP) following a more modest increase in tax rev- along with the rising public debt have resulted in the enues than expected, dragged by the slowdown in growing role of the domestic banking system (along economic growth, and the moderate increase of pub- with monetary policy) for debt financing. At the same lic expenditures. The latter was the product of rising time the sustained use of local funding to finance transfers and interest payment, moderated by rela- the public debt continues to crowd out credit to the tively contained wage bill growth and stalled capital economy. expenditures. Reversing the decline in public capi- tal expenditures by re-orienting less productive recur- Shortages of basic products persist rent expenditures continues to be key to revive eco- amidst import compression and nomic growth. declining agricultural production As external financing conditions remain tight, imports We expect a moderate growth continue to be compressed particularly for those rebound in 2024–25 assuming products imported by increasingly indebted state- drought conditions ease, but owned enterprises (SOEs). This import compression economic prospects remain along with the drop in domestic agriculture produc- uncertain tion translated into protracted shortages of some After the significant slowdown in 2023, we expect a basic products, such as flour, dairy products, sugar, moderate rebound of the economy with a 2.4 per- rice, and coffee. cent growth rate in 2024, and a 2.3 percent growth in 2025–26. These growth forecasts are subject to sig- Inflation moderated from the record nificant downside risks related to the external financ- levels of early 2023 but it remains ing conditions, the evolution of the drought and the elevated, particularly for food pace of fiscal and pro-competition reforms. Tunisia’s public finance and external account will remain pre- Inflation started to moderate since the peaks of carious in the absence of sufficient external financing. February 2023 on the back of lower global prices The financing of the deficits will require a significant x TUNISIA ECONOMIC MONITOR – RENEWED ENERGY TO THE ECONOMY scale-up of the external financing in the face of the In fact, Tunisia’s energy sector does not have heavy debt reimbursement schedule. If the pace of to depend on fossil fuels as the country has a rich reforms and the level of financing remain sufficient, untapped renewable energy potential. Renewable we project growth to be maintained over the medium energy could significantly reduce the cost of run along with some stabilization of the macro and fis- electricity production especially in the context of high cal imbalances. and volatile international energy prices. Exploiting Tunisia’s renewable energy potential is even more important in light of the ongoing development of the Accelerating the transition of the electric connection between Tunisia and Italy. The power sector to renewable energy recent World Bank’s Tunisia Climate Change and could help address Tunisia’s macro- Development Report (CCDR) shows that renewable fiscal challenges and boost the energy generation is projected to play a dominant role economy in power generation in Tunisia as it is the least cost As Tunisia’s macro-fiscal challenges deepen, the gov- energy source. The benefits of expanding renewable ernment’s target of generating 35 percent of energy energy production would extend to the whole of from renewable sources by 2030 becomes even more economy, with significant gains in terms of economic important. The country has grown more dependent on growth already by 2030. fossil fuel imports, which undermine the sustainability The CCDR estimates large investment needs of the current account. Eventually, if this dependence to enable this green energy transition (around were to continue, Tunisia’s current account deficit and US$ 27–35 billion by 2050). The bulk of these financing conditions may limit its ability to import the investments are expected to be covered by the energy it needs to meet its growing demand, thus sti- private sector given the significant cost advantage fling economic activity. This dependence on fossil of renewables over fossil fuel in Tunisia. However, an fuels weighs heavily also on the fiscal balance given adequate regulatory framework should be in place to the high costs of fossil energy generation. By increas- favor such investments. Strengthening the regulatory ing the demand for energy, global warming is exac- framework would also accelerate Tunisia’s ambitious erbating the challenges of energy dependence and renewable energy development program, which would undermining the security of energy supply. move the country closer to its 2030 renewable target. xi RÉSUMÉ EXÉCUTIF La reprise économique — déjà main-d’œuvre – s’est traduit par une hausse du chô- limitée — de la Tunisie s’est mage et une baisse du taux de participation au mar- fortement ralentie en 2023 dans un ché du travail. contexte de sécheresse sévère, de conditions de financement strictes et d’un rythme de réformes peu Le ralentissement de la croissance soutenu. amplifie les défis auxquels la Tunisie est confrontée pour couvrir ses La reprise économique — déjà limitée — de la Tuni- besoins de financement extérieur, sie s’est fortement ralentie en 2023, dans un contexte qui demeurent importants malgré de grave sécheresse, de conditions de financement une amélioration du solde de la strictes et de un avancement peu soutenu de la mise balance courante. en œuvre des réformes. Avec ce ralentissement, l’éco- nomie tunisienne en 2023 était encore en dessous du Stimulé par l’évolution favorable des prix internatio- son niveau d’avant Covid, marquant l’une des reprises naux, le déficit commercial de la Tunisie s’est amélioré les plus lentes de la région du Moyen-Orient et de en 2023, passant à 10,8 pour cent du PIB contre 17,5 l’Afrique du Nord. L’agriculture a été le principal frein pour cent en 2022. Alors que sur la même période, à la croissance économique en 2023, avec un déclin le déficit énergétique s’est creusé malgré des prix de 11 pour cent alors que la sécheresse a contraint plus favorables, continuant de représenter l’essentiel le gouvernement à introduire des restrictions à l’irri- du déficit commercial. L’amélioration du déficit com- gation. Ce contexte met en évidence l’urgence pour mercial ainsi que le rebond des exportations touris- la Tunisie de s’adapter au changement climatique. tiques ont réduit le déficit du compte courant (DCC) Par ailleurs, la faiblesse de la demande intérieure et en 2023. Même si la baisse du DCC atténue la pres- l’assainissement budgétaire, semblent avoir contri- sion sur les besoins de financement extérieur, ceux-ci bué à aggraver les pertes liées à la sécheresse. En restent importants, notamment en raison de l’impor- effet, le déclin des secteurs de la construction et du tance du service de la dette. La Tunisie continue de commerce semble avoir annulé une partie des gains dépendre des prêts souverains pour financer ses réalisés sur les marchés d’exportation, en particulier besoins extérieurs, car elle ne peut accéder aux dans le tourisme. Le ralentissement de la croissance marchés de capitaux internationaux sachant que les – en particulier dans les secteurs à forte intensité de investissements directs étrangers (IDE) et les flux de xiii portefeuille demeurent limités. Ces entrées limitées plus endettées. Cette compression des importations, de capitaux sont en cohérence avec le degré élevé conjuguée à la baisse de la production agricole natio- de contrôle des sorties de capitaux, que le gouverne- nale, s’est traduite par des pénuries prolongées de ment prévoit actuellement de réviser. certains produits de base, tels que la farine, les pro- duits laitiers, le sucre, le riz et le café. La dépendance croissante de la Tunisie à l’égard des sources de L’inflation s’est atténuée par rapport financement intérieures pour aux niveaux records du début combler le déficit de financement 2023, mais elle demeure élevée, extérieur pourrait exercer une en particulier dans le secteur pression sur la valeur du dinar, sur alimentaire. les prix et sur le système bancaire national. L’inflation a commencé à ralentir depuis les som- mets atteints en février 2023, en raison de la baisse Face à la diminution des financements extérieurs, des prix mondiaux et de la faiblesse de la demande le gouvernement s’est tourné principalement vers intérieure. L’inflation est désormais inférieure au taux le financement monétaire pour couvrir les besoins d’intérêt nominal pour la première fois depuis juillet extérieurs, en utilisant les réserves de change de la 2021. Cependant, l’inflation reste élevée, en particu- Banque Centrale. Même si le dinar et les réserves de lier dans le secteur alimentaire, car la sécheresse change ont jusqu’à présent fait preuve de résilience, et la compression des importations ont réduit l’offre le recours continu au financement monétaire pour sur les marchés alimentaires intérieurs. Les récentes répondre aux besoins extérieurs pourrait avoir des mesures gouvernementales visant à contenir les prix effets négatifs sur la stabilité de la monnaie et des prix. des produits alimentaires se sont concentrées sur Le remboursement des dernières euro-obli- la lutte contre la monopolisation et le renforcement gations a consolidé la récente hausse des prix des du contrôle des prix, mais l’inflation des produits ali- obligations tunisiennes, qui reflète la perception mentaires reste élevée. Une nouvelle analyse par la d’un risque réduit de défaut sur la dette extérieure Banque Mondiale montre que l’essentiel du récent publique envers les marchés privés. Le tarissement épisode d’inflation est dû à la hausse des bénéfices des sources de financement externes ainsi que l’aug- et des prix des importations, soulignant le rôle impor- mentation de la dette publique ont amené les autori- tant de la concurrence et de la politique commerciale tés à plus solliciter le système bancaire national (en dans la lutte contre l’inflation. conjonction avec la politique monétaire) dans le finan- cement de la dette. Alors que, le recours soutenu aux financements locaux pour financer la dette publique Le budget reste sous pression car la continue d’évincer les crédits à l’économie. faible croissance affecte les recettes fiscales Les pénuries de certains produits de Le déficit budgétaire est resté stable en 2023 (6,7 base persistent dans un contexte de pour cent du PIB) suite à une augmentation des compression des importations et de recettes fiscales plus modeste que prévu, entraînée baisse de la production agricole par le ralentissement de la croissance économique et l’évolution modérée des dépenses publiques. Cette Alors que les conditions de financement extérieur dernière est la résultante de la hausse des transferts restent serrées, les importations continuent d’être et des paiements d’intérêts, mais qui est atténuée par comprimées, en particulier pour les produits impor- une croissance relativement contenue de la masse tés par des entreprises publiques (EP) de plus en salariale et par une stagnation des dépenses d’inves- xiv TUNISIA ECONOMIC MONITOR – RENEWED ENERGY TO THE ECONOMY tissement. Inverser la baisse des dépenses publiques dépendance aux combustibles fossiles se poursuit, le d’investissement en réorientant les dépenses récur- déficit du compte courant de la Tunisie et les condi- rentes moins productives reste essentiel pour relan- tions de financement pourraient limiter sa capacité à cer la croissance économique. importer l’énergie dont elle a besoin pour répondre à la demande croissante, étouffant ainsi l’activité éco- nomique. Cette dépendance aux combustibles fos- Nous prévoyons un rebond modéré siles pèse également lourdement sur l’équilibre bud- de la croissance en 2024–26, en gétaire étant donné les coûts élevés de la production supposant que les conditions de d’énergie fossile. En augmentant la demande d’éner- sécheresse s’atténuent, mais les gie, le réchauffement climatique exacerbe les défis de perspectives économiques restent la dépendance énergétique et compromet la sécurité incertaines. de l’approvisionnement énergétique. En fait, le secteur énergétique tunisien pourrait Après le ralentissement significatif de 2023, nous pré- ne plus dépendre des combustibles fossiles car le pays voyons un rebond modéré de l’économie avec un taux dispose d’un riche potentiel d’énergies renouvelables de croissance de 2,4 pour cent en 2024 et de 2,3 pour inexploité. Les énergies renouvelables pourraient cent en 2025-26. Ces prévisions de croissance sont réduire considérablement le coût de la production soumises à des risques baissiers importants liés aux d’électricité, en particulier dans le contexte de prix inter- conditions de financement extérieur, à l’évolution de la nationaux de l’énergie élevés et volatils. L’exploitation sécheresse et au rythme des réformes budgétaires et du potentiel d’énergies renouvelables de la Tunisie est pro-concurrentielles. Les finances publiques et l’équi- encore plus importante à la lumière du développement libre extérieur de la Tunisie resteront précaires en l’ab- en cours de la connexion électrique entre la Tunisie et sence de financement extérieur suffisant. Le finan- l’Italie. Le récent Rapport sur le Climat et le Développe- cement des déficits nécessitera une augmentation ment en Tunisie (CCDR) de la Banque mondiale montre significative du financement extérieur face au lourd que la production d’énergie renouvelable devrait jouer calendrier de remboursement de la dette. Si le rythme de un rôle dominant dans la production d’électricité en mise en œuvre des réformes et le niveau de financement Tunisie, car il s’agit de la source d’énergie la moins coû- sont suffisants, nous prévoyons un maintien de la crois- teuse. Les avantages de l’expansion de la production sance à moyen terme ainsi qu’une certaine stabilisation d’énergies renouvelables s’étendraient à l’ensemble de des déséquilibres macroéconomiques et budgétaires. l’économie, avec des gains significatifs en termes de croissance économique dès 2030. Accélérer la transition du secteur Le CCDR estime que d’importants investisse- électrique vers les énergies ments seront nécessaires pour permettre cette tran- renouvelables pourrait aider à sition énergétique verte (environ 27 à 35 milliards de relever les défis macro-budgétaires dollars américains d’ici 2050). La majeure partie de de la Tunisie et à stimuler ces investissements pourrait être couverte par le sec- l’économie. teur privé étant donné l’avantage significatif en termes de coûts par rapport aux combustibles fossiles en Au fur et à mesure que les défis macro-budgétaires de Tunisie. Cependant, un cadre réglementaire adé- la Tunisie s’accentuent, l’objectif du gouvernement de quat devrait être mis en place pour favoriser de tels produire 35 pour cent d’énergie à partir de sources investissements. Le renforcement du cadre réglemen- d’énergie renouvelable d’ici 2030 devient encore plus taire accélérerait également l’ambitieux programme important. Le pays est devenu plus dépendant des de développement des énergies renouvelables de la importations de combustibles fossiles, ce qui com- Tunisie, ce qui rapprocherait le pays de son objectif promet la viabilité du compte courant. À terme, si la de 2030 en matière d’énergies renouvelables. Résumé exécutif xv ‫موجز تنفيذي‬ ‫إىل جانــب انتعــاش الصــادرات الســياحية‪ ،‬إىل خفــض عجــز الحســاب‬ ‫ّ‬ ‫تعرّث االنتعاش االقتصادي املتواضع يف تونس بشكل‬ ‫الجــاري يف عــام ‪ .2023‬يف حــن أن انخفــاض الــدوالر يخفــف الضغــط‬ ‫مفاجئ يف عام ‪ 2023‬وسط جفاف شديد‪ ،‬ظروف‬ ‫عــى احتياجــات التمويــل الخارجــي الكبــرة‪ ،‬خاصــة بســبب خدمــة‬ ‫متويل ضيقة ووترية منخفضة من اإلصالحات‬ ‫الديــون الثقيلــة‪ .‬ال تـزال تونــس تعتمــد عــى اإلقـراض الســيادي لتمويــل‬ ‫احتياجاتهــا الخارجيــة‪ ،‬حيــث ال ميكنهــا النفــآذ إىل األســواق املاليّــة‬ ‫كاد االنتعــاش االقتصــادي املتواضــع يف تونــس أن يتوقــف يف عــام‬ ‫الدوليــة‪ ،‬وال ي ـزال االســتثامر األجنبــي املبــارش واإلســتثامرات يف الســوق‬ ‫‪ ،2023‬وســط جفــاف شــديد‪ ،‬وظــروف متويــل ضيقــة‪ ،‬ووتــرة منخفضــة‬ ‫املاليــة محــدودة‪ .‬جــزء هــام مــن واالســتثامرات املحــدودة يف الســوق‬ ‫لتنفيــذ اإلصالحــات‪ .‬أدّى هــذا التباطــؤ إىل جعــل االقتصــاد التونــي يف‬ ‫املآليــة يرجــع إىل درجــة عاليــة مــن الضوابــط عــى تدفقــات رأس املــال‬ ‫عــام ‪ 2023‬أقــل مــن مســتواه قبــل جائحــة كوفيــد‪ ،‬مســجال واحــدا مــن‬ ‫مــن الخــارج ‪ ،‬والتــي تخطــط الحكومــة حاليــا ملراجعتهــا‪.‬‬ ‫أبطــأ حــاالت االنتعــاش يف منطقــة الــرق األوســط وشــال أفريقيــا‪.‬‬ ‫وانخفــض منــو القطــاع الفالحــي‪ ،‬وهــو الســبب الرئيــي لهــذا التباطــؤ‬ ‫إن اعتامد تونس املتزايد عىل املصادر املحلية لسد‬ ‫االقتصــادي يف عــام ‪ ،2023‬بنســبة ‪ 11‬يف املائــة‪ ،‬مــا أجــر الحكومــة عــى‬ ‫فجوة التمويل الخارجي قد يضع ضغوطا عىل الدينار‬ ‫فــرض قيــود عــى الــري‪ ،‬وهــو مــا يؤكــد عــى الحاجــة امللحــة لتونــس‬ ‫واألسعار والنظام املرصيف املحيل‬ ‫للتكيــف مــع تغــر املنــاخ‪ .‬كــا أن ضعــف الطلــب املحــي وضبــط‬ ‫األوضــاع املاليــة العامــة قــد أديــا إىل زيــادة الخســائر املتصلــة بالجفــاف‪،‬‬ ‫مــع تراجــع التمويــل الخارجــي‪ ،‬تحولــت الحكومــة بشــكل متزايــد إىل‬ ‫حيــث أرض االنخفــاض يف قطاعــي البنــاء والتجــارة ببعــض املكاســب التي‬ ‫التمويــل النقــدي لتغطيــة االحتياجــات الخارجيــة‪ ،‬ال ســيام مــن خــال‬ ‫تحققــت مــن أســواق التصديــر‪ ،‬ال ســيام الســياحة‪ .‬وقــد ترجــم تباطــؤ‬ ‫اســتخدام احتياطيــات البنــك املركــزي مــن العملــة األجنبيــة‪ .‬ويف حــن‬ ‫النمــو ‪ -‬وخاصــة يف القطاعــات كثيفــة العــال ‪ -‬إىل ارتفــاع معــدالت‬ ‫أثبــت كل مــن الدينــار واالحتياطيــات األجنبيــة صمــودا حتــى اآلن‪ ،‬فــإن‬ ‫البطالــة وانخفــاض نســبة املشــاركة يف ســوق الشــغل‪.‬‬ ‫اســتمرار اســتخدام التمويــل النقــدي لالحتياجــات الخارجيــة ميكــن أن‬ ‫يكــون لــه آثــار ســلبية عــى اســتقرار العملــة واألســعار‪.‬‬ ‫يضاعف تباطؤ النمو من التحديات التي تواجهها‬ ‫وقــد عــزز آخــر ســداد ســندات اليــورو االرتفــاع األخــر يف‬ ‫تونس يف تغطية احتياجاتها الكبرية من التمويل‬ ‫أســعار الســندات التونســية‪ ،‬مــا يعكــس االنخفــاض امللحــوظ يف مخاطر‬ ‫الخارجي عىل الرغم من تحسن التوازنات الخارج ّ‬ ‫ية‬ ‫التخلــف عــن ســداد الديــون الخارجيــة العامــة إىل األســواق الخاصــة‬ ‫عــى املــدى القصــر‪ .‬وقــد أدى نضــوب مصــادر التمويــل الخارجيــة إىل‬ ‫تحســن العجــز التجــاري يف تونــس يف عــام ‪ ،2023‬وذلــك بفضــل التغـرات‬ ‫جانــب ارتفــاع الديــن العــام إىل تنامــي دور النظــام املــريف املحــي‬ ‫املناســبة لألســعار الدوليــة‪ ، ،‬حيــث انخفــض إىل ‪ 10.8‬يف املائــة مــن الناتج‬ ‫(إىل جانــب السياســة النقديــة) يف متويــل الديــون‪ .‬ويف الوقــت نفســه‪،‬‬ ‫املحــي اإلجــايل مــن ‪ 17.5‬يف املائــة يف عــام ‪ .2022‬ويف الوقــت نفســه‪،‬‬ ‫ال يــزال االســتخدام املســتدام للتمويــل املحــي لتمويــل الديــن العــام‬ ‫اتســع العجــز يف الطاقــي عــى الرغــم مــن التطــور املالئــم لألســعار‪ ،‬وظــل‬ ‫يزاحــم االســتثامرات املقدمــة إىل االقتصــاد‪.‬‬ ‫ميثــل الجــزء األكــر مــن العجــز التجــاري‪ .‬أدى تحســن العجــز التجــاري‪،‬‬ ‫‪xvii‬‬ ‫بظــروف التمويــل الخارجــي‪ ،‬وتطــور الجفــاف‪ ،‬ووتــرة اإلصالحــات املالية‬ ‫يزال النقص يف املنتجات األساسية قامئا يف ظل تقلص‬ ‫واإلصالحــات الداعمــة للمنافســة‪ .‬ســتظل املاليــة العامــة والحســاب‬ ‫الواردات وانخفاض اإلنتاج الفالحي‬ ‫الخارجــي يف تونــس غــر مســتقرين يف غيــاب التمويــل الخارجــي الــكايف‪.‬‬ ‫وســيتطلب متويــل العجــز زيــادة كبــرة يف التمويــل الخارجــي يف مواجهــة‬ ‫ومــع اســتمرار ضيــق رشوط التمويــل الخارجــي‪ ،‬ال تــزال الــواردات‬ ‫جــدول ســداد الديــون الثقيــل‪ .‬وإذا ظلــت وتــرة اإلصالحــات ومســتوى‬ ‫مضغوطــة‪ ،‬ال ســيام بالنســبة للمنتجــات املســتوردة مــن قبــل الــركات‬ ‫التمويــل كافيــن‪ ،‬فإننــا نتوقــع الحفــاظ عــى النمــو عــى املــدى املتوســط‬ ‫العموميــة التــي تــزداد مديونيتهــا ‪.‬هــذا الضغــط عــى الــواردات جنبــا‬ ‫إىل جانــب بعــض االســتقرار يف االختــاالت الكليــة واملاليــة‪.‬‬ ‫إىل جنــب مــع انخفــاض اإلنتــاج الزراعــي املحــي ترجــم إىل نقــص طويــل‬ ‫األمــد يف بعــض املنتجــات األساســية‪ ،‬مثــل الدقيــق ومنتجــات األلبــان‬ ‫والســكر واألرز والــن‪.‬‬ ‫من شأن ترسيع عملية انتقال قطاع الطاقة إىل الطاقة‬ ‫املتجددة أن يساعد يف معالجة التحديات املالية يف‬ ‫تونس وتعزيز االقتصاد‬ ‫تراجع التضخم عن املستويات القياسية يف أوائل عام‬ ‫‪ ،2023‬لكنه ال يزال مرتفعا‪ ،‬ال سيام بالنسبة لألغذية‬ ‫ومــع تعمــق التحديــات املاليــة يف تونــس‪ ،‬يصبــح هــدف الحكومــة‬ ‫املتمثــل يف توليــد ‪ 35‬يف املائــة مــن الطاقــة مــن مصــادر متجــددة‬ ‫بــدأ التضخــم يف االنخفــاض منــذ قمــم فربايــر ‪ 2023‬عــى خلفيــة‬ ‫بحلــول عــام ‪ 2030‬أكــر أهميــة‪ .‬أصبحــت البــاد أكــر اعتــادا عــى‬ ‫انخفــاض األســعار العامليــة وضعــف الطلــب املحــي‪ .‬التضخــم اآلن أقــل‬ ‫واردات الطاقــة األحفوريــة‪ ،‬مــا يقــوض اســتدامة الحســاب الجــاري‪ .‬ويف‬ ‫مــن ســعر الفائــدة االســمي ألول مــرة منــذ يوليــو ‪ .2021‬ومــع ذلــك‪ ،‬ال‬ ‫نهايــة املطــاف‪ ،‬قــد يحــد عجــز الحســاب الجــاري وظــروف التمويــل يف‬ ‫يـزال التضخــم مرتفعــا‪ ،‬وال ســيام بالنســبة لألغذيــة‪ ،‬حيــث أدى الجفــاف‬ ‫تونــس مــن قدرتهــا عــى اســترياد الطاقــة التــي تحتاجهــا لتلبيــة الطلــب‬ ‫وانخفــاض الــواردات إىل شــح املعروضــات يف أســواق األغذيــة املحليــة‪.‬‬ ‫املتزايــد عليهــا‪ ،‬وبالتــايل خنــق النشــاط االقتصــادي‪ .‬هــذا االعتــاد عــى‬ ‫وركــزت التدابــر الحكوميــة األخــرة الحتــواء أســعار املــواد الغذائيــة‬ ‫الوقــود األحفــوري يؤثــر بشــكل كبــر أيضــا عــى التــوازن املــايل نظ ـرا‬ ‫عــى ســلوك اإلحتــكار وتعزيــز مراقبــة األســعار‪ ،‬لكــن التضخــم الغــذايئ‬ ‫الرتفــاع تكاليــف توليــد الطاقــة األحفوريــة‪ .‬ومــن خــال زيــادة الطلــب‬ ‫ال يـزال مرتفعــا‪ .‬يظهــر تحليــل جديــد للبنــك الــدويل أن معظــم حلقــة‬ ‫عــى الطاقــة‪ ،‬يــؤدي االحتبــاس الح ـراري العاملــي إىل تفاقــم تحديــات‬ ‫التضخــم األخــرة مدفوعــة بارتفــاع األربــاح وأســعار الــواردات‪ ،‬مش ـرا‬ ‫االعتــاد عــى الطاقــة وتقويــض أمــن إمــدادات الطاقــة‪.‬‬ ‫إىل الــدور املهــم لسياســات املنافســة والتجــارة يف مكافحــة التضخــم‪.‬‬ ‫وبالفعــل‪ ،‬مل يعــد بإمــكان قطــاع الطاقــة يف تونــس االعتــاد‬ ‫عــى أنــواع الوقــود األحفــوري‪ ،‬حيــث متتلــك البــاد إمكانــات وافــرة مــن‬ ‫الطاقــة املتجــددة غــر املســتغلة‪ .‬وميكــن للطاقــات املتجــددة أن تقلــل‬ ‫وال تزال امليزانية تتعرض لضغوط ألن النمو املنخفض‬ ‫إىل حــد كبــر مــن تكلفــة إنتــاج الكهربــاء‪ ،‬ال ســيام يف ســياق أســعار‬ ‫يؤثر عىل املدآخيل الجبائية‬ ‫الطاقــة الدوليــة املرتفعــة واملتقلبــة‪ .‬ويكتســب اســتغالل إمكانــات‬ ‫كان عجــز امليزانيــة مســتقرا يف عــام ‪ 6.7( 2023‬يف املائــة مــن الناتــج‬ ‫تونــس يف مجــال الطاقــة املتجــددة أهميــة أكــر يف ضــوء التطــورات‬ ‫املحــي اإلجــايل) بعــد زيــادة متواضعــة يف املدآخيــل الجبائيــة املتوقّعة‪،‬‬ ‫الجاريــة ملــروع الربــط الكهربــايئ بــن تونــس وإيطاليــا‪ .‬ويُظهــر تقريــر‬ ‫بســبب تباطــؤ النمــو االقتصــادي‪ ،‬والزيــادة املعتدلــة يف النفقــات العامة‪.‬‬ ‫البنــك الــدويل األخــر حــول املنــاخ والتنميــة يف تونــس أن توليــد الطاقــة‬ ‫وكان هــذا األخــر نتــاج زيــادة التحويــات ودفــع الفوائــد‪ ،‬التــي أدارهــا‬ ‫املتجــددة مرشــح للعــب دور أســايس يف توليــد الكهربــاء يف تونــس‪،‬‬ ‫منــو األجــور املحتــواة نســبيا وتوقــف نفقــات اإلســتثامر‪ .‬وال يــزال‬ ‫حيــث أنهــا تعتــر أرخــص مصــدر للطاقــة‪ .‬وســتنترش فوائــد التوســع‬ ‫عكــس اتجــاه االنخفــاض يف نفقــات اإلســتثامر العموميــة عــن طريــق‬ ‫يف إنتــاج الطاقــة املتجــددة يف جميــع أنحــاء االقتصــاد‪ ،‬مــع تحقيــق‬ ‫إعــادة توجيــه النفقــات األقــل إنتاجيــة عامــا أساســيا إلنعــاش النمــو‬ ‫مكاســب كبــرة يف النمــو االقتصــادي يف وقــت مبكــر بحلــول عــام ‪.2030‬‬ ‫االقتصــادي‪.‬‬ ‫در تقريــر املنــاخ والتنميــة يف تونــس الحاجــة إىل‬ ‫ويقــ ّ‬ ‫اســتثامرات كبــرة لتحقيــق هــذا التحــول الطاقــي األخــر (حــوايل ‪27‬‬ ‫إىل ‪ 35‬مليــار دوالر أمريــي بحلــول عــام ‪ .)2050‬وميكــن تغطيــة معظــم‬ ‫نتوقع انتعاشا معتدال للنمو يف عامي ‪25–2024‬‬ ‫هــذه االســتثامرات مــن قبــل القطــاع الخــاص‪ ،‬نظــرا ً للميــزة الكبــرة‬ ‫بافرتاض تخفف ظروف الجفاف‪ ،‬لكن التوقعات‬ ‫مــن حيــث التكلفــة مقارنــة بالوقــود األحفــوري يف تونــس‪ .‬ومــع ذلــك‪،‬‬ ‫االقتصادية ال تزال غري مؤكدة‬ ‫ســيتعني وضــع إطــار تنظيمــي مناســب لتشــجيع هــذه االســتثامرات‪.‬‬ ‫رع برنامــج تونــس‬ ‫تعزيــز هــذا اإلطــار التنظيمــي مــن شــأنه أيضـاً أن يـ ّ‬ ‫وبعــد التباطــؤ الكبــر يف عــام ‪ ،2023‬نتوقــع انتعاشــا معتــدال لالقتصــاد‬ ‫الطمــوح لتطويــر الطاقــة املتجــددة يف تونــس‪ ،‬مــا يقــرب البــاد مــن‬ ‫مبعــدل منــو قــدره ‪ 2.4‬يف املائــة يف عــام ‪ ،2024‬ومنــو بنســبة ‪ 2.3‬يف املائــة‬ ‫تحقيــق هدفهــا يف هــذا املجــال لعــام ‪.2030‬‬ ‫يف الفــرة ‪ .26-2025‬وتخضــع توقعــات النمــو هــذه ملخاطــر كبــرة تتصــل‬ ‫‪xviii‬‬ ‫‪TUNISIA ECONOMIC MONITOR – RENEWED ENERGY TO THE ECONOMY‬‬ A PART RECENT ECONOMIC DEVELOPMENTS Tunisia’s already modest economic 1.  country among its regional peers with real GDP still recovery came to an abrupt halt below pre-pandemic level. in 2023 amidst a severe drought, Agriculture was the main driver of the 2023 tight financing conditions, and the economic slowdown, as the drought exposed the modest pace of reform deficiencies of a sector that needs to adapt to cli- mate change. The lack of rainfall throughout 2023 Tunisia’s already modest economic recovery aggravated the dry conditions prevailing in Tunisia over almost halted in 2023, amidst a severe drought, the previous 4 years, forcing the government to intro- tight financing conditions, and the modest pace duce irrigation restrictions since March. This resulted of implementing reforms. The economy grew by in reduced harvest and a significant loss of production. 0.4 percent in real terms during 2023, with a signifi- That is the case for instance for wheat, which is one of cant deterioration since the second quarter linked to the key staples in Tunisians’ diet. The dry conditions the effects of the drought (figure 1). The 4th consecu- precipitated the production losses, as the bulk of cereal tive year of below than average rainfall led the govern- production is rainfed. Hence, domestic cereal produc- ment to ration water usage since March. This negative tion in 2023 dropped by 61 percent compared to 2022, shock has compounded a difficult recovery, marred reaching just over 22 percent of the level in 2019.1 As by tight external financing and continued regulatory a result, in 2023 agricultural value added fell by 11 per- barriers to growth, such as authorizations to access cent in real terms, aggravating the declining trend since many sectors, strict and discretionary controls on for- 2019 (figure 3). Had agriculture and agro-industry grown eign exchange and regulatory capture of incumbents, at the (modest) rate of 2022 (1.7 percent), the economy which have not yet been addressed by reforms (see would have expanded by 1.8 percent in 2023, slightly the 2022 and 2023 issues of the Tunisia Economic below the 2022 rate (2.6 percent). As rainfall conditions Monitor). This performance has widened the gap in are expected to deteriorate further in the future because post-Covid economic growth vis-à-vis Tunisia’s peers in the region (figure 2). In 2023 Tunisia was the only 1 That is based on sales data from OdC. 1 FIGURE 1 • Tunisia’s Elusive Economic Recovery Tunisia’ Economic Recovery has FIGURE 2 •  (Quarterly GDP, constant 2015 TD) Been Slow (GDP, constant prices; 2019=100) 24,300 2019 120 24,100 Egypt 2023 2022 115 23,900 23,700 2018 110 23,500 2021 Jordan Morocco 105 Algeria 23,300 23,100 100 Tunisia 22,900 2020 95 22,700 22,500 90 Q1 Q2 Q3 Q4 2019 2020 2021 2022 2023 Source: Tunisia’s National Statistics Institute (INS). Source: World Bank Macro-Poverty outlooks. of climate change, Tunisia needs to act swiftly to ensure continued tourism recovery driving the overall positive its food security, building the resilience of agriculture as contribution of services, and for mechanic and electric well as the water sector as a whole. To that end, some of sectors (+ 5.8 percent). the priority measures include: managing water demand, The growth slowdown—especially in labor- promoting the use of nature-based solutions, expanding intensive sectors—translated into worsening labor non-conventional water sources, improving irrigation market outcomes. As labor-intensive sectors (i.e., efficiency, increasing uptake of climate-smart prac- agriculture and construction) were particularly hit by tices, developing disaster risk financing and insurance.2 the slowdown, unemployment grew to 16.4 percent in The weak domestic demand and the fiscal Q4 2023 up from 15.8 percent in the previous quar- consolidation appear to have added to the drought- ter and 15.2 percent a year earlier. This was the third related losses, offsetting some of the gains from consecutive quarter of year-on-year increases in the export markets. The compression of public wages— unemployment rate, reversing the declining post-Covid with the public administration sector growing only by trend (figure 5). Additionally, the labor force participa- 0.7 percent in real terms—and of public investment com- tion rate continued the decline that had started dur- pounded the agriculture-related losses. These trends ing the Covid period, suggesting persistent growth likely depressed domestic demand, penalizing sectors in the number of discouraged workers. The average such as construction services and materials (–4.0 per- participation rate in 2023 (45.8 percent) was 1.3 per- cent) and commerce (–0.4 percent). The former may centage point below the average pre-Covid. As a have also been affected by some labor shortages as result, the net job creation relative to the previous many sub-Saharan African workers, who had com- year was negative in the second half of 2023, with prised a large share of construction workers, departed over 83,000 net jobs lost in Q4 alone (figure 6). Most Tunisia in 2023 (see the Fall 2023 edition of the Tunisia of the losses were for female workers, adding to the Economic Monitor). The difficult international financing already large penalty that women experience in the conditions also likely contributed to the slowdown by Tunisian labor market, with a higher unemployment affecting the economy’s ability to import, particularly (22.2 percent versus 13.8 percent in Q4) and a lower for manufacturing sectors, which shrank by 1.1 percent participation rate than men (27.1 versus 65.1 percent). in the second semester (figure 4). These factors offset the gains from export markets, including for hotels and 2 See World Bank (2023) Tunisia: Climate Change and restaurants (+12.8 percent), which benefited from the Development Report. 2 TUNISIA ECONOMIC MONITOR – RENEWED ENERGY TO THE ECONOMY FIGURE 3 • Value Added in the Agricultural FIGURE 4 • Agriculture Drove the Slow-Down in Sector Fell Sharply in 2023 Growth in 2023 (Agriculture value-added, TD mln (half-yearly GDP growth by constant prices and share in GDP) decomposed by sector) 9,500 10.5% 7 Value added (TD mln) 9,000 10.0% 5 3 8,500 9.5% 1 8,000 9.0% –1 7,500 8.5% Agriculture –3 Share in GDP (right axis) Mining 7,000 8.0% –5 Manufacturing Services 6,500 7.5% –7 Net taxes –9 GDP 6,000 7.0% 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020 2021 2022 2023 2010 –11 H1-2016 H2-2017 H1-2019 H2-2020 H1-2022 H2-2023 Source: INS and World Bank calculations. Source: INS and World Bank calculations. FIGURE 5 • Labor Participation Down, FIGURE 6 • Tunisia Experienced Net Job Losses in Unemployment Up 2023, Particularly among Women (Percent, 4-quarter moving average) (Quarterly year-on-year net change in jobs, ‘000) 18.0 48.0 100 17.5 Labor part. rate (right axis) 47.5 50 17.0 47.0 0 16.5 46.5 –50 Unemployment Men 16.0 46.0 –100 Women Total 15.5 45.5 –150 15.0 45.0 –200 Q1-2016 Q3-2016 Q1-2017 Q3-2017 Q1-2018 Q3-2018 Q1-2019 Q3-2019 Q1-2020 Q3-2020 Q1-2021 Q3-2021 Q1-2022 Q3-2022 Q1-2023 Q3-2023 Q1-2019 Q2-2019 Q3-2019 Q4-2019 Q1-2020 Q2-2020 Q3-2020 Q4-2020 Q1-2021 Q2-2021 Q3-2021 Q4-2021 Q1-2022 Q2-2022 Q3-2022 Q4-2022 Q1-2023 Q2-2023 Q3-2023 Q4-2023 Source: World Bank staff calculations based on INS. Source: World Bank staff calculations based on INS. The growth slowdown amplifies the 2.  global prices helped reduce the trade deficit to TD challenges Tunisia faces in covering 17.1 billion in 2023 (10.8 percent of 2023 GDP) from its significant external financing TD 25.2 billion (17.5 percent of GDP) in 2022 (Figure 7). needs despite the improvement in This reduction was driven by the shrinking trade deficit the external balance of mechanic industries and the expanding surplus of textile and garments, both of which benefited from sig- Tunisia’s merchandise trade deficit improved in nificant increases in prices. For instance, unit values of 2023, boosted by favorable changes in interna- exported electric equipment, which accounted for half tional prices. After the adverse terms of trade shock of the merchandise export growth, increased year-on- induced by the war on Ukraine in 2022, more benign year by 3.5 percent and hosiery (6.5 percent of export Recent economic Developments 3 FIGURE 7 • Mechanic Industries Led the FIGURE 8 • The Main Tunisian Exports Benefited Moderation of the Merchandise Trade from Price Hikes in 2023 Deficit in 2023 (2022–23 percent change in unit value (trade balance by sector, TD million) and contribution to 2022–23 change in merchandise exports) 5,000 Textile 0 Mining 60% Change in unit value (2022–23) Agriculture Contribution to 2022–23 change in exports 50% –5,000 Energy 40% –10,000 30% Mechanical and electrical 20% –15,000 Other manuf. 10% –20,000 0% Oils and fats Cars cycles tractors Air and space navigation Hosiery clothing Second-hand goods Footwear Plastics and articles Garments and clothing Optics, scientific apparatus Parts of vehicles Glass and glassware Leather goods Electrical equipment Cast iron and steel articles –25,000 Trade balance –30,000 2021 2022 2023 Source: World Bank staff elaboration based on INS data. Source: World Bank staff elaboration based on INS data. Note: Contribution to 2022–23 change in export adds to more than 100 percent as Note: Contribution to 2022–23 change in export adds to more than 100 percent as some sectors contribute negatively to export change. some sectors contribute negatively to export change. growth) by 15 percent (Figure 8). The price hike was rent account deficit (CAD) in 2023. The significant even larger for oil and fats (+65 percent accounting reduction in the merchandise deficit was accompa- for 27 percent of goods’ export growth), which bene- nied by the continued recovery of tourism, which ben- fited from the tightening of the global olive oil supply. efited from a robust summer season. Receipts grew by Despite a 15 percent reduction in quantities, Tunisia’s 28.1 percent in 2023, reaching TD 6.9 billion, or 4.4 per- oil and fats exports increased by 40 percent, contrib- cent of GDP up from 3.8 percent of GDP in 2022. In uting to a significant shrinking of the agricultural and early 2024, there are signs of stabilization. By March agro-industrial trade deficit (–43 percent). 20th, tourism receipts were up 8.8 percent compared The energy deficit widened despite more to the same period last year. In 2023, the contribution favorable prices, continuing to account for the bulk to tourism in GDP returned almost to its pre-Covid level of the merchandise trade deficit. As a net energy (4.6 percent), while the total number of foreign visitors importer, Tunisia benefited from a reduction in global (8.1 million) was slightly higher than in 2019 (7.9 mil- energy prices in early 2023 as the global impact of the lion). Tourism receipts were almost on par with remit- Russian invasion of Ukraine dissipated. The average tance inflows (TD 7.3 billion or 4.6 percent of GDP), price of hydrocarbons imported by Tunisia declined by which recorded a more modest increase (+1.4 percent) 14.4 percent in 2023 compared to 2022. Yet, imported but which remain a key source of foreign exchange for quantities increased by 4 percent as Tunisia’s production Tunisia. As a result, the CAD fell by two-thirds, from TD of oil and gas declined.3 Thus, energy imports declined 12.4 billion in 2022 (8.6 percent of GDP) to TD 4.1 bil- only by 10.8 percent in value. On the other hand, energy lion (2.6 percent of GDP) in 2023 (figure 9). exports declined by 16.6 percent along with production. While the lower CAD eases the pressure on As a result, the energy trade balance deteriorated fur- external financing needs, the latter remain sig- ther, accounting for 56.6 percent of the merchandise nificant especially due to the burdensome debt trade deficit in 2023. That share has more than doubled since 2017, reflecting the delay in developing alternative 3 In the first six months the production of oil declined sources of energy, particularly renewables (see part B). by 8 percent while that of natural gas by 11 percent The narrowing trade deficit along with the (source: Ministry of Industry, Mining and Energy (2023) rebounding of tourism exports lowered the cur- Conjoncture Energétique, June). 4 TUNISIA ECONOMIC MONITOR – RENEWED ENERGY TO THE ECONOMY FIGURE 9 • The Trade Deficit Along with Tourism FIGURE 10 • With Weak FDI and Portfolio Flows, Receipts Helped Reduce the Current Tunisia Relied on Sovereign Borrowing Account Deficit to Cover its External Needs (Percent GDP) (TD million current) 10 20,000 5 Borrowing FDI+Portfolio 15,000 0 External financial needs –5 10,000 –10 5,000 Secondary income –15 Primary income Goods Services Current account balance –20 0 2002 2012 2022 2000 2004 2008 2010 2014 2018 2020 2006 2016 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020 2021 2022 2023 Source: Central Bank of Tunisia. Source: Central Bank of Tunisia. service. Despite the reduced CAD, external financing ing needs in 2024 than it did in 2023, particularly in the needs remained significant in 2023 (TD 13.4 billion, or absence of an IMF loan agreement.6 The draft new 8.4 percent of GDP) with amortization accounting for foreign exchange code recently submitted by the 70 percent of them.4 These needs are expected to rise government to Parliament could address some of further to TD 16.4 billion in 2024 (9.4 percent of GDP), the restrictive capital controls which limit FDI and most of which (59 percent) again due to debt reim- portfolio flows. According to the most common indi- bursement. Securing these large needs continues to cators, Tunisia is a relatively closed economy in terms present a pressing challenge for Tunisia, further ampli- of capital controls. According to the Chinn-Ito de-jure fying the pressure on the economy. financial openness indicator, Tunisia was ranked 116 out of a sample of 176 countries in 2021 in terms of the openness of its capital account.7 This is consistent Tunisia’s increasing reliance 3.  with a study by Fernandez et al. (2016), which classifies on domestic sources to fill the Tunisia as one of the 5 closed economies in terms of external financing gap raises capital controls out of the 26 comparable economies concerns about the stability of the Dinar and of prices 4 External financing needs are defined as current account deficit + debt (public + private) reimbursement. In the absence of private sources of capital, 5 The Tunisian government has not been able to Tunisia continues to depend on sovereign lending issue foreign-denominated bonds since 2019, as its to finance its external needs amidst tight financ- sovereign credit rating has been consistently assessed as noninvestment grade (including by Moody’s, Fitch ing conditions. Tunisia depends mainly on sovereign Ratings and Rating and Investment Information). financing to cover its external financing needs as other 6 In fact, the 2024 budget indicates that 71 percent of the sources of funding are either inaccessible (interna- external budget support needed to cover the external tional private financing)5 or cover only a small share of financing was not identified (versus only 37 percent in the external financing needs, as is the case for foreign the 2023 budget). 7 The Chinn-Ito indicator is based on Chinn, Menzie D. and direct investments and portfolio flows (figure 10). For- Hiro Ito (2006). “What Matters for Financial Development? eign sovereign financing however has been declining Capital Controls, Institutions, and Interactions,” Journal over the past couple of years and there are no expecta- of Development Economics, Volume 81, Issue 1, Pages tions that it could cover a larger share of external financ- 163–192 (October). Recent economic Developments 5 BOX 1: THE NEW CENTRAL BANK FINANCING FACILITY AND ITS POSSIBLE MACRO-FISCAL RISKS On February 6, 2024, the Tunisian Parliament approved a government bill authorizing the BCT to finance the budget up to TD 7 billion in 2024, including also for the reimbursement of foreign denominated debt. The loan would bear zero interest and would be reimbursable over 10 years with a 3-year grace period. The amount is equivalent to 4 percent of GDP, a quarter of total financing needs and 42 percent of the budget external financing needs forecast by the government for 2024. In the context of limited alternative financing sources, this facility could fund much of the external financing gap in 2024, i.e., TD 10.3 billion according to the 2024 Budget Law. That could pose some risks to the stability of the Dinar. The brief periods of reserve losses since 2020 have been associated with some depreciation of the Dinar, e.g., May-Nov 2022 (Figure 11). If the entire facility were used to fund external debt service (and reserves were not accumulated through additional external financing), reserves would decline by 27 percent, double the maximum peak-to-trough reserve loss since 2020 (Figure 12). Should the entire external financing gap be covered by reserves, the loss would be 40 percent, bringing the import coverage to only 70 days. The Dinar depreciation would also put pressure on inflation, which remains high (7.5 percent in February). This is the second time Parliament is approving a bill for direct financing by the BCT, following the one in December 2020, when it authorized a TD 2.8 billion financing facility to cover exceptional budgetary needs due to the Covid pandemic. Using monetary financing under non- exceptional circumstances could reduce fiscal discipline. This would establish a regime of fiscal dominance over monetary policy, reducing BCT’s effectiveness at controlling inflation and at maintaining financial stability. analyzed.8 The bulk of Tunisia’s regulatory restrictions inated bonds decreased their level to TD 23.3 billion on capital are applied to outflows and dates back to (US$ 7.5 billion) as of the end of March, the lowest level the original foreign exchange code of 1976. The gen- since July 2023, and considerably lower than the peak erally cumbersome application of these measures of October 2023 (TD 26.8 billion, or US$ 8.6 billion). exacerbates the uncertainty around access to foreign This level of reserves still provides sufficient buffer exchange created by the code, thus contributing to sti- vis-à-vis imports (108 days of coverage) and short- fle capital inflows. The government recently approved term external debt repayment, which helps explain a draft new foreign exchange code, which should even- why the Dinar has remained stable in the face of the tually be discussed by the Parliament. However at this large Eurobond reimbursements (Figure 11). However, stage it is unclear to what extent it will be able to strike the continued use of monetary financing could signifi- the right balance between financial openness and cap- cantly erode reserves already in 2024 (figure 12), pos- ital and financial accounts stability.9 With shrinking ing risks to currency and price stability (box 1). sovereign financing, the government has turned to monetary financing to cover its external needs, The rising role of domestic 4.  notably through the use of foreign reserves. The financing of the public debt government borrowed from the domestic banking sys- heightens the pressure on the tem to reimburse a Euro 500 million Eurobond last domestic banking system October. In February 2024 the Parliament approved a bill authorizing the BCT to finance the budget up to TD The reimbursement of the latest Eurobonds con- 7 billion (4 percent of GDP) in 2024, including from its solidated the recent hike in Tunisia’s bond prices, foreign exchange reserves (see box 1). The loan was used a few weeks later to reimburse a Euro 850 mil- 8 See Fernandez, Andres, Michael Klein, Alessandro lion Eurobond (TD 2.9 billion), the largest reimburse- Rebucci, Martin Schindler, and Martin Uribe, ‘’Capital ment in 2024. Control Measures: A New Dataset,’’ IMF Economic While foreign reserves and the Dinar have Review 64, 2016, 548–574. 9 Potentially important measures included in the revised proven resilient so far, the continued use of mon- code comprise a review of the notion of residency etary financing of the external needs could have for investors, the freedom to open foreign currency adverse impacts on currency and price stability. accounts for exporters, and the possibility of opening The recent use of reserves to reimburse foreign denom- accounts that enable sales on online platforms. 6 TUNISIA ECONOMIC MONITOR – RENEWED ENERGY TO THE ECONOMY FIGURE 11 • Rising Reserves, Stable Dinar FIGURE 12 • The Large Potential for Reserve (Foreign exchange reserves in TD Losses in 2024 and EUR-TD X-rate, Jan 2020=100) (% change in forex reserves in 2024 in different scenarios, compared to 140 maximum loss in 2020–24) Reserves (TD) 135 0% 130 –5% 125 –10% 120 –15% 115 –20% 110 –25% 105 X-rate –30% 100 –35% 95 –40% Jan-20 Mar-20 May-20 Jul-20 Sep-20 Nov-20 Jan-21 Mar-21 May-21 Jul-21 Sep-21 Nov-21 Jan-22 Mar-22 May-22 Jul-22 Sep-22 Nov-22 Jan-23 Mar-23 May-23 Jul-23 Sep-23 Nov-23 Jan-24 –45% Max 20-24 Eurobond 7bn Ext. fin gap Source: World Bank staff estimation based on Central Bank of Tunisia data. Source: World Bank staff estimation based on Central Bank of Tunisia data. Scenarios in Figure 12 of the extent of possible drop in foreign reserves in 2024: Max Scenarios in Figure 12 of the extent of possible drop in foreign reserves in 2024: Max 20–24: the maximum drop in the period 2020–24; Eurobond: value of Eurobond 20–24: the maximum drop in the period 2020–24; Eurobond: value of Eurobond reimbursement; 7bn: value of the entire Central Bank facility (TD 7 billion); Ext. fin. gap: reimbursement; 7bn: value of the entire Central Bank facility (TD 7 billion); Ext. fin. gap: value of the external financing gap identified in the 2024 budget. value of the external financing gap identified in the 2024 budget. reflecting the perceived reduced risk of default and the deceleration of the economy.10 As a result, on public external debt to private markets. By Tunisia has increasingly tapped into local markets as early March 2024, two weeks after the repayment of a financing source so that the share of external debt the February Eurobond, Tunisia’s US$ denominated in total debt decreased from 73 (2018) to 57 percent bonds maturing in 2025 were trading at 93 percent of (2023) (figure 14). This domestic financing necessi- their issuance price. That is their highest level since tated a high level of refinancing to local banks by the July 2021, marking a rebound of 80 percent from Central Bank.11 their lowest price in May 2023. This jump reflects the The sustained use of local funding to increased trust in Tunisia’s ability to repay its external finance public debt continues to crowd out credit public debt to capital markets given its shrinking level. to the economy. The injection of liquidity through refi- As Tunisia has been unable to borrow from interna- nancing operations is directing bank liquidity towards tional capital markets since 2019, the share of private government lending, which is likely to crowd out credit creditors in both total public debt and public external to the rest of the economy. The banking sector’s expo- debt is the lowest in decades (Figure 13). And the level sure to the State continues to grow at an annual rate of foreign reserves (US$ 7.4 bn) would be sufficient to of more than 17 percent, while the share of loans to cover the external debt to capital markets, which was around US$ 3.0 billion as of February 2024. 10 The debt figure covers only the central government’s The drying up of external financing sources but not SOEs’ debt, much of which is guaranteed by the along with the rising public debt have resulted in State as well as payment arrears to public and private the growing role of the domestic banking system companies. for debt financing. The challenging external financ- 11 Refinancing consists of the Central Bank lending money ing environment has translated into the slow growth to banks with liquidity needs, generally short-term. They are carried out on the initiative of central banks (through of the nominal external debt stock over the past few tenders) or banks (lending facilities). While refinancing is years (Figure 14). In parallel, public debt grew rapidly associated with money creation, the relation is not one-to- (from 66.9 percent to 80.2 percent of GDP between one as it depends on the terms of the reimbursement and 2017 and 2023), reflecting rising public expenditures the loan maturities. Recent economic Developments 7 The Rapid Decline of Private Capital FIGURE 13 •  FIGURE 14 • Tunisia Increasingly Relies on Markets in Tunisia’s Debt Financing Domestic Financing of the Debt (external debt to private creditors, % (external debt, % of total debt and tot debt, % external debt and TD mln) TD mln) 45% Debt to pvt creditors (TD mln, right axis) 75% 80,000 20,000 External debt (% tot debt) 40% 70% 70,000 35% 60,000 Private creditors 65% 30% (% tot. debt) 15,000 50,000 25% 60% 40,000 20% 10,000 Private creditors 55% 30,000 15% (% ext. debt) External debt 50% (TND mln, right axis) 20,000 10% 5,000 5% 45% 10,000 0% 0 40% 0 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020 2021 2022 2023 2024* 2001 2003 2005 2007 2009 2011 2013 2015 2017 2019 2021 2023 Source: World Bank staff estimation based on Ministry of Finance data. Source: World Bank staff estimation based on Ministry of Finance data. * Up to February. the economy is decreasing with a growth rate of 3 per- The Share of Net Government FIGURE 15 •  cent. As a result, the share of central government in Receivables in Total Credits Continues to Increase as Credit total claims of the banking sector increased from an Growth Falters average of 14.4 percent in 2015 to 32 percent in 2023 (year-on-year percent increase, six (Figure 15). In a context of limited credit growth, this month moving average) pattern has displaced credit to the rest of the economy. 34% 14% And this pattern does not account for the crowding out Share of govt in total credit (left axis) 13% 32% of the rising credit to SOEs vis-à-vis private credit (see 12% Tunisian Economic Monitor, Fall 2023 edition). 30% 11% 28% 10% 26% 9% Shortages of basic products 5.  8% 24% persist amidst import compression Total credit growth (right axis) 7% and declining agricultural 22% 6% production 20% 5% Dec-20 Feb-21 Apr-21 Jun-21 Aug-21 Oct-21 Dec-21 Feb-22 Apr-22 Jun-22 Aug-22 Oct-22 Dec-22 Feb-23 Apr-23 Jun-23 Aug-23 Oct-23 Dec-23 As external financing conditions remain tight, Source: Central Bank of Tunisia. imports continue to be compressed particularly for the increasingly indebted state-owned enter- prises (SOEs). Compressing imports has remained Office du Commerce for coffee and sugar, the Tunisian an important strategy to achieve the external balance, Company of Electricity and Gas (STEG) for gas and given the challenging external financing environ- the Tunisian Company of Refining Industry (STIR) for ment. That is particularly the case for SOEs, as their petrol (see part B). As discussed in the Fall 2023 edi- increasing debt stifle their access to credit, particu- tion of the Tunisia Economic Monitor, the system of larly in foreign currency.12 Several of these SOEs hold price control that regulates the markets of these basic the monopoly over the import and distribution of spe- cific products, such as the Office des Céréales (OdC) 12 SOEs’ net debt to the state for instance grew from TD 1.4 for wheat, the Pharmacie Centrale for medicines, the to TD 3.6 billion in 2020–2022. 8 TUNISIA ECONOMIC MONITOR – RENEWED ENERGY TO THE ECONOMY Hard Wheat Imports Did Not Increase Sufficiently to Compensate the Drop in Domestic FIGURE 16 •  Production (thousands of tonnes sold by OdC in Tunisia by source) 14,000 Total sales 12,000 Local production 10,000 8,000 6,000 Imports 4,000 2,000 0 2020 2021 2022 2023 2020 2021 2022 2023 Soft wheat Hard wheat Source: Office des Céréales. products is the main cause of the increasing indebt- and weak domestic demand. Year-on-year price edness of SOEs and hence of the current shortages. inflation continued its gradual decline from the record This import compression has translated level of February 2023 (10.4 percent), reaching into shortages of basic products, exacerbated by 7.5 percent in February 2024 (Figure 17). This followed the drop in domestic agricultural production. The the reduction in core inflation to 6.9 percent (February increasing constraints to imports faced by SOEs has 2024) from 7.9 percent (February 2023) driven in part affected several basic products, including coffee, tea, by the weak domestic demand given the slowdown in vegetable oils, wheat (soft and hard), medicines, caus- economic growth.13 The decline in international prices ing repeated shortages in key markets since 2022. compounded this effect, helping reduce the pres- For cereals, as the drought decimated Tunisia’s hard sure on domestic prices. Driven by the drop in inter- wheat harvest in 2023, the OdC was unable to step up national prices of energy, cereals and iron and steel, its imports sufficiently to compensate for the shortfall, Tunisia’s merchandise import prices declined on aver- in spite of the lower international prices (Figure 16). In age by 4.4 percent in 2023.14 That allowed Tunisia to the absence of sufficient wheat stocks, the quantity of implement a price freeze of energy products with elec- hard wheat supplied to the market dropped by 8 per- tricity and gas inflation declining from 14.9 percent in cent in 2023 compared to 2022. This contributed to February 2023 to 0.2 percent in February 2024. the shortages of hard wheat products, notably semo- Inflation is lower than the nominal interest lina. Given the substitutability between hard and soft rate for the first time since July 2021. With declin- wheat, the shortfall seems to have also affected prod- ing inflation, the Central Bank (CBT) maintained its key ucts usually made with soft wheat, particularly flour policy rate unaltered at 8 percent since the beginning of and its derivatives, including bread. 2023. As a result, real interest rates became positive as of January 2024 after more than 2 years of having been negative. The challenge for the authorities continues Inflation moderated from the record 6.  levels of early 2023 but it remains 13 Core inflation is computed by excluding energy and food elevated, particularly for food products from the CPI. 14 That is an average obtained by weighing each 2-digit Inflation started to moderate since the peak of sector level price change by the corresponding share in February 2023 on the back of lower global prices total Tunisian merchandise import in the first 7 months. Recent economic Developments 9 Inflation Started to Decline in 2023 FIGURE 17 •  Profits (Driven by Capital Rent) are FIGURE 18 •  but it Remains High Driving the Recent Inflation Hike (Year-on-year percent increase) (Percentage point change, y-o-y) 16% Labor prod Capital prod Wage per worker Food inflation 9% Capital rent Tax net of subs. Import prices 14% Inflation 7% 12% CPI 5% 10% 3% 8% Core inflation 6% 1% 4% –1% 2% –3% 0% –5% Jan-18 Jul-18 Jan-19 Jul-19 Jan-20 Jul-20 Jan-21 Jul-21 Jan-22 Jul-22 Jan-23 Jul-23 Jan-24 2002 2004 2006 2008 2010 2012 2014 2016 2018 2020 2022 Source: Central Bank of Tunisia. Source: World Bank staff estimates based on INS and OECD. to be to avoid inflationary pressures fueled by a price- distribution channels. However, these measures do not wage spiral. The effectiveness of this policy depends appear to have yielded the desired effect, as other fac- on accompanying measures to pursue macroeconomic tors, including the shortfall in supply and imports linked stabilization and adopt the structural reforms needed to to the drought and the monopoly of highly indebted resume a sustainable growth trajectory. Maintaining a SOEs, seem more important drivers of inflation to date. strong and independent Central Bank will continue to New analysis shows that most of the be a central pillar in the pursuit of price stability. recent inflation episode is driven by rising prof- However, inflation is still high, particularly its and import prices, pointing to the impor- for food, as the drought and import compression tant role of competition and trade policy against reduced the supply in domestic food markets. inflation. The analysis is based on a novel decom- Despite the decline, inflation remains well above the position of Tunisia’s consumer price inflation into fac- 2021–2022 average (7 percent) and food inflation tors of production (labor and capital), net taxes and is particularly high (10.2 percent). While the rate of price increases for food have been historically higher 15 According to the 2021 Household Budget survey, the than average inflation, the gap has been growing in share of food in total expenditures is 35.5 percent for the past year as the drought and import compression the bottom quintile of the income distribution and reduced the domestic supply of agricultural products. 27.2 percent for the top quintile. 16 This decomposition is proposed by a recent paper by This presents a significant challenge particularly for Hansen, N.-J., Toscani, F. and J. Zhou (2023). “Euro Area lower income households, for which food accounts Inflation after the Pandemic and Energy Shock: Import for a relatively greater share of expenditures.15 Prices, Profits and Wages”, IMF Working Paper 23/131. The recent government measures to con- The decomposition needs four sets of data: (i) sectoral tain food prices focused on combating hoarding nominal and real GDP; (ii) sectoral nominal wages and behavior and enhancing price controls but food profits; (iii) the share of gross value added in sectoral consumption; (iv) the sectoral taxes net of subsidies. For inflation remains elevated. The government has Tunisia, data for (i) and (ii) comes from the INS national taken several measures since 2022 to reduce food account data; data for (iii) comes from the OECD Trade in inflation, including through a new law punishing hoard- Value Added dataset; and data for (iv) is taken from various ing and new regulations controlling food prices and rounds of the social accounting matrix from the INS. 10 TUNISIA ECONOMIC MONITOR – RENEWED ENERGY TO THE ECONOMY import prices.16 The decomposition shows that after wage bills in the world relative to the size of its econ- the Covid pandemic in 2020, profits (driven by capi- omy, it declined from 16.1 percent of GDP in 2020 to tal rent) accounted for the lion’s share of annual infla- 14.4 percent in 2023 and from 47.0 percent to 40.6 per- tion—61 percent on average (Figure 18). Import prices cent of total public expenditures. The slow decline of were responsible for around 40.9 percent and wages the wage bill follows the agreement between the gov- only accounted for 21.9 percent.17 Increased profits ernment and the trade union (UGTT) in October 2022 were responsible for a hike in prices of 4.9 and 4.2 and the continued freeze of public sector recruitment. percentage points in 2022 and 2023 respectively. That The relatively moderate growth of the wage bill helped is double the effect of profits in the Euro area in 2022 keep overall expenditure growth in check (+11 per- estimated by Hansen et al. (2023). This major role of cent) despite the significant expansion of transfers profits along with imports is not new in the last two (+30 percent, growing from 4.1 percent to 4.8 percent decades (Figure 18) and it suggests that policies to of GDP) and interest payments (+25 percent, from 3.2 promote open competition and trade, such as through to 3.7 percent of GDP). Capital expenditures continued reducing barriers to entry and trade across sectors, to grow below the rate of overall expenditure (+2 per- would be key to keep inflation in check. cent) and its share in GDP declined further to 3 percent (from 3.2 percent in 2022). Reversing the decline in public capital The budget continues to be 7.  expenditures by re-orienting less productive recur- under pressure as the low growth rent expenditures continues to be key to revive affects tax revenues economic growth. With slowing economic growth and employment creation, successive governments The budget deficit was stable in 2023 (6.7 percent over the past decade have increased recurrent pub- of GDP) following a more modest that expected lic expenditures to provide public employment and to increase in tax revenues pulled down by the slow- keep market prices for basic goods and services below down in growth. The provisional 2023 budget—ectify- cost recovery. Expenditures on subsidies (for energy ing the 2023 budget law—shows that tax revenues are and food products) grew from 2 percent to 7.2 percent expected to have grown by 11.4 percent in 2023 com- of GDP between 2016 and 2023 (figure 20). These pared to 2022. That is significantly below both the measures crowded out public investments, which initial projections in the 2023 Budget Law (15.3 per- declined from 6 percent to 3 percent of GDP over the cent) and the 2022 growth rate (16.6 percent), but same period. Reversing this decline in capital expen- higher than nominal GDP (Figure 19). The compara- ditures is crucial to revive Tunisia’s growth trajectory. tively modest performance of indirect taxes, particu- larly VAT (6.8 percent growth) and customs (4.8 per- cent), weighted down overall tax revenues. That is Assuming drought conditions 8.  consistent with the effect of the economic growth ease, we expect a moderate slowdown, with lower demand for consumption and growth rebound in 2024–25 investments, including for imports. On the other hand, assuming but economic prospects direct taxes showed greater resilience (+12.4 percent) remain uncertain as their largest component—labor income taxes—is less responsive to short-term variations in growth. After the significant slowdown in 2023, we expect The growth in public expenditures was due a moderate rebound of the economy in 2024–26. mainly to rising transfers and interest payments but moderated by relatively contained wage bill 17 At the same time productivity (both of labor and capital) increased marginally and hence resulted in only a growth and stalled capital expenditures. The public small inflation reducing effect. This inflation reducing wage bill—the largest expenditure item—grew by 8 per- effect explains why the sum of the positive contributors cent in 2023, slightly below the inflation rate and nomi- to inflation, i.e. profit, wage costs and import prices, is nal GDP. While Tunisia still has one of the highest public greater than 100 percent. Recent economic Developments 11 FIGURE 19 • Tax Revenues Under-Performed FIGURE 20 • A Tale of Two Expenditures: Subsidies in 2023 Versus Capital Expenditures (Yearly percent growth) (Percent of GDP) 25% 12% Subsidies and transfers 20% 10% 2022 2023 budget 15% 8% 2023 rectifying 10% budget 6% Public capital expenditures 4% 5% 0% 2% Total Direct VAT Customs Excises 2014 2015 2016 2017 2018 2019 2020 2021 2022 2023 Source: World Bank staff elaboration on data from Tunisia’s Ministry of Finance. Source: World Bank staff elaboration on data from Tunisia’s Ministry of Finance. Assuming a moderation of the ongoing drought and tax revenues. The CAD is projected to remain stable slightly more benign financing conditions, growth is at 2.4 percent of GDP in 2024 with continued growth forecast to reach 2.4 percent in 2024 and 2.3 per- in travel exports and stable terms of trade. With FDI cent in 2025–26. With this growth rate, real GDP in projected to be relatively stable and minimal portfolio 2024 would eventually reach its pre-Covid 19 level, a investments, foreign lending would still have to shoul- full four years after the pandemic started. This mod- der the financing of the CAD. est growth is due to challenging conditions linked to The financing of the deficits will require a water scarcity, the uncertainty around debt financing significant scale-up of the external financing in and the weak momentum of reforms to address struc- the face of the heavy debt reimbursement sched- tural impediments to growth. ule. Despite the lower deficits, gross financing needs The 2024–26 growth forecast is subject are expected to rise further at 16.1 percent of GDP to significant downside risks. Growth projections in 2024 (from 13.8 percent in 2023) due to signifi- could be even lower should Tunisia not implement fis- cant external debt service. In fact, almost two-thirds cal and pro-competition reforms and/or should avail- of the financing is expected to be amortization. It able financing not be sufficient to cover Tunisia’s also increases Tunisia’s reliance on external funding external needs. If these conditions were to materialize, sources, which should account for around 57 per- it may be challenging to secure sufficient foreign cur- cent of total financing. With FDI projected to be stable rency in the economy, which could lead to pressures and minimal portfolio investments, sovereign lending on exchange rate and prices, exerting a negative would still have to cover the external financing needs impact on economic activity and employment. In addi- as Tunisia continues to be cut off from international tion, should the drought conditions persist, the projec- capital markets. tions could be revised downwards given the negative If the pace of reforms and the level of impact on agriculture and the trade balance. financing remain sufficient, we project growth to Tunisia’s public finance and external be sustained at the 2024 level over the medium account will remain precarious in the absence of run along with some stabilization of the macro sufficient external financing. The budget deficit is and fiscal imbalances. We expect the economy to expected to decline somewhat to 6.1 per cent of GDP maintain its pace of growth to 2.3 percent in 2025–26. in 2024. That is mainly driven by a decline of subsidies That would entail the alignment with the long-run and wage bill in real terms and a moderate increase in growth path, from which the economy deviated during 12 TUNISIA ECONOMIC MONITOR – RENEWED ENERGY TO THE ECONOMY TABLE 1 • Key Macroeconomic Indicators, 2020–26 (year-on-year percent changes, unless otherwise indicated) 2020 2021 2022 2023 2024 2025 2026 Real GDP growth. at constant market prices –8.6 4.6 2.6 0.4 2.4 2.3 2.3 Private consumption –2.1 2.4 2.2 1.4 2.7 2.9 3.4 Government consumption –1.0 1.5 –1.2 1.9 –0.5 –1.0 –1.8 Gross fixed capital formation –20.0 3.2 1.7 –10.7 5.6 8.5 3.2 Exports. goods and services –20.0 11.9 17.3 9.8 2.1 4.0 4.1 Imports. goods and services –16.6 10.9 11.5 6.6 2.7 5.2 4.6 Real GDP growth. at constant factor prices –8.5 4.8 2.5 0.0 2.4 2.3 2.3 Agriculture 0.4 –2.3 1.0 –11.0 5.9 5.0 5.0 Industry –10.4 9.8 0.9 –1.5 –0.3 –0.3 0.9 Services –9.1 4.1 3.4 2.4 2.9 2.9 2.4 Inflation (Indice de Prix à la Consommation) 5.6 5.7 8.3 9.3 7.0 6.0 5.0 Current account balance (% of GDP) –6.0 –6.0 –8.7 –2.7 –2.4 –2.3 –2.4 Foreign exchange reserves (months of imports) 5.4 4.0 4.1 3.9 3.8 3.7 3.5 Central government overall fiscal balance (% of GDP) –8.7 –7.6 –6.7 –6.4 –5.6 –4.6 –3.2 Primary fiscal balance (% of GDP) –5.6 –4.7 –3.4 –3.1 –2.2 –1.1 0.2 Fiscal revenues (% of GDP) 25.5 25.7 28.5 28.5 28.0 26.1 26.3 Fiscal expenditures (% of GDP) 34.2 33.3 35.2 34.9 33.7 30.9 29.6 Financing needs of the Central Government (% GDP) 13.3 10.9 12.7 13.8 16.1 15.9 16.3 Central Government Debt (% of GDP)* 77.8 79.9 79.9 80.0 79.7 79.1 81.5 Interest payments (on CG debt; % of GDP) 3.1 2.8 3.2 3.3 3.5 3.6 3.4 * The figures for 2020–2023 are based on government data; 2024–26 are based on World Bank staff forecast. the Covid-19 crisis. We expect inflation to decrease pre-Covid levels by 2025.18 However, these medium- somewhat due to the relatively large post-Covid out- term prospects are conditional on an ambitious pace put gap and the mild increases in public wages fol- of reforms, sufficient financing, and the stability of lowing the government-UGTT agreement at the end of international energy prices, oil in particular. 2022. These conditions along with economic reforms should help Tunisia reduce its current account and 18 The finding applied whether using lower-middle or budget deficits, easing financing conditions. Further- upper-middle income country poverty line (equivalent more, the slight increase in real economic growth respectively to US$3.65/person/day and US$6.85/ should lead to a decrease in the poverty rate below person/day in 2017 purchasing power parity terms). Recent economic Developments 13 B PART ACCELERATING THE POWER TRANSITION TO RENEWABLE ENERGY Summary As Tunisia’s macro-fiscal challenges deepen, the government’s target of generating 35 percent of energy from renewable sources by 2030 becomes even more important. In the last two decades, the country has grown more dependent on fossil fuel imports, which undermine the sustainability of the current account. This depen- dence weighs heavily also on the fiscal balance given the high costs of energy subsidies when international oil and gas prices are high. By increasing the demand for energy, global warming is exacerbating the challenges of energy dependence and undermining the security of energy supply. Tunisia’s energy sector does not have to depend on fossil fuels as the country has a rich untapped renew- able energy potential. Renewable energy could significantly reduce the cost of electricity production, especially in the context of high and volatile international energy prices. New analysis shows that renewable energy generation could play a dominant role in power generation in Tunisia as it is the least cost energy source. To fulfill this poten- tial the Government would need to address various impediments including the weak energy sector financial per- formance and the integration of the grid. The benefits of expanding renewable energy production would extend to the whole of economy, with significant gains in terms of economic growth materializing already by 2030. The World Bank’s Tunisia Climate Change and Development Report (CCDR) estimates large investments needed to enable this green energy transition, to the amount of US$ 27–35 billion by 2050. The bulk of these investments are expected to be covered by the private sector given the significant cost advantage of green energy investments over thermal energy and fossil fuels in Tunisia. However, adequate conditions should be in place to favor such investments and accelerate the implementation of Tunisia’s ambitious renewable energy pro- gram towards its 2030 renewable energy target. As Tunisia’s macro-fiscal challenges ingly challenging external financing environment has deepen, the government’s target of generating put more pressure on Tunisia’s energy sector, which 35 percent of energy from renewable sources by is at the core of its external deficit. Ninety-seven per- 2030 becomes even more important. The increas- cent of Tunisia’s electricity is generated from natural 15 gas, more than half of which is imported due to rising FIGURE 21 • Energy Account for an Increasingly demand and declining local resources since the early Dominant Share of the Trade Deficit (energy trade balance as a share 2000s. The significant role of energy subsidies in of total merchandise trade deficit Tunisia’s fiscal deficit (22 percent of budget expendi- and energy imports (TD mln), six- tures in 2022–23) compounds this dependence. The monthly moving average) development of renewable energy, which is a local, 100% 1,600 abundant, and lower cost resource, could reduce the 90% Energy imports (TD mln, right axis) 1,400 dependence on imported fossil fuels, the fiscal def- 80% icit, and the cost of electricity production. As such, 1,200 70% the government’s target of 35 percent of energy from 60% 1,000 renewable sources is crucial not only for emission 50% 800 40% reduction but also for economic development goals. 600 30% The country has grown more dependent 400 20% on fossil fuel imports, which undermine the sus- 10% Energy balance as share in trade deficit 200 tainability of the current account. This increas- 0% 0 Mar-16 Aug-16 Jan-17 Jun-17 Nov-17 Apr-18 Sep-18 Feb-19 Jul-19 Dec-19 May-20 Oct-20 Mar-21 Aug-21 Jan-22 Jun-22 Nov-22 Apr-23 Sep-23 Feb-24 ing dependence has translated into an increase in energy imports as well as of the share of energy in the trade deficit (figure 21). The latter has grown from an Source: INS average of 15–20 percent in 2017 to 86 percent in the last six months of data (Sep. 2022–Feb. 2023). ber of power outages would reduce the value added The increased dependence on imports of fossil fuels by Tunisian manufacturing and service companies by is illustrated by the increase in the primary energy bal- 8.7 percent. For households, it would mean reduced ance deficit which reached 4.7 Mtoe in 2023 and by mobility and comfort, since energy is a critical input the deterioration of the energy independence rate, for transport, cooking, heating, and lighting. An energy the ratio of primary energy resources to primary con- shortage would also generate large losses and inflation sumption, which stood at 48 percent in 2023 com- at the macro level. pared to 80 percent in 2012 and 59 percent in 2015.19 The dependence on imported fossil fuels Eventually, Tunisia’s current account defi- also weighs heavily on the fiscal balance given cit and financing conditions may limit its ability to the high energy products’ subsidy rate when inter- import the energy it needs to meet growing demand, national oil and gas prices are high. Despite some thus stifling economic activity. With a large structural tariff increases in recent years (lastly in 2022), the current account deficit and limited capital inflows (see price of electricity and gas for consumers are still well Part A), Tunisia is expected to maintain large external below production costs. The average tariff for electric- financing needs over the next years. Recent evidence ity covers around 62 percent of the costs, while that has shown that financing these needs without access- of natural gas only 46 percent.20 This gap continues ing international capital markets will become increas- to generate large losses for STEG, which complicates ingly challenging, limiting Tunisia’s ability to import its financial position and hence its ability to meet the energy and other inputs for its industrial activities. The growing demand. recent World Bank’s Tunisia Climate Change and Devel- By increasing the demand for energy, global opment Report (CCDR) projects that Tunisia’s energy warming is exacerbating the challenges of energy imports would have to be reduced by 3.5 percent to dependence and undermining the security of preserve a level of foreign exchange reserves covering at least two months of imports. This energy supply con- 19 Source: Ministère de l’Industrie, des Mines et de straint would significantly affect production across all l›Energie. sectors. An analysis in the CCDR based on World Bank 20 Source: Ministère de l’Industrie, des Mines et de l›Energie Enterprise Survey data suggests that doubling the num- (2023), Conjoncture énergétique, Tunis: December. 16 TUNISIA ECONOMIC MONITOR – RENEWED ENERGY TO THE ECONOMY energy supply. Warming temperatures are causing a in the program is progressing after some delays due rapid increase in demand for energy, particularly during to rising prices and financing costs in the wake of the the summer season. Peak electricity demand reached Covid and Ukrainian crises. In addition, in December 4,825 MW in the summer of 2023, a 3 percent increase 2022, the government announced projects for a further over the same period in 2022, mainly as a result of the 1,700 MW to be implemented over the period 2022– rising usage of air conditioning. This peak demand 2025, with bids for the first round of solar projects due forced STEG to resort to load shedding in certain areas by May 30, 2024. This overall 2,200 MW program would of the country as the system was unable to fully cover require a US$ 2 billion private investment. Once imple- the peak. The load shedding strategy may also disrupt mented, it will increase the share of renewable energy water supply in certain regions as the water transfer in the electricity mix from 3 to 17 percent, with estimated stations require electricity to operate. The heightened savings of 1 million ton of oil equivalent of imported gas demand also resulted in the direct purchase of electric- and a significant reduction in production costs. ity and additional gas import from Algeria as well as in Renewable energy could significantly the use of marginal gas power plants, all of which fur- reduce the cost of electricity production espe- ther increased the cost of electricity. cially in the context of high and volatile inter- In fact, Tunisia’s energy sector does not national energy prices. The cost of natural gas have to depend on fossil fuels as the country has accounts for over 70 percent of the cost of electric- a rich untapped renewable energy potential. With ity produced. With the rise in oil prices in 2022, the its high solar irradiation and wind resources, Tunisia electricity produced from natural gas (whose price has a potential of up to 280 GW of solar and 90 GW of is indexed to that of crude oil) became increasingly wind power, far exceeding the current electricity peak expensive, and its cost far exceeded that of electric- demand of 5GW. This potential would even allow for the ity produced from renewable energy (Figure 22). In development of energy exports, especially given Tuni- 2022, the average cost per MWh produced by STEG sia’s strategic location near the large European market. Based on this huge potential, the govern- FIGURE 22 • The Cost Advantage of Renewables ment has set the ambitious target of generat- for Electricity Production ing 30 percent of electricity from renewables by (Costs and tariffs: TD per MWh of 2030. This is an increase compared to the original electricity in 2022) 30 percent target, which was set as part of the Tuni- 450 sian solar plan approved in 2014. The achievement of 400 the 2030 target would require the development of a 350 Avg electricity tariff (STEG) capacity of 4.8 GW renewable energy and an invest- 300 ment to the tune of US$ 4.5 billion.21 The National 250 Low-Carbon Strategy is even more ambitious with a 200 target of 50 percent of electricity from renewables 150 (6 GW) by 2035 and 80 percent by 2050. While ambi- 100 50 tious, such targets are achievable. A capacity expan- 0 sion model developed by the World Bank indicates Gas Algeria Solar Wind Min solar Max solar Wind import (30 MW) that renewable energy is part of the least-cost solu- Electricity production costs Concession tariffs tion to serve fast-increasing demand in Tunisia, result- ing in a capacity level of 12.6 GW by 2040 (with wind Source: STEG, Ministère de l’Industrie, des Mines et de l’Energie. Note : Algeria import refers to the direct import of electricity from Algeria ; Concession accounting for 70 percent of the renewable capacity). tariffs are the current maximum tariffs according to the source of energy production. To achieve the renewable energy target, Tunisia has set up an ambitious renewable energy 21 Source: Ministère de l’Industrie, des Mines et de l›Energie development program based on public-private and UNDP (2023), Stratégie énergétique de la Tunisie à partnerships. The implementation of the first 500 MW l’horizon 2035, Tunis: April. Accelerating the power transition to renewable energy 17 BOX 2: TUNISIA CCDR SCENARIOS FOR THE ELECTRICITY SYSTEM SIMULATIONS The electricity system analysis carried out in the context of the CCDR simulates three illustrative scenarios based on different types of government actions relatively to a business as usual scenario where renewable energy is set to grow at the same rate as in previous years. Scenario 1: Least-cost scenario. This is an unconstrained optimized scenario in which the capacity expansion plan is developed with no constraints on emissions. In this scenario, optimization starts in 2026, with projects in the pipeline implemented between 2023 and 2026. Electricity demand grows following a BAU trajectory, without additional energy efficiency and decarbonization of end-use sectors. Scenario 2: Green scenario. In this scenario, constraints are imposed to decarbonize the electricity sector by 2050 (net CO2 emissions reach zero). Electricity demand is the same as in Scenario 2. Scenario 3: Green hydrogen and deep decarbonization (net zero) scenario. This scenario assumes increased electricity penetration and deployment of green hydrogen in the building, industrial, and transport sectors, which displaces the use of fossil fuels.a This scenario also assumes that the switch to electricity prompts energy-efficiency improvements because electric equipment is typically more efficient than fossil-fuel-driven equipment. This improvement in end-use efficiency offsets the increase in electricity demand. Electricity demand (excluding electricity use for green hydrogen production) is therefore projected to grow at the same rate as BAU, although the penetration of electricity is 54 percent of final energy demand in 2050 (compared with 29 percent under BAU). a The scenario has been conservative in assuming only green hydrogen production for domestic use. Exports of green hydrogen could develop in the longer term if Tunisian production proves to be competitive on world markets. This possibility requires further investigation. was TD 441 (with an import price for natural gas of New analysis shows that renewable energy 1335 TD/TOE).22 This is two third higher than the aver- generation is projected to play a dominant role age electricity tariff and three and four times as high in power generation in Tunisia as it is the least as the average cost of electricity generated through cost energy source. Analysis carried out in the solar and wind power respectively. It also far exceeds CCDR uses a capacity expansion model (OPTGEN) the maximum tariffs for the electricity produced with and a dispatch model (SDDP) to prepare projections solar power in Tunisia’s concession regime (large of power generating capacity and electricity produc- scale Independent Power Producers). tion by type of technology until 2050 for three sce- Exploiting Tunisia’s renewable energy narios (described in Box 2). In all scenarios, there potential is even more important in light of the is a massive switch from natural gas to renewable ongoing development of the electric connection energy because solar and wind are part of the least- between Tunisia and Italy. This project—named cost solution for producing electricity. By 2050 renew- Elmed interconnector—aims to create by 2028 a ables would account between 77 and 84 percent of 600 MW sub-marine link between Tunisia and Italy total installed capacity (Figure 23).23 Some natural (Sicily), allowing the bi-directional exchange of elec- gas capacity is added for the latter part of the forecast tricity between the two countries. Connecting the period, at which point some gas plants would have Tunisian power system to the larger European power been retired and additional gas-fired generation will system could reduce the dependence on natural gas likely be needed to enhance the flexibility of the power and enable large-scale development of the renewable system. Given the higher electricity demand for hydro- energy potential by increasing the power system flex- gen production in Scenario 3, the installed capacity ibility. This in turn could reduce the overall generation is double that of Scenario 2. It also favors solar PV cost in Tunisia, hence enhancing the sector’s finan- energy due to lower investment costs and the possibil- cial viability, and lowering the need for natural gas ity of shifting hydrogen production to hours with avail- imports. In the long term, as the country develops its renewable energy potential on a large scale, Tunisia 22 Source: Ministère de l’Industrie, des Mines et de l›Energie could become a net electricity exporter to Europe and (2023), Conjoncture énergétique, Tunis: December. thereby structurally improve its balance of payments. 23 That is in line with the government’s target of 80 percent. 18 TUNISIA ECONOMIC MONITOR – RENEWED ENERGY TO THE ECONOMY FIGURE 23 • The Projected Growth of Renewable FIGURE 24 • …and in Power Generation Energy in Installed Capacity… (Power generation mix, percentage) (installed capacity in gigawatts) 100% 70 60 80% 50 60% 40 GW 30 40% 20 10 20% 0 All S1 S2 S3 S1 S2 S3 0% 2022 2030 2050 Gas Solar Wind Italy Gas 5.1 4.9 4.9 4.9 6.3 5.6 10.2 –20% Solar 0.0 1.5 1.6 1.4 8.0 11.5 28.9 All S1 S2 S3 S1 S2 S3 Wind 0.2 4.4 4.3 4.7 12.9 12.9 21.1 2025 2030 2050 Note: See box 2 for a description of the 3 scenarios. Source: World Bank Tunisia CCDR Note: See box 2 for a description of the 3 scenarios. Source: World Bank Tunisia CCDR (2023). (2023). able sunlight. In all scenarios, natural gas accounts for FIGURE 25 • The Transition to Renewable Energy an increasingly smaller share of generation, down to is Projected to Yield Large Economic Gains less than 2 percent in the most ambitious scenario 3 (Percentage point change in GDP (figure 24). The Elmed interconnection could ini- relative to business as usual under tially be used to import electricity until the renewable different scenarios) energy potential is sufficiently developed. Towards the 1.8 end of the forecast horizon, Tunisia would become a 1.6 net exporter of electricity under all scenarios. 2050 The benefits of expanding renewable 1.4 energy production would extend to the whole of 1.2 2030 economy, with significant gains in terms of eco- 1.0 nomic growth already by 2030. Macro-economic 0.8 modelling developed for the CCDR shows the 0.6 impacts of the 3 scenarios of renewable energy tran- sition described above. The modelling shows that 0.4 all scenarios lead to sizable economic gains relative 0.2 to business as usual, with the economy expected to 0 Scenario 1 Scenario 2 Scenario 3 be larger by between 1.1 percent (scenario 1: least- cost scenario) and 1.75 percent (scenario 3: deep Note: See box 2 for a description of the 3 scenarios. Source: Tunisia CCDR, World Bank (2023). decarbonization) by 2030 (figure 25). Scenario 3 is particularly beneficial for the economy in the short term because end-user sectors are likely to benefit cantly because most decarbonization investments are from enhanced decarbonization policies, resulting in expected to be shouldered by the private sector. lower energy costs. While all sectors benefit, indus- The bulk of the large investments needed try and agriculture perform particularly well given their for the green energy transition could come from greater energy dependence compared with services. the private sector if an adequate regulatory Public debt increases in all scenarios, but not signifi- framework is put in place. The CCDR estimates Accelerating the power transition to renewable energy 19 large investments across all green energy transition of the renewable energy program to private investors. scenarios, ranging between US$ 11 and 12 billion by Accelerating these efforts would be crucial to achieve 2030 and going up to US$ 27–35 billion by 2050. the ambitious renewable energy objectives and reap Around 60–65 percent of the investment needs are the related economic benefits. This would require var- expected to be covered by the private sector. That is ious measures including (i) strengthening the coor- because the investments in renewable energy pro- dination between the various parties involved in the duction are commercially viable given the signifi- projects, and the monitoring of program implementa- cant cost advantage over fossil fuel in Tunisia. Such tion, (ii) accelerating the implementation of ongoing massive development of renewable energies, driven programs, which is important for the country’s credi- by the private sector, will require a favorable regula- bility ; (iii) strengthening the governance of the renew- tory and financial environment and a highly flexible able energy sector; (iv) clarifying the approval process power system. and limiting the number of permits required; (v) simpli- Tunisia needs to accelerate the green tran- fying the procedures for land access ; (vi) speeding sition to achieve its ambitious renewable energy up the establishment of an independent regulator to target. The Tunisian government has started to under- reassure investors and ensure a transparent and fair take regulatory reforms to improve the performance of access to the grid; and (vii) modernizing STEG and the Tunisian electricity sector and the attractiveness restoring its financial viability. 20 TUNISIA ECONOMIC MONITOR – RENEWED ENERGY TO THE ECONOMY 1818 H Street, NW Washington, DC 20433