Tunisia outlook

Daniel Richards - MENA Economist
Published Date: 27 April 2021


We have revised down our growth projections for Tunisia as the Covid-19 pandemic continues to weigh on both the domestic and the global economies. While we maintain that the second half of 2021 should see a fairly strong resurgence, at present ongoing curfews and a weak outlook for the tourism sector will continue to exert a drag, even as the initial impact of the pandemic comes into the base. We now forecast real GDP growth of 3.8% this year, compared to our more bullish previous expectation of 4.5%. This follows an -8.8% contraction in 2020, meaning that even with our projection of 3.9% growth next year, the economy at the end of 2022 will remain smaller than it was at the start of 2020.

Real GDP growth, % y/y

Source: Haver Analytics, Emirates NBD Research

Third wave weighing on the outlook

Tunisia has been afflicted by a third wave of the Covid-19 pandemic in recent weeks, and while daily new case numbers have not hit the previous highs seen during the second wave in January, the seven day moving average has risen back over 2,000 a day, necessitating renewed lockdown measures. Prime minister Hisham al-Mashishi has acknowledged the challenge the government faces in curbing the spread of the disease while at the same time not inducing undue economic pressures, saying in April that ‘It is not possible to impose a general lockdown in Tunisia because of the socio-economic difficulties.’ Indeed, in the wake of protests by labour unions, the curfew introduced was pushed back from the initial 7pm until 10pm. Nevertheless, even these restrictions will continue to weigh on private consumption, as will a general reluctance for potential exposure to the disease while case numbers remain at these elevated levels.

New daily Covid-19 cases (7dma) climbing again

Source: Bloomberg, Emirates NBD Research

Should this wave persist, the reluctance to introduce more stringent measures for fear of harming the economy could prove self-defeating, at least until there has been more headway made on the national vaccination programme. Tunisia received its first batch of vaccines at the start of March and has now begun to roll out vaccinations, but progress has not been especially rapid so far. As such, even with the pandemic in the base for the second quarter, with cases still high it will likely be another weak period of growth, leaving the second half of the year to do the heavy lifting.

Conditions should improve in H2

At present we would expect a much stronger H2 on the expectation that the tourism sector can begin to return to some semblance of normality on the back of ongoing vaccination programmes both domestically and globally. According to the World Travel & Tourism Council, Tunisia’s tourism sector accounted for 13.9% of the economy in 2019, and 10.8% of employment, and while there was a brief period when visitors could go to Tunisia last summer, for most of the year the sector was frozen. The number of visitors declined by -83.7% in 2020 compared to 2019, and this weighed on sectors such as hotels and restaurants which declined -3.1% last year in real GDP terms. At present, January-February 2021 arrivals were still -77.6% down compared to 2019 levels, and even -59.8% off levels seen in January alone last year. Until we start to see a recovery in the tourism sector unemployment levels will remain elevated, further weighing on household expenditure. At the end of last year, joblessness was at 17.4%, compared to 14.9% the year previous.

New IMF programme requested

The slow resumption of tourism will also weigh on Tunisia’s external and fiscal positions, and we expect that the twin deficits will remain fairly wide with a current account balance of -8.4% of GDP and a fiscal deficit of -6.8%. In order to help it through this challenging time, Tunisia wrote to the IMF in April requesting further assistance in the form of a new programme in return for ongoing economic reforms. The IMF has stressed that a ‘comprehensive reform agenda that addresses a debt that is growing fast’ is important for the country, and it has in the past delayed payments to Tunisia when reform targets have been missed. In particular, the bloated civil service and massive related wages burden has long weighed on any attempts at fiscal consolidation.

Twin deficts remain wide

Source: Haver Analytics, Emirates NBD Research