Country Report Tunisia April 2011

Economic policy: The government faces a severe financial squeeze

The government's fiscal position is deteriorating. Increased spending is being driven by the cost of the emergency measures being taken to revive the economy, together with demands from public-sector workers for higher wages and demands for compensation from those who have lost work. The cost of measures to create jobs and boost regional development alone is estimated at TD3bn (US$2.1bn). Subsidies for fuel and food will exceed the budgeted TD1.5bn because of rising world prices for oil and cereals. Tunisia has also had to carry most of the cost of helping the estimated 180,000 people who crossed from Libya into Tunisia in the two months to March 24th, following the unrest in Libya. If the economy recovers quickly the budgetary squeeze would be short and manageable. However, if the economic downturn is deep and prolonged, the public finances will weaken, along with the balance of payments and foreign reserves, requiring Tunisia to seek external financing in the coming months. According to government officials, EUR1bn (US$735m) in aid is expected from development agencies by the end of June. In late March the planning minister, Abdelhamid Triki, said that Tunisia could return to the international financial markets in the second half of 2011, or in 2012, although the downgrading of Tunisia's sovereign credit ratings will make this an expensive option.

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