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TopFiscal Policy In Tunisia: Cyclical Characteristics And Stylized Facts
Post-revolution Tunisia continues to face a significant deterioration in its public finances. Since 2011, policies have been followed to cope with changes in the economic environment, unforeseen expenses, and often overly optimistic assumptions when preparing the budget. The composition of public spending favors current spending to the detriment of investment spending and is therefore not geared towards supporting the long-run growth. The main component of current expenditure, civil service wage bill represented 41.5% of the budget and 14% of the GDP in 2017, while public investment, although slightly increasing since 2015, respectively represented only 16% and 6.4%.
The deterioration of public finances is also linked to the maintenance of the policy of subsidizing certain basic products and energy, as well as to significant social transfers which represented, in 2017, about 16% of the budget. The increase in oil prices combined with the sudden depreciation of the dinar in April 2017 led to a significant slippage of the budget, of some 900 million dinars intended for energy compensation. Consolidation of public finances should however take place within the framework of the 2018 finance law, which provides for an increase in tax revenue of 10% compared to 2017, representing around 2.2 billion dinars, thanks to the increase in value added tax (VAT) and a scheduled quarterly increase in fuel prices, in order to align them with international market prices and limit the cost to public finances. The budget is expected to grow only 4% in 2018 compared to 11% in 2017, half as fast as inflation, which is expected to rise to 7.1%. This slowdown combined with control of current expenditure should allow a significant decrease in the level of budget deficit during the period 2018-2019. The creation of additional budgetary space, through a large-scale tax reform allowing the collection of new revenues, and a restructuring of the composition of public expenditure in favor of productive investment, remain essential to raise the level of growth.