Following a successful containment of the initial Covid-19 outbreak, sharp contractions in growth, employment and fiscal revenues by mid-2020 are making the extent of the shock more apparent. The economic outlook for 2020 has worsened since the last forecast. In the meantime, a second wave of infections and further turbulence on the political front are causing more uncertainty.
The pandemic comes at a weak point of Tunisia¡¯s economic history. With persistent political instability, the economy has struggled to garner investor confidence since the revolution such that GDP growth averaged just 1.5% between 2011 and 2019. Growth now relies increasingly on consumption while investment and exports remain significantly below pre-revolution levels and unemployment stubbornly high at 15%. As growth stagnated, a social contract that sees the public sector as a source of jobs and a guarantor of affordability has seen the fiscal context deteriorate under the weight of a large public sector wage bill and consumer price subsidies.
The outlook for reforms to support the recovery is challenging. Structural reforms to address SOE performance, increase market contestability and clamp-down on corruption are evermore necessary but will depend on the extent to which Hichem Mechichi¡¯s new technocratic government, formed in September 2020, can garner consensus to implement the needed reforms.