Ennahda Proposes Big Spending To Stimulate Tunisia’s Economy
Author: alhayat Posted February 8, 2013
Fifteen months after the "Jasmine Revolution," and one hundred days after the Islamic Ennahda Movement was elected to govern, the Tunisian economy is still floundering. Some attribute its sluggish performance to the weakness of the ruling elite and its lack of expertise in managing governmental and economic affairs. Objectively speaking, the economic and social conditions that the government faces at the local, regional and international levels are challenging, which does not make its task any easier.
At the local level, ever since the outbreak of the revolution, political and economic demands have been increasing. Social protests and labor strikes have also picked up the pace.
At the regional level, insecurity and instability in Libya has negatively affected Tunisia’s economy. Global growth is slowing down, especially in the Eurozone — Tunisia's major economic partner — which has exacerbated the crisis, and the latest IMF reports predict that the Eurozone will witness another economic contraction this year as well.
In order to battle this difficult economic situation, the government submitted two documents to the Constituent Assembly over the past few days. The first includes the Supplementary Finance Law for 2012, and the second contains the government's program for 2012. The latter also includes details of economic and social policies that, if implemented, would respond to the country’s basic needs and help to achieve the revolution’s economic goals, particularly as they relate to job opportunities and developing rural areas, which have suffered from marginalization and deprivation for decades.
An examination of the two documents leads reveals the following:
First, the Tunisian government believes that achieving economic revitalization and a growth rate capable of providing enough job opportunities to absorb unemployment will require an economic reform program which includes two stages: a recovery stage in 2012, followed by a start-up phase in 2013. During the recovery phase, the government will focus on increasing expenditures, supporting regional growth and creating public job opportunities.
Second, the government aims to achieve a GDP growth rate of about 3.5% in 2012. This goal is modest, given the 1.8% decline witnessed in 2011, and the level of revenue and the volume of expenditures, which experienced a 22% increase compared to last year.
Third, aside from its tax revenues and loans, the government resorted to four additional financial resources within the Supplementary Law of Finance framework: confiscated money and property, worth $800 million; the $600 million available at the Tunisian Central Bank from the 2006 privatization of Tunisie Telecom; the estimated income from the government’s voluntary contribution campaign, which is open to all resident or expatriate Tunisians and aims to collect $300 million from this campaign; and finally, the income from donations and special foreign aid, estimated at $400 million.
Fourth, the state deficit for the current year is expected to reach 6.6% of GDP, compared to 3.7% in 2011. The current spending rate increased by almost 20% due to wage increases resulting from the creation of 25,000 new governmental jobs. Wages account for 12.5% of GDP and exhaust the government's budget, but these jobs provide the youth with high hopes for public-sector employment. The balance of direct support for basic materials, fuel, electricity and transportation witnessed a significant increase in order to maintain citizens’ purchasing power, especially for middle and low-income groups. The government raised capital spending levels by an exceptional rate of 34% as compared to its levels last year.
Fifth, the budget deficit, which excludes exceptional resources due to their non-renewable nature and lack of relevance to economic activity, accounts for 12.2% of GDP. This indicates that maintaining the same rate of expenditure in the coming years will force the government to accept unprecedented budget deficit levels, resulting in an increase in public debt, which already amounts to 46% of GDP, compared to 40% in 2010.
Despite the fact that the current government has been popularly elected, it is still a transitional government whose term will end within a year. This situation further complicates things and encourages the government to adopt expansionary spending policies aimed at satisfying broad constituencies at the expense of structural reform, the results of which will only be felt in the medium and long term.
The government’s program for 2012 does not explain how it plans to reduce its deficit to less than 3% and reduce the debt ratio to 40% of GDP by 2016.
Consequently, the promises of growth rates of less than 7% in 2015 and 8% in 2017, with an investment ratio of up to 26% of GDP in 2016, seem quite elusive.
Read More: http://www.al-monitor.com/pulse/business/2012/04/tunisian-economy-weak-performanc.html