Country Brief

Download the Country Brief (PDF)

Tunisia has made remarkable progress on equitable growth, fighting poverty and achieving good social indicators.  It has sustained an average 5 percent growth rate over the past 20 years with a steady increase in per capita income and a corresponding increase in the welfare of its population that is underscored by a poverty level of 7% that is amongst the lowest in the region.  The steady increase in per capita income has been the main engine for poverty reduction.  In addition, public investment in infrastructure and human capital also played an important role in reducing poverty (about 60 percent of Tunisia’s budget is allocated to the social sectors).  Rural roads have been particularly important in helping the rural poor connect to urban markets and services.  Housing programs improved the living conditions of the poor and also freed up income and savings to spend on food and non-food items with resulting positive impacts on poverty alleviation.  Food subsidies, which have been targeted to the poor, albeit not optimally, have also helped the urban poor. 

Tunisia is on track to reach the MDGs.  As regards education, in 2007/08, 97.4% of both male and female 6 to 11 year olds were enrolled in school.  Primary completion rates are high for girls at 91% and have been increasing for boys reaching 87% in 2007/08.  If the pattern of lower repetition rates in primary continues, all students regardless of gender should complete primary school by 2015.  Health outcomes are better than those found in other MENA countries with life expectancy reaching 74 years.  Rapid progress has been made on infant and maternal mortality rates, malnutrition has dropped markedly and HIV/AIDS prevalence is very low.  Coverage of health care benefits is provided through two national social assistance schemes which cover more than 85 percent of the population.  Access to basic socio-economic services (water, electricity, sanitation) is near universal.  Tunisia has one of the most equitable societies in the MENA region and is considered a leader as regards gender issues and strengthening women’s role in society.  With 64% of the population living in cities or towns, Tunisia is one of the most urbanized countries in MENA.

Increasing integration into the global economy has driven economic growth.  Since the 1970s, Tunisia has undertaken an integration strategy that gradually has dismantled trade barriers and created an off-shore regime that has attracted FDI and led to the creation of new industries for export.  As a result, the Tunisian economy is open: exports account for 47 percent of GDP and, together with FDI, are highly dependent on the EU.  Tunisia has been able to penetrate new markets in manufacturing and engineering thanks to remarkable improvements in total factor productivity.  However, the services sector, other than tourism, has not developed to the extent it could have and indeed Tunisia lags behind comparable countries in the development of services. 

Good and effective macroeconomic management, especially since 1996, has underpinned the strong growth performance and helped moderate the impact of exogenous shocks on economic growth.   A continued pro-active fiscal policy has kept fiscal deficits below 3% and prudent debt management has brought down the public debt ratio to 47.5% of GDP in 2008 (which has contributed to Tunisia’s stable investment credit rating BBB/Baa2).  Tunisia also has a good track record of keeping inflation under control at or below 3 percent (except in 2008 due to imported inflation). 

Tunisia has achieved solid performance on governance rankings but business environment issues continue to be cited as constraints to growth.  Tunisia has consistently scored above its income category and the MENA average on most dimensions of comparative governance rankings and development indexes.  In WBI’s World Governance Indicators, Tunisia is far ahead in terms of government effectiveness, rule of law, control of corruption and regulatory quality.  It achieves high scores on the CPIA measures, ranks 73^rd on the 2009 Doing Business indicators (up from 81^st in 2008) and 36^th on the Global Competitiveness Index.  Nevertheless, slow progress on strengthening the business environment in the on-shore sector – which is characterized by a heavy and pervasive intervention by the state in the economy – has defined the private sector in Tunisia to date.  This has resulted in less competition, has served as a considerable impediment to the creation of jobs and is the likely reason why private domestic investment has remained intractably low (15.4% in 2008).

This development model that Tunisia pursued over the past two decades has served the country well.  However, despite the excellent growth track record, the Tunisian economy remains unable to generate sufficient jobs to employ the growing labor force.  Unemployment has been persistently high in Tunisia –14.1% in 2008 – with the burden falling on young and educated individuals (it peaks to as much as 30% for individuals aged 20-24 years and 25% for young university graduates).  Unemployment is characterized by three factors; (i) demographically, Tunisia is boasting a large number of higher education graduates entering the labor market (57% are graduates of tertiary education), thus swelling the labor supply of educated people. This has, in part, been driven by the country’s success in putting a large number of people through school; (ii) the existing economic sectors (textiles and clothing, agriculture, agro-industry, automobile components, tourism, etc.) are predominantly intensive in low-skilled workers and do not generate sufficient demand for workers with a post-baccalaureate level of education/degree; and (iii) while greater trade integration and significant FDI inflows have allowed new sectors to emerge, the trend of business creation in newer, knowledge-intensive sectors is insufficient.  

The broad challenge for Tunisia over the long-term is to produce and maintain a pattern of high economic growth that generates employment and incomes, contributes further social gains and preserves the valuable natural and cultural assets of the country.  There is a broad consensus in the country and amongst international observers that the pattern of growth that has served the country well to date will not deliver on the expectations of the population to benefit from growing incomes and welfare and gradually converge on European standards. In this regard, Tunisia now stands at a critical stage because it is confronted with a difficult reality of why it did not perform as well as other emerging countries – such as Malaysia or Turkey – that undertook a similar growth model but achieved stronger results, particularly on critical issues such as productivity and private investment growth, which resulted in widespread job creation.  

The global crisis is making the unemployment challenge more urgent.  Addressing the employment challenge will require a comprehensive approach, dealing with constraints both on the supply and the demand sides. Essentially, reducing unemployment in the context of Tunisia calls for an acceleration of the structural transformation of the economy towards a higher value-added, knowledge-intensive economy. For that, (i) deeper trade integration, (ii) greater innovation and technological adaptation and (iii) professional reinsertion and retraining of workers in traditional sectors will be crucial. This core set of reforms will however be only effective with an adapted enabling environment. Accompanying reforms include better economic governance, financial sector reforms and a stronger functioning of the labor market. The latter includes improved active labor market policies; enhanced income support to facilitate labor mobility and investments in social services. Improved education sector responsiveness to labor market needs will also be necessary.

Recent Political Developments

Presidential elections are scheduled for October 25, 2009. After last year’s constitutional amendment which allows more candidates to contest the presidential elections, leaders of any legal party, including those with no parliament seats, will be able to run.  Previously, only leaders of parties with parliamentary seats could run.  Four candidates from the opposition have so far officially declared their intention to run against Ben Ali. 

Recent Economic Developments

Tunisia was initially well-placed to face the global financial crisis due to its financial sector’s insulation from global financial markets.  However, the real economy naturally was impacted given Tunisia’s strong trade links with Europe where it ships 75 percent of its exports. Thus throughout late 2008 and 2009, export growth dropped from 12 percent in 2007, to 1 percent in 2008 and negative 14 percent in the first semester of 2009.  GDP growth decelerated sharply in late 2008 and dropped by 2 percent in the first quarter of 2009 compared to the last quarter of 2008.  Fortunately Tunisia is well prepared to respond to this shock. 

The macro-economy remains sound with a modest fiscal deficit (-2.1 percent in 2008), low inflation (3 percent), and a healthy level of reserves (5 months of imports).  Prudent and pro-active debt management over the last few years led to a sharp decline in the public debt ratio to 47.5 percent of GDP in 2008, down from 58 percent in 2005. This provided the fiscal space for the Government to initiate a fiscal stimulus package (amounting to 1.4 percent of GDP) in early July 2009 that targets public works, boosting maintenance of infrastructure, and frontloading public investment projects

Tunisia’s Development Strategy

Tunisia’s 11^th National Development Plan (NDP, 2007-2011) charts an ambitious course to transform its economy to a higher value-added, knowledge-intensive one that will allow it to consolidate and improve its strong progress to date.  The NDP is being updated (as part of a “rolling plan” approach) and builds on a prolonged period of very solid economic and social development often in the face of unprecedented challenges and exogenous shocks.  However, the worsening unemployment threatens the social achievements to date and the impact of the global crisis puts extra pressure on Tunisia to do better in terms of growth.  Tunisia recognizes that it now needs to carry out a transformation to a higher value-added, knowledge-based economy through increasing further the integration of its economy, bringing about even faster improvements in productivity growth and carrying out deeper structural reforms in order to generate employment, particularly for its well-educated population.  The NDP sets out this challenge well and highlights the areas where future reform efforts must focus. 

Relationship with World Bank

Tunisia is calling on the World Bank to play a key role in supporting the implementation of the NDP and has invited the Bank to step up its lending and knowledge engagement.  The Bank has remained a valued partner during critical periods in Tunisia’s development, most often for its knowledge role, although IBRD financing has proven important and timely.  The Bank has a broad program already in Tunisia and a productive dialogue with the Government and the country’s development partners.  This new opportunity for the World Bank to step up its engagement reflects a strengthening of the partnership with Tunisia and provides an excellent opportunity for the Bank to provide enhanced support to a well performing, middle-income country.  

The Bank’s relationship with Tunisia is mutually acknowledged as being good and has emphasized the importance of responsiveness and flexibility to evolving needs.  The Bank’s engagement in Tunisia has focused on top quality analysis and global knowledge which has underpinned all lending operations.  The Government has often expressed its appreciation for the knowledge services of the Bank and it considers the Bank’s dialogue and analysis as critical inputs to their National Development Plans and sectoral strategies.  The knowledge role of the Bank is especially valued because the Bank has undertaken economic and sector reports in a fully collaborative way, with strong ownership from Government.  Equally important, the Bank has been able to mobilize rapidly its team and resources to respond flexibly when requested and to focus on providing just-in-time policy advice, most recently in responding to the Government’s request for analytic and economic modeling support of the stimulus package, and in suggesting options for greening the stimulus. 

Country Partnership Strategy

The CPS for Tunisia is currently being elaborated and will be presented to the World Bank’s Board of Directors by the end of November.  The year 2009 so far has been fruitfully spent on a series of discussions with Government and consultations with development partners on the overall partnership strategy of the World Bank, the areas and nature of engagement, and the choice of lending projects.  The strategy builds on the lessons learnt from implementing the previous Country Assistance Strategy, is aligned in timing and substance with the NDP update, and reflects the selectivity of the client because the Tunisian Government has been very clear where it wants the Bank to provide support and where it doesn’t.  The experience in Tunisia is that the Government only requests IBRD financing when it has carefully weighed the pros and cons of all alternatives and where it assesses that the Bank can add most value.  This level of frankness helps the relationship immensely.  

The Government and the Bank have agreed on three strategic pillars for the CPS which is organized in a results based framework focused on specific results areas.  These are:

 Pillar 1: Growth, competitiveness and employment

Given its political and economic importance, the employment challenge remains central to the Bank’s strategy.  The Bank has a long-term engagement and the program encompasses a comprehensive multi-sector and multi-instrument approach.  The AAA is informing dialogue, reform measures and possible future operations and new lending is being delivered in partnership with other main donors in Tunisia (notably the EU and African Development Bank).  The support of the Bank will be focused on two specific results areas; (i) deepening trade and facilitating the transformation of the economy; and (ii) improving employability.  As part of the program of support, each of these two results areas will benefit from a DPL to be delivered every two years, in alternating intervals between the Integration and Competitiveness DPL and the Employment DPL, thus ensuring one DPL per year.

Pillar 2: Sustainable Development and Climate Change

The huge challenge presented by climate change is one that the Government has started to address but where it actively is seeking greater support. While Tunisia has been in the forefront in MENA on environmental issues, the country is facing serious challenges on environmental sustainability and natural resource management.  The Government is looking to the Bank to step up its assistance given the Bank’s broad environment, energy, agriculture and water portfolio (complimented by a dynamic GEF portfolio) and our global knowledge of this critical issue.  The CPS aims for better focus and synergies in activities around an integrated approach that brings value-added over the long-term while addressing urgent issues.  In this regard, the Bank’s support is clustered around two results areas; (i) strengthening environment and natural resources management; and (ii) promoting energy efficiency and renewable energy.  These areas are where the Bank already has on-going activities and where the Government sees that we have most value-added.  As part of the CPS program, the Bank will endeavor to mobilize greater financial support for Tunisia through the Clean Technology Fund, Carbon Funds, GEF and other Trust Funds.

Pillar 3: Improving the quality of service delivery.

Following good progress in ensuring access to services, the challenge for the Government now is to improve the quality of service delivery, particularly as regards delivery of services to citizens (education, health and social protection, municipal services) and strengthening the decentralization process.  The Government has recognized that there is a need to strengthen the capacity of the state to deliver services through continued reforms to budgeting, improving procurement and overhauling the interface between the public and private sector.  The two results areas targeted under this pillar are: (i) improve the quality of social services; and (ii) strengthen the capacity of the state at central and decentralized levels to deliver quality services.

The financing role of the Bank has also remained flexible and has undergone some important evolutions over the past few years.   The Government did not engage IBRD lending in large amounts for the FY06-08 period, preferring instead to access favorable external financing elsewhere.  In parallel, the Government decreased its public debt and repaid considerable amounts of its debt to IBRD.  The fiscal year 2009 marked a significant new departure in the Bank’s relationship with Tunisia.  Due to the more favorable IBRD terms, the country increasingly sought the Bank as a preferred financial partner with record lending delivered of $335.6 million.  In particular, Tunisia engaged in its first Development Policy Loan ($250 million) in support of its global integration and competitiveness agenda.  The DPL was delivered in close collaboration with the EU and African Development Bank and has set the stage for further strong collaboration. 

On-Going Portfolio

The portfolio has continually remained large with 15 projects under implementation, yearly disbursements averaging $123 million and the overall size of the portfolio remaining at around $500 million.  The portfolio performance is satisfactory with no long-term problem projects, good pro-activity and realism indicators, and an average disbursement ratio for FY05-09 of 21.4 percent, close to the Bank’s average.   However, there are some operational factors that dog the Bank’s program and which are, for the most part, linked with procurement weaknesses.  The cumbersome procurement procedures lead to slow disbursements and repeated extension of projects.  The Bank’s team and the authorities are working on addressing these procurement issues through intensive technical assistance.

IFC:

IFC Portfolio Information

IFC’s total committed portfolio in Tunisia is currently US$275 million in 8 companies. The portfolio is predominantly comprised of infrastructure and financial markets projects. IFC's role in ordinary projects has been reduced in Tunisia, given alternative sources of financing at spreads lower than IFC’s. We therefore continue to seek business when we can play a clear developmental role and add value beyond price sensitive projects.

In this context, IFC’s focus in Tunisia is on new sectors or products.  IFC will continue considering investments in the financial sector in addition to large and complex private sector infrastructure investments or in sectors such as oil and gas, IT, health and education, which are not well serviced by Tunisian commercial banks.  It also expects to be more active in TA & advisory services through PEP-MENA, particularly on the investment climate and corporate governance. In addition, Tunisia is proving to be a source of South-South investments in the Maghreb and Africa. IFC has financed some Tunisia-South projects (e.g. Maghreb Leasing Algerie) and is considering such investments in manufacturing, banking, health, insurance and leasing.

Recent investments:  In April 2008, IFC committed US$193.5 million for its own account and US$364 million for B loan participants in the landmark TAV Tunisia project-- the first large infrastructure PPP in Tunisia and the first airport concession in North Africa.  In March 2009 additional $35 million was invested in the equity of the project.  In September 2007, IFC invested US$2.6 million in ENDA Inter-Arabe, a Tunisian microfinance institution, in the form of a local currency loan.  This marks IFC’s first investment in the microfinance sector in the country.  In June 2006, IFC invested US$13 million in Maghreb Private Equity Fund II followed by a second investment of 7.5 million in January 2008, a regional private equity fund targeting SMEs in Tunisia, Algeria and Morocco.  The fund is managed by Tuninvest Finance Group, an independent Tunisian financial services company. IFC has also committed US$10 million equity investment in a leading Tunisian group to help support the Group’s global expansion.

Future IFC investment activities in Tunisia:  IFC is currently considering investments in a number of strategic sectors as follows: (1) US$50 million equity to a private bank to support its expansion in the country and in Algeria. This investment will also include TA on corporate governance and SME lending; (2) Disbursement of US$2.6 million investment in South Mediterranean University (SMU), a small private sector university; (3) early-stage financing to support the development of commercially prospective oil discoveries; (4) a greenfield tertiary care operation which will specialize in oncology, cardiology and orthopedics; (5) an insurance group both in Tunisia and Algeria. 

Advisory and Technical Assistance program: IFC’s PEP MENA, the technical assistance program for the MENA region, is interested in developing a Corporate Governance program to improve practices for private companies and banks.  It also undertook an advisory assignment in 2005 with BIAT bank to improve lending procedures to retail customers and SMEs.  This could be also offered to other banks.

MIGA:  MIGA does not have any exposure in Tunisia and has not received any requests to provide guarantee coverage of any inbound investments. Tunisia as Investor Country. The Agency has provided coverage (against the risks of transfer restriction, expropriation, and war and civil disturbance) of an equity investment and loan guarantees from Tunisie Telecom to MATTEL in Mauritania. The current outstanding exposure from this investment is $5.4 million. The project, which involves the installation, operation and maintenance of a new GSM telephone network, aims to: (i) increase teledensity in Mauritania (among the lowest in the world); (ii) expand the scope of service; and (iii) improve the quality of service, all important positive developments for the local business community.

All dollar figures are in US dollar equivalents.  September 2009

For more information, please contact:
In Washington: Najat Yamouri, nyamouri@worldbank.org