Tunisias Economic Challenges Caroline Freund Tunisia Economic - - PowerPoint PPT Presentation

Tunisia’s Economic Challenges

Caroline Freund

Tunisia Economic Challenges

• Structural issues:

▫ Bloated civil service ▫ Energy subsidies ▫ Regulations and rent-seeking

• Results:

▫ Insufficient growth ▫ Low labor force participation and high unemployment

• Short-run challenges:

▫ Security ▫ Uncertainty and policy predictability

• Results:

▫ Weak investment and low tourism ▫ Lower growth and higher unemployment ▫ Fiscal and current account deficits

Growth Then and Now

• 2

2 4 6 2000 2002 2004 2006 2008 2010 2012 2014

Note: 2013 represents the World Bank estimated growth Source: World Bank World Development Indicators

annual percent Real GDP growth, Tunisia, 2000-2013

Labor Force Participation and Employment

10 15 20 25 30 2000 2002 2004 2006 2008 2010 2012 2014 Unemployment, total (% of total labor force) Unemployment, male (% of male labor force) Unemployment, female (% of female labor force)

Note: 2013 excludes Q4 Sources: World Bank World Development Indicators

percent Unemployment rate, Tunisia, 2000-2013

Institut National de la Statistique(INS), Enquête Nationale sur la Population et l'Emploi (Tunisia)

20 40 60 80

percent of population, ages 15 and older Labor Force Participation, Tunisia, 2012

Female Male Total

680 690 700 710 720 2006 2008 2010 2012 2014

Source: Boughzala, 2013; Internatlional Labor Organization, 1996-2012

thousands Number of Employees in the Public Sector (government and state owned enterprises) Tunisia, 2006-2012

Subsidies and Government Jobs

Corruption//State Capture

• Transparency International Corruption Perceptions Index

▫ 2010 Tunisia ranked 59 (out of 178) jointly with Latvia and Slovakia, below Turkey and above Croatia. ▫ 2013 Tunisia ranked 71 (out of 175) jointly with Bulgaria and Senegal, above Greece below South Africa

• Tunisia’s problem was rent-seeking not corruption

▫ Excesses of Ben Ali family inspire outrage ▫ Bouebdelli School closed because in competition with International School Carthage. ▫ McDonalds told they had the “wrong partner”

Ben-Ali’s Family Tree

• Nesrine Ben Ali & Sakhr El Materi (36)
• Halima Ben Ali & Mehdi Ben Gaied (4)
• Ghazoua Ben Ali & Slim Zarrouk (6)
• Syrine Ben Ali & Marouane Mabrouk (8)
• Dorsaf Ben Ali & Slim Chiboub (10)
• Belhassen Trabelsi & Zahra Jilani (38)
• Med Adel Trabelsi & Souad Ben Jemiai (3)
• Med Mourad Trabelsi & Hela Belhadj (7)
• Med Ennaceur Trabelsi & Nadia Mufti (6)
• Moncef Trabelsi & Yamina Souiai (5)
• Jalila Trabelsi (4)
• Nefissa Trabelsi & Habib Ben Zakis (2)
• Samira Trabelsi & Med Montassar Meherzi (7)
• Tijani Ben Ali & Paulette Ben Ali (4)
• Naima Ben Ali (6)
• Hayet Ben Ali (6)
• Houria Ben Ali (1)
• Najet Ben Ali & Sadok Mhiri (3)
• Faouzi Ben Ali (1)

Zine El Abidine Ben Ali Leila Trabelsi (2 firms)

ZA Ben Ali 's Siblings (21 firms) Leila Trabelsi’s Siblings (73 firms) Children with Naima Kefi and in laws (24 firms) Children with Leila Trabelsi and in laws (40 firms) Ben Ali nieces and nephews (36 firms) Trabelsi nieces and nephews (59 firms)

State Capture in Tunisia

• Firms connected to Ben Ali are relatively large and extremely

profitable, especially in industries with entry regulation. 3% of

• utput and 21% of profits!
• Existing business regulations have been abused by the Ben Ali

clan—allowing them to effectively exercise monopoly power.

• The Ben Ali Business Group– was able to create rules, as needed,

to protect their interests.

• Policy role for outside experts in creating new business code.

Short Run--Transition is Tough

• Political uncertainty
• Policy uncertainty
• Security concerns
• Investors and tourists are waiting it out

Typical Growth Pattern in Transition

Growth Then and Now

• 2

2 4 6 2000 2002 2004 2006 2008 2010 2012 2014

Note: 2013 represents the World Bank estimated growth Source: World Bank World Development Indicators

annual percent Real GDP growth, Tunisia, 2000-2013

Widening gaps

• Current account deficit expanded to 8 percent of GDP in 2012 &

2013.

• Fiscal deficit exceeded 6 percent in 2013.
• Reserves cover just over 3 months of imports
• Unsustainable for an extended period
• Currency has weakened, but still room for movement.
• Reform is urgent

Urgent Need for Reform

• Short run

▫ Constitution is a major win for political stability ▫ IMF disbursement is a win for economic stability ▫ Refrain from wrong-direction reform ▫ Improve security ▫ Temporary job works programs ▫ Trade agreements and investment incentives

• Structural

▫ Reduce energy subsidies ▫ Address civil service employment ▫ Reform business climate—revise investment code