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Tunisia Eyes Reforms to Revive Growth Amid Drought and Financing Constraints

Economic Challenges in Tunisia

Tunisia’s economy has been struggling to recover from the impacts of a severe drought, tight financing conditions, and modest pace of reform. This has resulted in growth below pre-COVID levels. According to the World Bank’s Spring 2024 Economic Monitor for Tunisia, Renewed Energy to the Economy, the country’s economic recovery slowed down in 2023.

Forecasts and Challenges

  • The report forecasts that Tunisia’s economy will grow by 2.4 percent in 2024 and 2.3 percent in 2025-26, assuming easing of drought conditions and some progress in fiscal and pro-competition reforms.
  • The World Bank emphasizes the need to address the drivers behind external financing challenges, including energy deficit, debt service, and level of capital inflows.

Impact of Drought on Tunisia’s Economy

The severe drought has led to:

  • An 11 percent drop in agriculture
  • Limited domestic demand, penalizing sectors such as construction and trade
  • Unemployment rose to 16.4 percent in the fourth quarter of 2023
  • Labor force participation dropped

Economic Opportunities for Tunisia

Despite challenges, there are opportunities for growth:

  • Gains in tourism and exports
  • High potential for strategic investments in renewable energy
  • The country aims to increase the share of renewables in its electricity mix from 3 percent to 35 percent by 2030

Investment and Financing Requirements

The total investment required for Tunisia’s decarbonization agenda is estimated at US$ 4.5 billion by 2030, which can be largely financed by the private sector if adequate regulatory conditions are in place.

Key Projects and Initiatives

  • The electricity interconnection between Tunisia and Italy (Elmed) aims to improve Tunisia’s electricity system resilience and transform it into a net exporter of electricity.
  • The World Bank remains committed to supporting Tunisia in its efforts to leverage opportunities for growth and sustainability through strategic investments in renewable energy.

Conclusion

Tunisia’s economic future depends on its ability to overcome current challenges and leverage opportunities for growth and sustainability. With the right strategies and investments, the country can tap into its rich renewable energy resources and achieve stability. The World Bank is committed to supporting Tunisia in this endeavor.