Tunisia’s 11th Development Plan has set out a road map to boosting growth through tax reforms, investment and economic restructuring.
In July, parliament unanimously approved the Development Plan, which had been presented by Prime Minister Mohammed Ghannouchi. It is the latest five-year economic plan, taking the economy into the second decade of the twenty-first century. The draft plan has been two years in the making, and Ghannouchi said that it was based on extensive consultation, an assessment of the results of past plans and a thorough analysis of developments at the national and international level.
The program combines economic reforms designed to boost investment and encourage and diversify the private sector, while boosting social services. In a move to encourage foreign direct investment (FDI), the Development Plan includes large-scale changes to the tax system. Corporate tax will be lowered from 35% to 30%, while businesses will be given a rebate equal to the increase on VAT.
Customs duties on a range of equipment and materials imported from certain countries which have free-trade agreements with Tunisia will be lifted, taking the proportion of duty-exempted imports to 80% of the total.
Strong growth
Tunisia’s strong GDP growth of 4.5% over the past decade is forecast to increase to 6.1% due to the expansion of the service sector, which will account for 50% of the economy within the next few years, and the restructuring and liberalization of other sectors and the economy in general. The Development Plan envisages that the increase in growth will help improve incomes. Per capita income grew from $2,300 in 2001 to $3,000 by the end of 2006, Ghannouchi said. The program foresees this increasing to $4,400 by the end of its remit.
The program envisages cutting unemployment to 13.4% by 2011, from 14.3% at present, made possible in part by infrastructure and industry projects.
The reforms to taxation and government spending, coupled with growth, should reduce the budget deficit to 2.2% of GDP by the end of 2011, from 2.9% at the end of 2006. The Development Plan sets out a maximum of 3.1% for the budget deficit, and 2.6% for the current account deficit (CAD). It also targets a reduction in foreign debt from 47.9% to 39.1% of GDP over the course of its implementation.
After parliament approved the 11th Development Plan, Ghannouchi emphasized that the coming five years will present challenges as well as opportunities for Tunisia. These include tougher international and domestic competition and potential increases in the price of raw materials.
“The targets set by the 11th Development Plan are ambitious and are meant to formalize Tunisians’ determination to achieve new results on the path of progress and prosperity,” he said.
The cost of the plan to the government is estimated at $45.5 billion, 35% more than the 10th Development Plan. The government aims to fund the package partly through $6 billion in foreign investments, with an additional $9.8 billion from international loans and partnership agreements with other countries in the Mediterranean and MENA regions.
Program is well costed
At a meeting to discuss the funding of the Development Plan, European Investment Bank (EIB) vice president Phillipe de Fontaine Vive announced that the financial arm of the EIB, the FEMIB, would be increasing its loans to private sector companies by 50%. Furthermore, the government is encouraging a diversification of private funding.
There is a consensus among economists that the program is well costed and that the country does not face serious external or internal risks over the next half decade, so investment will continue to come in and the government’s fiscal position will be strong enough to fund much of the plan. The US envoy to Tunisia, Robert F. Godec, recently described Tunisia as a “stable country with zero risks for foreign investments.” The recently-released African report of the World Economic Forum (WEF) also singled out Tunisia as an oasis of stability in the continent, a statement which should further boost investor confidence. While in the past Tunisia was considered a highly controlled marketplace, with strong repatriation controls, the system is changing rapidly as the government homes in on the link between trade and growth.
