Tunisia: Government aims for deficit control in 2025 budget guidelines

• Self-reliance is the first principle for the 2025 budget
• Wage spending will continue to be limited
• Subsidies and transfers are main policies for fair redistribution and poverty reduction

The ministry of finance published a?document?outlining the main objectives of the 2025 Finance Act. The document, which is available only in Arabic, sets out the principles that will ensure the fiscal sustainability of the government. The document has not provided any specific targets for the deficit or macroeconomic assumptions but indicates that the government aims to reduce the budget deficit next year. We note that the deficit target was set at TND 11.5bn this year, corresponding to about 6.6% of GDP. In the first six months of the year, the execution of the budget recorded a small surplus but this will change in the second half of the year as government pays state-owned companies and other suppliers.

SELF-RELIANCE

One of the main tenets of the 2025 budget preparation is the persistence on self-reliance. The first guideline for the preparation of the 2025 budget is "adopting a policy of self-reliance to maintain finance balances by improving the state's resources through strengthening the collection effort, combating tax evasion and digitalization of the administration." As it can be recalled, president Kais Saied who was elected in 2019 and since then transformed the political system in the country refused to submit to the "dictats" of the IMF and the staff agreement for USD 1.9bn loan programme was frozen. This has largely led to the inability of the government to access the international markets and obtain other foreign financing. The execution of the 2024 budget shows that foreign loans comprised just under 9% of the total borrowing of the government in the first six months of the year. It seems that this policy will persist in 2025, as president Saied prepares to remain at the head of the state for the next five years after the presidential elections in October.

WAGE BILL

The government also aims to continue to control the wage bill and reduce it to "reasonable" percentages of GDP. In 2024, the government allocated TND 23.7bn to spending on wages, which is an increase of 4.1% compared to the 2023 outcome. Indeed, the government spending on wages increased by 3.6% y/y in Jan-Jun and seems set to meet the objective set in the budget if not underspend on wages. The government said in the 2025 budget preparation plans that it does not intend to fill vacancies in the public sector or entertain demands for bonuses and allowances beyond the Sep 2022 agreement with the unions.

OPERATIONAL EXPENDITURES

Another guideline for the budget is the 4% on the growth of operational expenditures, the tightening of spending on transportation, and the use of renewable sources of energy. Overall energy and water consumption will be rationalised.

SUBSIDIES AND TRANSFERS

The government will not give up its social role. This is another strong conviction of the incumbent president Kais Saied who is seeking re-election in October. The government pledges to strengthen the social role of the state by supporting expenditures for social transfers, considering them as aimed at a fair redistribution of income, means to combat poverty, supporting health and education through student grants, school and university subsidies.

The government pledged to continue to control the spending on consumption subsidies. We remind that the 2024 finance act set the spending on subsidies at TND 11.3bn (6.6% of GDP), most of which (TND 7bn) allocated to fuel subsidies. It is not clear how much was the subsidy spending in the first six months of the year but it is likely that there have been some savings stemming from the oil price. The government assumed a Brent crude price of USD 81 per barrel in the 2024 finance act and the price is currently at about USD 71 per barrel which suggests that fuel subsides actually paid in 2024 may be below the TND 7bn target.

The government said in the 2025 budget guidelines that it will assume a price per barrel of USD 77.4 which is very close to the actual price level. This leaves little space for adverse scenarios and the materialisation of geopolitical risks but is in line with recent signals for weak demand out of China and sustained increases in OPEC production.

In addition, the government said that it will implement measures to limit the illegal use of electricity and gas, improve the collection of bills, rationalise spending at the STEG and STIR to reduce the cost of production and monitor the distribution of gas cylinders for households.

With respect to the subsidies for basic foods (flour, sugar and oil), the government said it will strengthen the monitoring and control of distribution channels to combat monopoly, speculation, and smuggling. This is another of the main arguments of the president who has explained the shortages of basic food stuffs and the price increases as due to speculation and illegal trade. The government also pledges to increase the domestic agricultural production which is suffering from the shortages of water. Most of the grain crops are irrigated and the drought in the past couple of years have been detrimental to the crops. The government said it will combat water scarcity by accelerating seawater desalination projects, exploiting treated water, and adopting artificial rainmaking technology.

INVESTMENT

Finally, the government also wants to direct more spending to investment projects to accelerate the pace of development and mobilize private investments in the regions and provinces, fostering economic growth and generating wealth. Ongoing projects will have absolute priority in the financing plans of the government.