Tunisia: State budget reports surplus of TND 1,318n in Q1

• Surplus is smaller than last year due to more grant receipts
• Tax revenues rise at a decent pace of 6.5% y/y in Q1 amid sluggish growth
• Spending growth is supported by the transfers and subsidies
• Substantial outflow of other treasury funds likely accounted for by short-term debt payments

The state budget surplus narrowed by 8.3% y/y to TND 1,318mn in the first quarter, according to the latest data released by the finance ministry. In our estimates, the surplus accounted for 0.8% of the full year GDP projection. The finance ministry reported recently that the preliminary budget deficit amounted to TND 11,286mn, comprising 7.1% of GDP last year. The 2024 budget set a deficit target of TND 11,515mn, or 6.6% of GDP.

The surplus in the first quarter accrued on the back of total revenues worth TND 12,080mn against TND 10,232mn expenditures and TND 513mn in grants. Both tax and non-tax revenue reported substantial growth of 6.5% y/y and 20.8% y/y, respectively. Economic activity was sluggish in the first three months of the year with GDP growth reported at 0.2% y/y but was better than the stagnation in the preceding quarter. Meanwhile, inflation slowed from 10.0% on average in Q1/2023 but was still high at an average of 7.4% in the first quarter this year.

On the spending side, growth was boosted by the 22% y/y expansion in the transfers and subsidies category. There is no breakdown for subsidies but they likely increased as tight fiscal position reflected in delayed subsidy payments last year. Meanwhile, the spending growth on wages was curtailed at only 2.0% y/y in the three months.

On the financing side, the government borrowed TND 7,715mn almost entirely on the domestic market (TND 7,307mn). Other treasury resources recorded a large negative TND 4,169mn which is most probably accounted for by large repayments on short-term borrowing by the government. Foreign loans obtained by the government were at a low TND 408mn, well below the full-year target of TND 16,445mn.

The reliance on the domestic sources of funding amid constrained access to foreign markets is crowding out financing for the domestic economy and increasing the exposure of the financial sector to the government. The share of government in the total claims of the banking sector is estimated at 32%. The ability of the government to repay its external debt may be challenged in upcoming years and put pressure on the stability of the currency and inflation, although the government promptly repaid to large Eurobond maturities at the end of 2023 and the beginning of 2024.