Columbia International Affairs Online: Working Papers

CIAO DATE: 01/2012

Tunisia's Economic Challenges

Lahcen Achy

November 2011

Carnegie Endowment for International Peace


As Tunisia moves away from its former regime, policymakers need to seize this historic opportunity to pursue an innovative economic strategy to overcome four key challenges: high rates of youth unemployment, a large number of marginal jobs, increasing income inequality, and substantial regional disparities. To overcome the first challenge, Tunisia needs to develop a sustainable process of job creation that relies on a competitive private sector, and the government must remove barriers to entrepreneurship and investment. Although the country has achieved relatively high economic growth during the past decade, the contribution of private investment has remained low, and the former regime pursued a political agenda vis-à-vis the private sector. The government now instead needs to open different economic sectors to competition and pursue related reforms. To overcome the second challenge, policymakers need to design incentives to channel resources toward selected high-value-added and knowledgeintensive sectors, and likewise stimulate product innovation and market diversification. The country must also pursue its real opportunities in agriculture, industry, and services to promote an intensive use of human capital and to diversify its markets beyond Europe. To overcome the third challenge, Tunisia must review its public finance system to achieve social justice and equitable sharing of the tax burden by streamlining tax regulations and eliminating unjustified tax breaks, cracking down on tax evaders, and ensuring that all taxpayers contribute according to their capacity. Likewise, the government needs to rationalize public spending, reduce costly and regressive universal fuel subsidies, better target assistance programs to the poor, and improve the delivery of public services.