Background

Bordered by Algeria, Libya, and the Mediterranean Sea, Tunisia occupies 163,610 square miles in Northern Africa. Agricultural land accounts for 64.8% of its area, while forests cover 6%. Its main natural resources include petroleum, phosphates, iron ore, lead, zinc, and salt. Tunisia’s major environmental challenges include poor waste disposal, water pollution from raw sewage, limited natural freshwater sources, deforestation, overgrazing, soil erosion, and desertification (CIA, 2015). Although forest cover is increasing 1.86% each year, per capita CO2 emissions continue to rise and are currently 2.45 metric tons per person. 90.4% of Tunisians have access to improved sanitation, and 96.8% have access to an improved water source (GGKP, 2014).

Tunisia’s per capita GDP is US$4,329.10, its population is 10.9 million, and its Gini Index is 35.8 (GGKP, 2014). Until the 2011 revolution, Tunisia had experienced decades of consistent economic growth driven by exports, foreign investment, and tourism. Approximately 80% of exports are sent to the European Union. However, in January 2011, popular protests against rising unemployment and poor economic performance led to the overthrow of President Zine el Abidine Ben Ali. In the aftermath, tourism and foreign investment declined and Tunisia’s credit rating was downgraded. With new elections and the approval of a new Constitution in 2014, Tunisia ended the political gridlock that had been in place in 2011. In order to promote economic recovery, the government must provide stability for investors, address account deficits, reduce unemployment (currently 15.2%), and promote more balanced development (between the coastal region and impoverished interior) (CIA, 2015).

Fiscal Profile

Although modest improvements in foreign investment and tourism have helped GDP growth to recover, growth is considered to be weak, at 2.4% in 2014, less than the government’s forecast of 4% in its 2014 budget (AEO, 2015).  The current account deficit widened to 7% of GDP in 2014, and total revenue for 2015 is projected to be 23.6% of GDP, of which 22% will come from tax revenue (IMF, 2014).  Sustained growth is limited by continued recession in Europe, ongoing social tensions, political uncertainty, a weak financial sector, and lower-than-expected output in the phosphate and oil and natural gas sectors. Medium-term economic growth is feasible but remains contingent on short-term investment-oriented fiscal expansion followed by comprehensive structural reforms to attract private investment. Although public debt decreased from 67% to 40.5% between 2001 and 2010, this trend reversed due to recession and expansionary fiscal policy following the 2011 revolution. (IMF, 2012).  Public debt is expected to reach 57% of GDP by 2017, but continued fiscal consolidation and economic growth should reduce it to 54% by the end of 2019. (IMF, 2014)External debt, on the other hand, decreased from 65% of GDP in 2003 to 48% at the end of 2011. This decline is attributed to greater reliance on concessional resources from multilateral development banks than on international capital markets (IMF, 2012).  External debt has, however, risen recently and is expected to increase to 62.2% of GDP in 2016 before falling to approximately 60% by 2019 (IMF, 2014).

Policy and Legal Framework for a Green Economy

In 2005, the Tunisian government passed a law establishing an “energy conservation system” that led to the creation of the National Fund for Energy Management, which supports improvements in renewable energy technology and energy efficiency. This allowed the government to save US$1.1 billion in energy bills between 2005 and 2008, relative to a US$200 million initial investment in clean energy infrastructure (UNEP, 2009). According to the Tunisian Solar Plan (2010-2016), investments in renewable energy and energy efficiency will generate between 7,000 and 20,000 new jobs until 2030. These will come primarily from the installation, operation, and maintenance of renewable energy capacities as well as from increasing energy efficiency in buildings. By 2030, the Tunisian government expects to have installed 4,045 MW of renewable energy capacity, with an additional 700 MW being generated from solar water heaters. Attaining these goals necessitates considerable investment.  The Tunisian National Fund for Renewable Energy and Energy Efficiency (Fonds National pour la Maîtrise de l’Energie), a public fund, is expected to provide subsidies of up to 20% to cover the cost of energy audits, substituting natural gas in residential and industrial sectors, solar water heaters and installation of motor vehicle check-up stations (stations de diagnostic de moteurs de véhicules).  However, the eligibility requirements are quite restrictive. For instance, energy saving equipment such as efficient lamps, are not be eligible to receive grants.[i] Other sources of funding include international finance institutions, international carbon-based funds, and the European Union. If successful, the Tunisian Solar Plan will lead to a 0.4% increase in GDP and attract 1.4% more investment than would occur otherwise. Despite a potential increase in imports, exports are also expected to increase by 0.1% and will be driven by growing production of photovoltaics and solar water heaters. Furthermore, employment is projected to rise 0.2% as a direct result of this program (GIZ, 2012). Also, to strengthen capacities in environmental protection and natural resource management, the Tunisian Ministry of Environment and Sustainable Development established the Centre International des Technologies de l’Environnement de Tunis (CITET). CITET focuses on developing skills in the field of environmental management and eco-technologies, providing technical assistance to industry, and promoting knowledge sharing and information dissemination. (UNEP, 2014)

Fiscal Measures for Green Economy

In 2005, the Mediterranean Investment Facility (MIF) partnered with the Tunisian National Agency for Energy Conservation (ANME) to create PROSOL, an innovative financial mechanism that incentivizes households to transition to solar water heaters (SWHs). This came in response to decades of ineffective policies attempting to attract households away from heavily subsidized fossil-fuel powered water heaters. PROSOL provides homeowners with financial support through a combination of VAT exemptions, customs duty reductions, and bank loans with reduced interest rates. Additionally, PROSOL included an efficient awareness-raising campaign, a support scheme for suppliers and installers, and a capacity building strategy for local financial institutions and technology providers. Between 2005 and 2012, 165,000 households switched to SWHs, which led to savings for the government through reduced demand for fuel subsidies, savings for households through reduced energy costs, and a considerable reduction in greenhouse gas emissions. In addition to projected government savings of US$101 million by 2025, PROSOL created 3,000 direct and 7,000 indirect new jobs (UNEP, 2013). Additionally, the National Fund for Energy Management is replenished by duties levied on the first registration of private, petrol or diesel powered vehicles as well as import and local production duties on air conditioning equipment (UNEP, 2009).

Fossil Fuel Subsidy Reform

Despite fossil-fuel subsidies accounting for 1% of GDP in 2004, they had risen to 5% by 2012. The Tunisian government lacks an overarching subsidy reform framework but attempted a number of ad hoc price increases of less than 5% between 2005 and 2008. In 2009, a mechanism was implemented that capped subsidies and allowed consumer costs to fluctuate with the international price of oil. However, in 2011, protests led to the suspension of this mechanism and the creation of a US$230 million subsidy package to reduce the price of food and fuel. In 2013, the government implemented a new reform program that replaced universal price subsidies with a system of targeted benefits. The result was a 14% increase in fuel and electricity prices, leading to the generation of annual budgetary savings equal to 1% of GDP. To compensate for this price increase, targeted assistance was offered to mitigate disproportionate impacts on the poorest households. (IISD, 2014). In 2014, energy subsidies to cement companies were effectively halved by raising the electricity tariff by 47% and the natural gas price by 35%. The electricity tariff and natural gas price also increased by 20% for medium and low voltage consumers. At the same time, an automatic gas price formula was adopted to allow for future convergence with international prices over time. The Tunisian government plans to gradually phase out energy price subsidies and replace them with targeted social safety nets. (Sdralevich, et al. 2014).

Works Cited

AEO. (2015), African Economic Outlook 2015. Country Notes: Tunisia.  Philippe Trape, Mickaelle Chauvin. http://www.africaneconomicoutlook.org/en/country-notes/north-africa/tunisia/

CIA. (2015). The World Factbook: Tunisia. Retrieved from: https://www.cia.gov/library/publications/the-world-factbook/geos/ts.html

GGKP. (2014). Country Data: Tunisia. Retrieved from: http://www.greengrowthknowledge.org/country/tunisia

GIZ. (2012). Renewable Energy and Energy Efficiency in Tunisia – Employment, Qualification and Economic Effects. Retrieved from: http://www.giz.de/expertise/downloads/giz2012-en-employment-renewable-energy-tunisia.pdf

IISD. (2014). Fossil-Fuel Subsidies: A Barrier to Renewable Energy in Five Middle East and north African Countries. Global Subsidies Initiative. Retrieved from: http://www.iisd.org/gsi/sites/default/files/fossil-fuel-subsidies-renewable-energy-middle-east-north-african-countri%20%20%20.pdf

IMF. (2012). 2012 Article IV Consultation: Tunisia. Retrieved from: https://www.imf.org/external/pubs/ft/scr/2012/cr12255.pdf

IMF. (2014). Tunisia: Fifth Review Under the Stand-By Arrangement, Request for Modification of Performance Criteria, and Rephrasing of Access. Retrieved from: https://www.imf.org/external/pubs/ft/scr/2014/cr14362.pdf

Sdralevich, et al. (2014). Subsidy Reform in the Middle East and North Africa: Recent Progress and Challenges Ahead. IMF.

UNEP. (2009). Success Stories: Solar Energy in Tunisia. Retrieved from: http://www.unep.org/greeneconomy/SuccessStories/SolarenergyinTunisia/tabid/29871/

UNEP. (2013). Building Inclusive Green Economies: Success Stories from South-South Cooperation. Retrieved from: http://www.unep.org/greeneconomy/Portals/88/documents/UNEP_SSC_Success_Stories_lowRes.pdf

UNEP. (2014). Centre International des Technologies de l’Environnement de Tunis (CITET), Tunisia. Division of Technology, Industry, and Economics: Economics and Trade Branch. Retrieved from: http://www.unep.ch/etb/areas/citet.php

[i] African Development Bank, Tunisie: Finance la Maîtrise de l’Energie,  http://www.afd.fr/webdav/site/afd/shared/PUBLICATIONS/RECHERCHE/Archives/Notes-et-documents/44-notes-documents.pdf