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Russian crisis will blow Tunisia’s budget, say the French

We would have liked to find this type of analysis on the website of the Tunisian Ministry of Finance, explaining to the population the economic ins and outs of the crisis of the Russian war in Ukraine against Tunisia. To ask such a thing from a ministry which has not even published figures on the results of the execution of the budget since November 2021 is indeed useless despite the words to the minister himself, who are still at the stage of a simple call for the creation of a crisis cell.

This kind of notes in addition, can already be found in the newsletter (NL) of the economic service of the French Embassy in Tunis, whose manager already quantifies the damage suffered by Tunisia, which she assesses at least 5 billion TND and the loss of one point of growth in 2022, for the fuel component. These figures are not yet found in any official Tunisian document.

Major food security risk for Tunisia

In his latest analysis, namely this NL, Cyril Morée deputy head of the economic department writes that “the Russian-Ukrainian crisis represents a major risk for Tunisia’s food and energy security.

The analyst notes that “if, according to the government, cereal stocks cover needs until June, the risk of shortage threatens beyond that, given the extreme tensions on international supply and Tunisia’s solvency. The absence of a coherent agricultural policy, the under-exploitation of land and low profitability have led to an under-exploitation of agricultural potential and a strong external food dependence.

Cyril Morée noted that “if the Tunisian Cereals Office says it has made advance purchases, the storage capacity does not exceed three months, making it possible to meet needs until June. The local collection of durum wheat should initially take over in the summer, but tensions will quickly be felt on the supply of common wheat and barley, especially since the Tunisian Cereals Office, in charge of purchases, is a virtually insolvent counterparty.

Tunisia will find it increasingly difficult to buy gas

For the energy component of the impact, direct because financial, of Putin’s war crisis in Ukraine, the French analyst first recalls that “the recent recovery in national energy production after a long decline and the tax on the transit of Algerian gas does not dispel fears about Tunisia’s ability to obtain energy supplies. Supporting figures, Morée estimates that “Tunisia will find it increasingly difficult to buy at current prices given the state of its public finances and the financial situation of the public companies responsible for supplying the market (STEG and STIR).

The assistant to the economic service of the French embassy in Tunisia then estimated that “the crisis more generally threatens the country’s external balances”. Describing the effect, already proven on the Tunisian food balance, of the rise in food prices, Morée estimates that “the trade deficit could widen further due to the depreciation of the dinar against the dollar (-3.5% in one month at 2 .96 TND/USD) . For him, “the current account deficit should therefore deteriorate beyond the scenario of 7 to 7.5% of GDP this year and the erosion of reserves will accelerate, while capital inflows have significantly decreased due to decline in external loans and FDI”. He even mentioned the possibility, more than probable according to the less initiated, that “the crisis will cause the budgetary expenditure of subsidies to explode and precipitate the reform of the system.

The damage for the budget and the BNA, through the French figures

In short, and in its quantified version, “the soaring grain and fuel prices will leave no other choice than to drastically readjust either budgetary allocations or administered prices. And Cyril Morée specifies on this subject that:

– A price per barrel of oil permanently above 110 USD could generate an additional cost of more than 5 billion TND (1.5 billion EUR) in fuel subsidy expenditure that the 2022 finance law had budgeted at 2.9 billion TND with the assumption of a barrel at 75 USD and an exchange rate of 2.9 TND/USD.

Any increase in the price of a barrel of oil of 1 USD would generate an additional subsidy cost of approximately 140 MD, and any increase of 10% in the dollar exchange rate an additional cost of 40 MD. In 2021, the unexpected rise in the price of oil had already caused a readjustment of nearly 3 billion DT. In partial compensation, the fee collected for the passage of Algerian gas to Italy brought in 550 MD in 2021 (+218 MD) and should increase further this year in at least equivalent proportions.

– On the increase in the finance law, the 3.7 billion DT budgeted for the compensation of basic foodstuffs will be insufficient in the face of the soaring cereal prices. This endowment was to be used to finance the subsidy in 2022 as well as to settle the payment arrears (2 billion TND) which would accumulate with the Cereals Office (OTC). The risks weighing on the banking system also need to be monitored. The arrears of the subsidy fund with the OTC are reflected in the claims of the Banque Nationale Agricole (BNA) with the Office. These claims would reach 4.3 billion TND (1.3 billion EUR) and the prudential limits of 25% of the bank’s total outstanding credit. This situation poses a potential systemic risk to the banking sector given the size of the BNA.