2024-08-16 09:15:41
“While combating the parallel economy is necessary to ensure Tunisia’s financial stability, this cannot be done to the detriment of the most vulnerable. A balanced approach that takes into account the country’s socio-economic realities is essential to guarantee the success of this initiative and prevent the transition to a more formal economy from exacerbating existing inequalities.”
The Ministry of Finance, under the leadership of Sihem Boughdiri Nemsia, recently announced an ambitious initiative to combat Tunisia’s parallel economy. The minister said the strategy is essential to strengthen the country’s fiscal capacity, promote economic autonomy and reduce debt collection. During a meeting of the National Tax Council (CNF), the general outlines of the strategy were presented, marking an important step in combating this omnipresent phenomenon. But is the initiative enough to achieve the stated goals, or are there grey areas that need to be clarified?
A complex challenge for the country
The minister declared that the parallel economy, often seen as a scourge, exacts a huge toll on the national economy. It is estimated that this informal economy accounts for 30 to 40 percent or more of Tunisia’s GDP, depriving the country of important tax revenues that could be invested in vital sectors such as health, education and infrastructure.
Undeclared transactions are not subject to any tax controls and cause a shortfall of billions of dinars to the public treasury every year. For example, a recent study by the Centre for Research and Social Studies (Cres) shows that fuel smuggling alone costs the state more than 1.2 billion dinars per year. This phenomenon extends to other sectors such as agriculture, where a large part of the trade is carried out outside official channels, thus increasing worker instability and hindering rural development efforts.
In theory, opposing this parallel economy should strengthen the state by increasing tax revenues and allowing for a more equitable redistribution of wealth. However, key questions remain: how can this be achieved in a context where the formal economy is in decline and large swathes of the population are turning to the informal sector for survival?
Indeed, with unemployment at over 15% and rising inflation eroding purchasing power, many Tunisians have no choice but to engage in informal activities to meet their needs. The recent closure of several factories and businesses, especially in the textile and manufacturing sectors, has exacerbated the situation, forcing more people into the parallel economy.
Therefore, any policy aimed at eliminating the informal economy must be accompanied by solid support measures. These measures can include simplifying administrative procedures for business creation, reducing tax pressures on small and medium-sized enterprises, and establishing social safety nets for informal workers. At the same time, it is also crucial to improve access to employment opportunities and provide financing for young entrepreneurs who often find themselves excluded from traditional banking channels.
Strive to reduce Public Debt
The minister also insisted that the fight against the informal economy could play a decisive role in reducing public debt. As previously mentioned, this economy accounts for a significant part of the gross national product and deprives the State of important financial resources. Although precise figures are not always available in this case, it is undeniable that the reality of this situation is evident and its integration into the formal economy is necessary.
Recent research suggests that such integration would expand the tax base, thereby increasing public revenues. These new inflows of funds, in turn, could reduce the need to rely on borrowing to finance public spending.
For example, smuggling, especially in border areas, is another major problem. The fuel and food sectors have been the worst affected, resulting in considerable revenue losses to public finances. By strengthening controls and reintroducing these flows into the formal economy, the government can not only expand but also stabilize local markets. Such stability will help in price regulation and protecting local businesses from unfair competitive practices.
In the same context, the experts also stressed that developing a clear and effective strategy to combat the informal economy would strengthen Tunisia’s credibility among international creditors. In addition, by limiting smuggling, the country can strengthen investor and citizen confidence in public institutions, thereby promoting a healthier economic environment conducive to sustainable growth.
This strategy demonstrates the country’s willingness and ability to broaden the tax base and reduce economic inefficiencies, which could facilitate access to financing at more favorable interest rates while improving the management of existing debt.
Although it will require profound reforms and sustained commitment, combating the informal economy could provide Tunisia with an effective lever to reduce its debt and strengthen its long-term economic stability.
Challenges of a global approach
The Minister spoke of a global approach that takes into account the economic and social dimensions of the problem. This approach aims to protect vulnerable groups, who are often the main players in the informal economy. This seems to be a laudable move, but in practice, the transition from informal to formal requires profound reforms, especially in labor market regulation, social security, improving the business environment, etc.
The question of the feasibility of such reforms is worth raising in the context of the ongoing economic crisis. In fact, Tunisia is going through a difficult economic period, characterized by weak growth, high unemployment, especially among young people (unemployment among graduates is close to 36%), and inflation that is eroding the purchasing power of households.
In order to successfully achieve this transition, the labor market must be reformed to make it more flexible and inclusive. Currently, the Tunisian labor market is characterized by severe segmentation, overprotection of formal jobs, and a lack of safety nets for informal workers. Reforms must aim to reduce this duality, for example by facilitating informal workers’ access to more stable and protected forms of employment.
Furthermore, strengthening social protection is crucial to encourage informal workers to integrate into the formal sector.
According to the National Institute of Statistics (INS), nearly 55% of Tunisia’s working population is not covered by the social security system. This means that most informal workers do not have access to pensions, health or unemployment benefits, which encourages them to remain in informal employment. Therefore, initiatives such as extending social security coverage to the self-employed and small businesses could be the first step towards inclusion.
Last but not least, improving the business climate is essential to attract investment and stimulate the creation of formal jobs. Tunisia still faces administrative burdens and regulatory complexity, which discourage entrepreneurs. Simplifying the start-up process, reducing bureaucracy and improving access to finance for SMEs are important reforms to promote the transition from the informal sector to the formal sector.
However, it is also important to recognize that these reforms, while important, will take time and require strong political commitment. Their implementation is likely to encounter resistance from economic actors and concerned social groups in a context of economic crisis and social tensions. The success of this transformation will therefore depend on the government’s ability to implement these reforms in an inclusive and progressive manner, ensuring that they benefit all the people, not just a few.
In this regard, combating the parallel economy cannot be done solely through repression or fiscal measures. Economic inclusion must be at the heart of this strategy. Governments must convince informal actors of the advantages of integrating the formal economy by providing real incentives… In addition, such a transition requires effective communication to win the trust of citizens, who are often skeptical of institutions.
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