The draft report was discussed at a meeting of the Economic and Development Review Committee on 2 November 2021, with participation of representatives of the Tunisian authorities.

The pandemic hit an economy that was already suffering from low growth (). In 2020, activity experienced a severe contraction, despite swift policy interventions, and poverty has increased. The recovery will be sluggish as global growth slows down, domestic demand remains subdued and uncertainty concerning the functioning of political institutions persists. High public debt requires reducing current government spending and complicates monetary policy.

Tunisia has been among the emerging market economies hardest hit by the COVID-19 crisis, which caused the deepest economic contraction ever, with a heavy social cost. The vaccination campaign, which started slowly, gained momentum in summer 2021 but has seemingly reached a plateau more recently. The economic recovery will be soft due to lingering health and political uncertainty that weakens household and investor confidence, the slow return of tourists and insufficient progress in implementing structural reforms. In the context of the Ukraine war, rising energy and commodity prices weigh on purchasing power. Fiscal and external imbalances persist and made it necessary to seek external financing. Public spending is skewed towards wages of civil servants, subsidies, and transfers to state-owned enterprises (SOEs), leaving little room to finance physical and social infrastructure. Businesses, and in particular small ones, are penalised by conditions attached to access to finance, red tape and obstacles to competition. This chapter analyses the macroeconomic and social impacts of the pandemic and the policy responses necessary to ensure macro-economic stability and to resume income and well-being convergence towards the OECD levels.

Unemployment rates have been persistently high, particularly for young labour market entrants. Rising access to education has increased the supply of high-skilled labour, but the private sector has mainly created jobs in low-skill intensive and low-productivity activities, leading to high unemployment rates among tertiary graduates and particularly for women. Moreover, education and professional training systems operate in isolation from labour market needs and do not equip workers with the skills demanded by firms. Labour market policies and regulations discourage formal job creation and complicate the matching process in the labour market. To foster business dynamism and innovation and create more and better jobs, it is crucial to lower regulatory barriers to market entry and entrepreneurship, raise the international integration of domestic firms and adjust labour taxes. The quality of education and professional training needs to improve, and more cooperation with the private sector is necessary to better prepare youth and young adults for the labour market. Better targeting of active labour market policies and reducing barriers to labour mobility are key to improve labour market matching.