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Tunisia’s history with government subsidies began in the 1970s, but has grown rapidly over the last few years. Price subsidies are provided for several staple foods such as cereals (durum wheat, bread wheat, barley, and corn), milk, sugar, tomato sauce, and cooking oils (excluding olive oil). In addition, they cover energy products, including refined petroleum products, natural gas, and electricity. Although the levels of subsidy have grown significantly since the revolution as a means to placate social pressures, the current subsidy scheme is both regressive and socially inequitable.

Current Subsidy Costs

In fact, food and energy price subsidies have contained inflationary pressures in Tunisia and partially contributed to the protection of consumer purchasing power. However, they have also had adverse effects on the government budget and introduced huge economic and social distortions.

The cost of subsidies in Tunisia doubled to 5.3 percent of GDP in 2013(reaching more than 4,200 Million Dinars) from 2 percent of GDP in 2010 (1,500 MD). Subsidies now represent 30% of the budget expenditure. In particular, the cost of energy subsidies tripled from an average of 0.9 percent of GDP before 2010 to 2.8 percent in 2012.Over a period of only eight years, the amount of energy subsidies increased by 15 times from 200 MD 2004 to more than 3,000 MD in 2012

Subsidies: Socially Inequitable and Inefficient

On the other hand, existing subsidies in Tunisia are not only costly but regressive and socially inequitable and inefficient. They tend to benefit the richest segments of the population relative to the poor, reinforcing inequality. Empirical evidence suggests that the highest-income households benefit almost four times more from food subsidies than do the lowest-income households.[1] In the same manner, energy subsidies in particular are a very inefficient way of supporting the poor, as rich consumers receive most of the benefits of the subsidies. Indeed, the highest-income households benefit almost 40 times more from energy product subsidies than the lowest-income households.

Furthermore, price energy subsidies distort resource allocation by encouraging excessive energy consumption, reducing incentives for investment in renewable energy and accelerating the depletion of natural resources. This situation cannot continue given that Tunisia now has a sizeable energy deficit unlike previous years when oil revenue was a primary source of foreign exchange. As early as 2000, energy consumption started exceeding local resources and in 2011 the deficit was the equivalent of about one million tons of oil.

Subsidy Reforms

The Tunisian authorities plan to reduce generalized price subsidies and to gradually phase out highly regressive and budgetary-costly energy subsidies. Governmental reform will thus be based on several key elements including the participatory creation of a targeted social safety net that better targets vulnerable groups and the poor, reinstating a price setting mechanism for petroleum and diesel products are priced competitive with international prices, and improving the efficiency of public services to reduce the subsidy drain they impose upon the government budget