We must think differently in COVID-19 recovery – an outlook from UNDP Tunisia

May 14, 2020

The impacts of COVID-19 go far beyond the health dimension and comprise severe socio-economic effects – at the level of the country, businesses, people and in particular the most vulnerable segments of the population.

To take an important reference, recall that in 2014 the socio-economic impacts of the Ebola crisis took more lives than the virus itself, owing to drivers such as lack of access to basic social services, loss of revenue and livelihoods and related factors.

The analogy with COVID-19 is therefore not only evident – it is frightening. And this time, it’s global in scale. The virus has plunged the entire world into a dual crisis without precedent.

In the case of Tunisia, the crisis arrives atop a socio-economic situation rendered fragile by nine years of post-revolution struggles. What’s more, Tunisia is a small country, and very open to the world. With a high degree of exposure to international demand shocks, the Tunisian economy is widely estimated to be headed for recession in 2020, with the economy projected at present to shed approximately 4 per cent – accelerating the fragility of the macro-economy and the vulnerability of businesses and communities.

Businesses bear the brunt

Confinement was the necessary measure to slow the spread of the virus. Yet it also has direct repercussions on businesses and their capacity to retain employees – even despite the direct engagement of the government.

Ninety-seven per cent of businesses in Tunisia are very small – with no more than five employees, and therefore rarely endowed with the financial reserves needed to resist the double shocks of supply and demand provoked by the pandemic. The risk of destabilization of the production apparatus is significant – not only in the immediate but also in the recovery phase ahead.

People paying the price

In Tunisia some 30 to 40 per cent of the GDP is driven by the informal sector – an important measure signaling a key vector of vulnerability. To recall the long lines in front of the Postal service (where payments were distributed to vulnerable people) is to be reminded of the extent of distress. Yet it goes beyond families in need supported by government relief programmes – workers in the informal sector, day workers, and workers in heavily-impacted sectors like tourism, transport and textile are also hit hard.  Last but not least, migrants, refugees and above all women are shouldering the burden – with the latter suffering not only from increasing domestic violence, but also growing economic violence. Currently, UNDP is carrying out a study of the microeconomic impact of Covid-19 on micro enterprises and vulnerable populations and aims to share findings very shortly.

Lessons for the road ahead

First, we must not return to the situation which prevailed before the crisis. Rather we must seize the occasion to give an impulse to new way of thinking about economic development and public policy. It is in moments of crisis that a paradigm shift becomes most desirable.

It is important to keep in mind two imperatives: First, reinforce the health system. The health system in Tunisia has shown a certain resilience, despite gaps in infrastructure – but it must be reinforced to prepare for the possibility of other crisis of similar scale. And second, the imperative to Leave No One Behind – a fundamental principle of the United Nations system. The COVID-19 crisis has exacerbated inequalities in Tunisia – not only in income but also in opportunity: access to finance, to digital technology, means of communication, and more. The response should also look to reinforce social security, as well as the resilience of populations to shocks which may come in the future.

After all, we are in the decade of action to achieve the Sustainable Development Goals and Agenda 2030 – which Tunisia is engaged to achieve. This acceleration is all the more needed in the context of COVID-19 and its disastrous socio-economic impacts and its deepening of inequalities and marginalization.

The recovery economy

As we go proceed through a targeted confinement, we cannot go back to “business as usual”. As we move towards recovery and the reinforcement of resilience, it is imperative to favor inclusion in all public policies, which must be optimized for vulnerable populations and take inequalities into account.

Digitalization will be one key aspect.  Telecommuting enabled a certain continuity, but not for everyone due to unequal access to technology. Expanded digitalization will be fundamental for the state, businesses and society, for the continued functioning of the state, for access to markets, and for access to job opportunities and the entrepreneurial ecosystem.

Preparation for the recovery phase will also necessarily involve an acceleration of structural reforms, along with the strengthening of social protection. Employment protection, financial inclusion, and the reinforcement of production structures will be vital.

Digital financial inclusion

More than 87 per cent of the Tunisian productive fabric is composed of micro-enterprises, businesses with no salaried employees. Naturally these businesses do not have enough guarantees to access to classic credit as offered by banks. So, there is a need to favor financial mechanisms adapted to small business structures – microfinance and crowdfunding, but also innovative digital financing which supports increased financial inclusion among the population.

The recovery phase will also require the development of new sectors, such as the social and solidarity economy. At UNDP we believe this will be the sector which most benefits the population, especially the most vulnerable. In France, for example, this sector constitutes 10 per cent of employment and 6 to 8 per cent of GDP – not negligible amounts.  It is worth noting that the social economy can also be a vector of regional inclusion and engagement of vulnerable populations.

UNDP and the ILO are working to promote this sector in Tunisia, having supported the Ministry of Development, Investment and International Cooperation in 2016-17 to develop a national social and solidarity economy strategy. UNDP also aims to support local populations directly, notably in the South, to set up social and solidarity economy projects.

Financing Reform

The question now is how to finance these measures and structural reforms. Resource mobilization is fundamental. Public finances are in crisis since 2011, with budget deficits that have exceed 7 per cent of GDP in some years, and a debt ratio which leapt from 40 per cent of the GDP in 2010 to 70 per cent in 2019. All of this has increased with the current crisis.

Efforts have been in place to reign in the budget deficit under 4 per cent, but fiscal space remains cramped. The current crisis has aggravated the fragility of public finances. It is important to put an emphasis on mobilization of domestic resources. Taxes are a first response – however this should not be about making them heavier, which in times of crisis would risk creating disincentives. Rather the emphasis should be on accelerating fiscal administration reform, improving its capacity to recover by strengthening its information system in a way that traces fraud and tax evasion and allows for important deposits of resources for the state. This move towards a lighter tax policy but drawing from a larger base would allow for the combination of economic efficiency and social equity.

The rationalization of public spending is another track for resource mobilization (through the restructuring of public enterprises, management of subsides, and management of public minority stakes, etc.). The move towards digital payment will also help expand the formal sector and reduce the circulation of liquidity in the informal sector.

The recommendation, then, is to strongly engage in these reforms and changes, without wavering. A state must concentrate on its social role, and for that must secure the needed fiscal space.

UNDP’s Role in Recovery

UNDP is a historic partner of development in Tunisia, and in the context of the response to COVID-19 has been a proactive partner. The reprogramming of activities has enabled the mobilization of USD 7 million to support the government and the population. It is important to recall that UNDP is not a lender and cannot provide budget support. UNDP is a technical partner.

UNDP’s approach to respond to the crisis has been holistic and multi-leveled. UNDP has intervened for example with an immediate response to the health crisis; via provisioning of medical equipment for the Ministry of Health; and via technical assistance and support for hazardous toxic waste management (related to Covid-19) inside and outside hospitals. UNDP also supported the Communicable Diseases Laboratory for regular analysis of wastewater and local authorities in the management of hazardous waste.

As UNDP we have also supported the continuity of public services and institutions, including the Assembly of the Representatives of the People (ARP), penitentiary systems, and the police, as well as supporting the Internal Security Forces to reduce the risk of contamination among their ranks.

We have also procured fabrics and equipment, which have enabled the production of 200,000 masks and 50,000 PPE units through our joint work with penitentiaries.

Our work with the ARP has enabled the continuity of the legislative body in the form of business continuity plan, with a focus on strengthening mobile digital networks and supporting the progressive digitalization of parliamentary processes.

At the local level, UNDP has supported municipalities in the South with their logistics plans, by providing equipment and disinfection products. We have supported Local Security Committees in ten Governorates to facilitate public information and awareness-raising around the crisis by coordinating the efforts of local authorities, security forces and civil society. This support has also included an innovation dimension – supporting new digital services for management of administrative documents.

UNDP has also supported the Ministry of Professional Training and Employment, through support for microenterprises to attenuate the socio-economic impacts of COVID-19.

Currently, and in response to the Ministry of Development, Investment and International Cooperation request, UNDP is finalizing a study on the micro-economic impact of the pandemic in Tunisia, with a focus on microenterprises, especially in the informal sector, and vulnerable populations.  The analysis will focus on the financial fragility of businesses, as well as monetary and multidimension poverty of vulnerable populations. The goal of this work is clearly to enable the formulation of concrete policy recommendations, as a means to support authorities to pursue the most effective and inclusive measures to attenuate the impacts of this crisis, reinforce the resilience of the economy and restart the path to achieve the Sustainable Development Goals.

Read the full interview, in the original language, French, at: https://www.leconomistemaghrebin.com/2020/05/13/covid-19-asma-bouraoui-khouja-importe-penser-apres-crise-differemment/