Renewed social unrest in Tunisia could hamper the government's attempts to put its economy on a stronger footing following the damage caused by Covid-19 and could delay its negotiations with the International Monetary Fund for a much-needed debt restructuring.
"Without a government in place, there is no momentum to push through much-needed and unpopular fiscal consolidation to address Tunisia’s fragile public finances," said James Swanston, an economist covering the Middle East and North Africa for London-based Capital Economics.
"Admittedly, if after 30 days President [Kais] Saied has formed a new government, it could pave the way to unblock the political impasse ... but this seems quite unlikely."
Mr Saied sacked the country's prime minister Hichem Mechichi on Sunday and froze parliamentary activity for a month, bringing to a head a political crisis that has been dragging on for two years – a move that could derail its economic reforms.
An uprising in the country more than a decade ago toppled its longtime dictator Zine El Abidine Ben Ali and plunged the country into economic chaos.
The Reported Social Unrest Index, a measure developed by IMF staff, found that disturbances within a country can shave between 0.2 per cent to 1 per cent off a country's gross domestic product, depending on their severity.
Economic growth can also remain lower than pre-disturbance levels for up to 18 months after a major protest, according to the fund.
"These effects on GDP seem to be driven by sharp contractions in manufacturing and services and consumption. Our findings also suggest that social unrest affects activity by lowering confidence and increasing uncertainty," a blog published by the multilateral lender earlier this month found.
Tunisia's economy had already been in a weakened state before Covid-19, with its fiscal deficit averaging 5 per cent of GDP in the decade ending in 2019, according to Capital Economics.
The budget gap increased to 10.6 per cent of GDP last year as 2.6 billion dinars ($946m) was pumped in to support its economy and is forecast to hit 9.3 per cent this year, according to the fund.
Tunisia's government requested help from the Washington lender in May for a support programme that would alleviate the country's plight. The programme was reported to involve reforms including cuts to the public sector wage bill but faced stiff opposition from the country's main labour union.
Government debt has increased sharply to about 90 per cent of GDP, driven by the country's high public sector wage bill, generous subsidies and support for weak state-owned enterprises, Mr Swanston said.
About two thirds of this is owed to external borrowers and denominated in foreign currency, leaving the country vulnerable to a fall in the value of the dinar.
The dinar was trading at its lowest for more than a year at 2.8074 against the US dollar at 2.50pm on Monday.
"Much-needed fiscal consolidation measures are needed but against the backdrop of the political crisis and a weak economic recovery, it will prove very difficult to push through," said Mr Swanston.
"Ultimately, we think the government will be forced to restructure its debts."
The specs
Engine: 0.8-litre four cylinder
Power: 70bhp
Torque: 66Nm
Transmission: four-speed manual
Price: $1,075 new in 1967, now valued at $40,000
On sale: Models from 1966 to 1970
Ten tax points to be aware of in 2026
1. Domestic VAT refund amendments: request your refund within five years
If a business does not apply for the refund on time, they lose their credit.
2. E-invoicing in the UAE
Businesses should continue preparing for the implementation of e-invoicing in the UAE, with 2026 a preparation and transition period ahead of phased mandatory adoption.
3. More tax audits
Tax authorities are increasingly using data already available across multiple filings to identify audit risks.
4. More beneficial VAT and excise tax penalty regime
Tax disputes are expected to become more frequent and more structured, with clearer administrative objection and appeal processes. The UAE has adopted a new penalty regime for VAT and excise disputes, which now mirrors the penalty regime for corporate tax.
5. Greater emphasis on statutory audit
There is a greater need for the accuracy of financial statements. The International Financial Reporting Standards standards need to be strictly adhered to and, as a result, the quality of the audits will need to increase.
6. Further transfer pricing enforcement
Transfer pricing enforcement, which refers to the practice of establishing prices for internal transactions between related entities, is expected to broaden in scope. The UAE will shortly open the possibility to negotiate advance pricing agreements, or essentially rulings for transfer pricing purposes.
7. Limited time periods for audits
Recent amendments also introduce a default five-year limitation period for tax audits and assessments, subject to specific statutory exceptions. While the standard audit and assessment period is five years, this may be extended to up to 15 years in cases involving fraud or tax evasion.
8. Pillar 2 implementation
Many multinational groups will begin to feel the practical effect of the Domestic Minimum Top-Up Tax (DMTT), the UAE's implementation of the OECD’s global minimum tax under Pillar 2. While the rules apply for financial years starting on or after January 1, 2025, it is 2026 that marks the transition to an operational phase.
9. Reduced compliance obligations for imported goods and services
Businesses that apply the reverse-charge mechanism for VAT purposes in the UAE may benefit from reduced compliance obligations.
10. Substance and CbC reporting focus
Tax authorities are expected to continue strengthening the enforcement of economic substance and Country-by-Country (CbC) reporting frameworks. In the UAE, these regimes are increasingly being used as risk-assessment tools, providing tax authorities with a comprehensive view of multinational groups’ global footprints and enabling them to assess whether profits are aligned with real economic activity.
Contributed by Thomas Vanhee and Hend Rashwan, Aurifer
Q&A with Dash Berlin
Welcome back. What was it like to return to RAK and to play for fans out here again?
It’s an amazing feeling to be back in the passionate UAE again. Seeing the fans having a great time that is what it’s all about.
You're currently touring the globe as part of your Legends of the Feels Tour. How important is it to you to include the Middle East in the schedule?
The tour is doing really well and is extensive and intensive at the same time travelling all over the globe. My Middle Eastern fans are very dear to me, it’s good to be back.
You mix tracks that people know and love, but you also have a visually impressive set too (graphics etc). Is that the secret recipe to Dash Berlin's live gigs?
People enjoying the combination of the music and visuals are the key factor in the success of the Legends Of The Feel tour 2018.
Have you had some time to explore Ras al Khaimah too? If so, what have you been up to?
Coming fresh out of Las Vegas where I continue my 7th annual year DJ residency at Marquee, I decided it was a perfect moment to catch some sun rays and enjoy the warm hospitality of Bab Al Bahr.
The specs: 2018 Opel Mokka X
Price, as tested: Dh84,000
Engine: 1.4L, four-cylinder turbo
Transmission: Six-speed auto
Power: 142hp at 4,900rpm
Torque: 200Nm at 1,850rpm
Fuel economy, combined: 6.5L / 100km
