The deficit and debt reduction path in the 2027 budget

The figures in the draft 2027 budget law raise a central question about the relationship between reducing the deficit and easing pressure from public debt. After grants, the deficit is estimated at 2,026 million dinars, compared with 2,060 million in the 2026 revised estimate, a fall of 34 million. Its share of gross domestic product drops from 4.5% to 4.2%. This is a fiscal improvement, although its cash value remains limited.

To understand the starting point, it is necessary to look back at the 2026 budget. It estimated domestic revenues at 10,196 million dinars and public expenditure at 13,056 million. In the revised estimate, these became 9,846 million and 12,756 million respectively. Grants rose from 735 million to 851 million, and the deficit after grants fell from 2,125 million to 2,060 million.

This comparison shows that the improvement in the deficit after grants coincided with lower domestic revenues, reduced spending and higher grants. Meanwhile, the deficit before grants rose from 2,860 million dinars to 2,910 million. For that reason, assessing the fiscal position requires reading both indicators together, because higher domestic resources give the budget a more sustainable capacity to meet its obligations and finance its priorities.

In 2027, the deficit before grants is set at 2,810 million dinars, against 2,753 million in the International Monetary Fund’s estimates. The deficit after grants in the budget is below the Fund’s estimate of 2,053 million. Grants explain a key part of this gap: the budget puts them at 784 million, compared with 700 million in the Fund’s figures, while estimates of domestic revenues are broadly similar.

The comparison also shows that the primary deficit is the same in the budget and in the Fund’s estimates, at 450 million dinars. This is the deficit calculated before grants and after excluding debt interest. It falls from 650 million in the 2026 revised estimate. A lower primary deficit means domestic revenues are better able to cover spending other than interest, an important step in easing the pressures that drive continued borrowing.

Even so, allocations for debt interest rise from 2,260 million dinars in the 2026 revised estimate to 2,360 million in 2027. This illustrates the weight of accumulated obligations on spending. Interest absorbs resources that could otherwise go to services and investment, and controlling the primary deficit becomes essential to prevent financial pressure from widening in the coming years.

The projected path extends to 2028 and 2029. The deficit after grants falls to 1,947 million dinars and then to 1,764 million, while its share of GDP declines from 3.8% to 3.3%. This happens alongside a rise in domestic revenues to 11,527 million and then 12,162 million. These are future estimates, and their achievement depends on the path of revenues, spending and actual economic activity.

This reading carries weight because projected grants fall to 702 million dinars in 2028 and 658 million in 2029. That increases the responsibility on domestic resources to keep the deficit on a downward path and to finance spending.

The most notable development in this path is the shift in the primary balance from a deficit of 193.8 million dinars in 2028 to a surplus of 127.3 million in 2029, equal to 0.2% of GDP. This means domestic revenues would be sufficient to cover spending other than debt interest, while the overall deficit and the need to finance it remain.

A lower deficit therefore reduces the need for new financing, but it is not enough on its own to conclude that the stock of debt will fall. The deficit’s share of GDP is also affected by economic growth, estimated at 48,367 million dinars in 2027 and 54,030 million in 2029. The outcome the path requires is to lock in gains in revenues, maintain discipline in spending and accelerate economic growth, so that the planned fiscal path becomes a gradual and sustainable easing of debt pressures.