Tunisia's new government won a confidence vote late on Friday after the Prime Minister Youssef Chahed warned in Parliament an austerity program will be inevitable with thousands of public sector job cuts and new taxes if Tunisia does not overcome its economic difficulties.
The Unity government was backed by 167 of the parliament's 217 members.
The North African state is struggling with lower tourism revenues after two Islamist militant attacks on foreign tourists last year hit what is one of its key industries. Strikes and protests for jobs have also hurt the country's phosphate production.
Chahed has promised his new government will take tough decisions to help the economy grow and create jobs as the country comes under pressure from international lenders to push through reforms and trim public spending.
Lawmakers were meeting on Friday to vote whether to approve Chahed's new government – a broad coalition of secular, Islamist and leftist parties, independents and trade union allies which he believes can deliver on economic reforms.
"If the situation continues like this then in 2017 we will need a policy of austerity, and dismiss thousands of public sector employees and impose new taxes," Chahed told lawmakers before the vote.
Chahed, an ally of President Beji Caid Essebsi, promised a tough line on the economy. But critics question whether he has the political clout to overcome the labor union opposition, strikes and party infighting that have dogged past governments.
He said economic growth this year would not surpass 1.5 percent, below the official target of 2.5 percent for the year.
Chahed said state production of phosphate – a major revenue earner – had declined in the past five years by 60 percent, while public wage payouts had more than doubled from 6.7 billion dinars (US$3.06 billion) in 2010 to 13.4 billion dinars this year.
He also expected the budget deficit to widen by 2.9 billion dinars to 6.5 billion dinars by year-end.
Chahed, at 41 the youngest prime minister Tunisia has ever had, said his government would be tough on illegal strikes.
"We will not allow interruption of production at any factory and we will be firm and severe in dealing with illegal strikes and sit-ins."
He vowed to press ahead with economic reforms sought by international lenders such as the International Monetary Fund and World Bank.
At 13.5 percent of GDP, Tunisia's public sector wage bill is proportionately one of the highest in the world. But labor unions and other groups have resisted attempts to reform pensions and introduce more taxes.
An estimated $3 billion in debt service payments is due next year and the state is likely to struggle just to come up with the roughly $450 million it needs every month to pay employees.
