Bad political timing for Tunisia’s economic slump

“Only hard work, production and economic productivity can pull Tunisia out of its economic crisis," said Central Bank Governor Marouane El Abassi.
Sunday 26/05/2019
Tunisia’s Central Bank Governor Marouane El Abassi speaks during a news conference in Tunis, last February.  (Reuters)
Declining indicators. Tunisia’s Central Bank Governor Marouane El Abassi speaks during a news conference in Tunis, last February. (Reuters)

TUNIS - Nearly every economic indicator that matters for Tunisians struggling with a depressing social crisis worsened in the first quarter this year, government statistics indicate.

Declining economic indicators are threatening to deprive secularists in government and their Islamist allies of a credible economic narrative as they face voters in elections late this year.

Anaemic growth, a widening trade deficit and the high jobless rate remain impediments to reviving Tunisia’s economy.

Youth unemployment rates, especially among university graduates, are at levels below those before 2011, suggesting the inability of secularists and Islamists in eight successive governments to turn around the economy, which is expected to be the main issue in elections in October and November.

Since he took over in August 2016, Tunisian Prime Minister Youssef Chahed has repeatedly said that resolving the economic crisis was a priority for the government.

Islamist Ennahda Movement President Rached Ghannouchi boasted shortly after the release of the economic data May 16 that “Ennahda’s backing of Chahed made his government the longest lasting cabinet in eight years. We had a government each year before him.”

The data released by the government-run National Statistics Institute showed that Tunisia’s GDP growth rate was at 1.1% the first three months of the year, the lowest figure in three years. The economy grew 2.7% in the same period last year.

The announcement of the disappointing rate led economists to predict a growth rate of 2% for the 5-year period ending in 2019.

The forecast average does not match the promise of a 5% growth rate for the period made by Islamists and secularists who formed a coalition government in 2015. Achieving that level of growth was the main argument for maintaining government stability to address demands for a better standard of living, low inflation, more jobs and curtailing the decline of the national currency.

Except for the services sector, powered by tourism industry — Tunisia expects a record 9 million foreign tourists this year — all main sectors related to job creation posted dismal numbers. They included exports to increase foreign currency earnings and boost the value of the falling dinar, official figures indicate.

Services grew 2.9% in the first quarter versus the same period last year. Farming slumped to a 0.7% contraction after an exceptional agricultural season last year on the back of strong olive and date harvests.

The manufacturing sector, which is the key for industrial exports and job creation, showed contraction of 0.6% after a brief hike in 2018 and 2017 when it inched up 0.3% and 0.5%, respectively.

The industrial sector outside manufacturing edged up 0.8% in the first quarter this year compared to the same period last year, the institute’s data show, while the textile and leather industry shrank 0.5% and the mechanical and electrical components business slowed 0.9%.

Former Trade Minister Mohsen Hassan, a leading figure in the newly formed secularist Tahya Tounes party, which is widely seen as Chahed’s party, said the government was not to blame for the dismal economic growth.

“We cannot take the government to task for this growth rate. This rate can be explained by the effect of monetary policy on consumption and investment,” he said, referring to interest rate moves by the Central Bank to tame inflation.

The Central Bank of Tunisia raised interest rates for the third time in a year to fight inflation while what is predicted to be the country’s worst growth decade in 50 years closes.

It raised the key interest rate 100 basis points to 7.75% in February to address inflation in accordance with measures backed by the International Monetary Fund. The move came after the government-run National Institute of Statistics data for 2018 indicated that the country posted meagre growth, low productivity, high inflation rates and a weakening currency.

The rate moves hit consumption and investment, two main planks of growth, as entrepreneurs and consumers saw borrowing rates skyrocketing.

“The government’s policy must give absolute priority to tackling the trade deficit and to taking all possible measures to trim that deficit because the situation is becoming worse,” said Hassan.

The trade deficit widened to $2 billion for the first quarter versus $1.6 billion in the same period last year, prompting former Finance Minister Hakim Ben Hammouda to describe the widening deficit as a “descent to hell” with dire consequences for the country’s economic sovereignty.

That deficit jumped from $4 billion in 2016 to $6 billion last year. The latest average forecast by independent economists put the gap for this year at $7.6 billion.

Such a deficit leads to depleting the country’s dwindling foreign currency reserves and more depreciation of the dinar’s value and high inflation rates.

Tunisia in the past had relied on stable earnings from tourism and phosphate exports as well as expatriate remittances. As the deficit widened, the country has been increasingly forced to borrow to plug the deficit.

“The scope of the deficit pushes the country towards foreign debt. It is a vicious cycle in which the economy has been trapped in recent years,” said Ben Hammouda.

“Our country is experiencing its most difficult and dangerous economic crisis in its recent history. After a significant economic respite in 2014, the country relapsed into the square of deep economic crises to witness deep and serious deterioration beyond all expectations,” said political analyst Zied Krichene.

Central Bank Governor Marouane El Abassi blamed the country’s economic stalemate on missing bold economic reforms in recent years.

“Tunisia is not an oil-producing country. It is not a phosphate leading exporter either. It is a country that has been built on hard work and perseverance,” he said. “Only hard work, production and economic productivity can pull Tunisia out of its economic crisis.”