Economic troubles hinder Tunisia’s recovery

Sunday 19/06/2016
Central Bank building in Tunis

TUNIS - Hailed by international financial institutions as the “success story” of reforms in North Africa, Tunisia’s economic at­tractiveness and resilience over the last two decades are being threat­ened by security fears, social unrest and weak government leadership.
Tunisia had an average growth rate of 4.5% in the decade before the ouster of former president Zine el-Abidine Ben Ali in 2011 but has faltered since. The International Monetary Fund (IMF) said Tunisia’s gross domestic product (GDP) is predicted to grow 2% in 2016 after increasing 0.8% last year.
The slow pace of growth has worsened an unemployment crisis, particularly for the country’s young people. Overall joblessness was 15% in 2015, according to the IMF, but it was twice that for university gradu­ates and 35% for Tunisian youth in general.
Tunisia was hit by three deadly jihadist attacks in a 13-month span that hurt its key tourism industry and frightened away investors, causing growth to shrink, state revenues to dry up and the govern­ment to increase debt.
The government would have failed to pay wages to state workers if it had not been rescued by foreign loans. With economic conditions as they are, Tunisia will find it hard to repay a Qatari loan of $500 million, officials said.
“The government’s direct and in­direct tax revenues are not enough to pay the salaries of more than 670,000 employees, which are worth 1 billion dinars ($470 million) each month,” said Tunisian Central Bank Governor Chedly Ayari.
“We need to borrow from abroad as the economic crisis is worsening because of faltering key sectors of tourism and mining, which are the main foreign-currency earners.”
Ayari warned that 2017 would be more challenging as “financing the budget for that year would be more difficult because of lack of the state’s resources to meet current spending to pay salaries and plug the deficits of state-owned firms and safety net and health-care funds.”
“It is exceptional. A country that was hit by three terrorist attacks and achieves a growth rate of 0.8%. Look at what is happening in other countries,” said Tunisian Prime Minister Habib Essid.
Secularist party Nidaa Tounes, founded by President Beji Caid Es­sebsi, and the Islamist Ennahda party called on Essid to step down and be replaced by a unity govern­ment. They blamed him for the fail­ure to address the country’s mas­sive unemployment, rising poverty and economic stagnation.
Essid was chosen in 2015 to lead the government largely because of his management skills and work ethic. Replacing him would likely take time because of political wran­gling over positions in the next gov­ernment and the country’s priori­ties. Caid Essebsi has tried to lure the powerful UGTT trade union into the next cabinet to create a better climate for the implementation of reforms needed to energise growth.
The African Development Bank cited social unrest and security as the main hurdles to Tunisia’s econ­omy expanding. Its chief econo­mist, Audrey Verdier-Chouchane, told a gathering of experts in Tunis on June 4th that Tunisia needed to change its economic development model, restructure its financial sec­tor, trim regional disparities and cut debt.
Tunisia had a 47.5% government-debt-to-GDP ratio in 2015, com­pared to 40.2% in 2010, according to official data.
The IMF has approved a 48-month arrangement under an extended fund facility with Tunisia for about $2.9 billion to support the country’s economic and financial reform programme.
“The programme aims to pro­mote stronger and more inclusive growth by consolidating macroeco­nomic stability, reforming public institutions, including the civil ser­vice, facilitating financial interme­diation and improving the business climate,” the IMF said in a report.
The IMF move frees up about $319.5 million for immediate dis­bursement. The remaining amount would be phased in over the dura­tion of the programme, subject to regular review.
It followed the World Bank’s endorsement of a five-year plan to lend Tunisia up to $5 billion to support reforms aimed at reviving growth and creating jobs.
After the IMF decision on Tuni­sia, Mitsuhiro Furusawa, the fund’s deputy managing director and act­ing chairman, said: “A prudent fis­cal policy that puts public debt on a downward path will ease financing constraints, reduce external imbal­ances and ensure sustainability.”
Financial experts argue the pro­posed arrangement faces risks stemming from security and social tensions, political instability and opposition by vested interests.