Government-labour deal paves way for Tunisia reforms, IMF talks

Tunisia’s 2021 budget forecasts borrowing needs of $7.2 billion, including about $5 billion in foreign loans.

Thursday 01/04/2021
Tunisian Prime Minister Hichem Mechichi and UGTT General Secretary Noureddine Taboubi hold copies of their signed agreement, March 31, 2021. (Tunisian prime minister’s office)
Tunisian Prime Minister Hichem Mechichi and UGTT General Secretary Noureddine Taboubi hold copies of their signed agreement, March 31, 2021. (Tunisian prime minister’s office)

TUNIS --Tunisia’s government and the powerful UGTT labour union signed an economic reform package on Wednesday that tackles subsidies, taxes and state firms, Prime Minister Hichem Mechichi announced.

The deal, which comes as Tunisia grapples with unprecedented financial problems, is seen as a major step forward toward addressing the acute socio-economic crisis facing Tunisia as a result of growth slowdown since 2011.  GNP growth has contracted by more than 8% last year reflecting the huge effect of the coronavirus outbreak on the economy.

The deal paves the way for an agreement with the International Monetary Fund. Negotiations are expected to start soon between the IMF and Tunisia on a package of measures to be implemented by the Tunisian government in exchange for crucial support by international financial institutions.

Tunisia’s 2021 budget forecasts borrowing needs of $7.2 billion, including about $5 billion in foreign loans. It puts debt repayments due this year at 16 billion dinars ($5.75 billion), up from 11 billion dinars in 2020.

“It is a historic agreement on important battles in our country,” Mechichi said.

The martial lexicon used by the Tunisian premier reflects the degree of resistance that the package of reforms could encounter from the working class poor and the unemployed, who bear the brunt of the deteriorating standard of living.  The poverty rate is estimated at  20%  while joblessness stands at above 17%. The figures could rise as a result of the pandemic.

Some experts are sceptical about the ability of the government to face such resistance considering the precarious political support it enjoys and the divisions plaguing the ruling elite.

The agreement includes a plan to start reforms for seven state companies, including Tunisair and the STEG Electricity Company. This means addressing the budget deficits facing most of these companies and the bloated workforce which is at the root of their losses.

UGTT Secretary General Noureddine Taboubi  said that the union “agreed to initiate immediate reforms in seven government institutions that operate in vital sectors in order to be the locomotive for development in the country, including the Electricity and Gas Company.”

He was implicitly confirming the willingness of the unions to negotiate a reduction of the workforce in exchange of reforms that improve the management of the public companies concerned in order to preserve their financial viability.

Another potentially contentious issue is that of cutting state subsidies.

The government has said it does not intend to end the subsidies but to target them to shore up the living standards of poorer segments of society through a new system expected to  start operating next year.

Taboubi stressed that the reform of the subsidy system “will take into account the purchasing power of the poor as well as the middle class.”

These categories, he said, will be protected “from the rise in prices that may result from the gradual lifting of subsidies on a number of basic materials.”

Taboubi demanded that the government share burdens and bounties with Tunisians by establishing a fair tax system that provides important financial resources to the state and helps improve public services, stressing the importance of Tunisians taking control of matters themselves to avoid foreign meddling.

Details of the reforms plan will be unveiled later.

The IMF urged Tunisia to cut its wage bill and limit energy subsidies to reduce a fiscal deficit, putting more pressure on the government amid a severe financial and political crisis.

“A very good step that shows that we are the ones who choose our reforms and agree on them without anyone dictating them to Tunisia,” Finance Minister Ali Kooli said.

Kooli said that in two weeks a Tunisian delegation would start discussions with the IMF over a financing programme, adding that reaching a deal with the Fund would improve Tunisia’s credibility and allow it to access foreign loans.

Analysts say the agreement does not come  a moment too soon. Much will depend on the ability of the trade unions to sell the expected sacrifices to their members and the willingness of the political classes to give the reforms utmost priority, regardless of their deep divisions.