Tunisia’s year of the foreign debt

Tunisia started the new year without promises for external resources it needs and which were estimated at $4.3 billion.
Sunday 05/01/2020
A view of the Central Bank in Tunis. (Reuters)
Crucial phase. A view of the Central Bank in Tunis. (Reuters)

TUNIS - Tunisia is embarking on a crucial phase that marks a turning point in the generous international support afforded to the country since 2011 in the form of loans and grants to support its democratic transition.

The next Tunisian government will have the unenviable task of starting to pay off external and internal debts accumulated since before the 2011 revolution.

Figures submitted by economic experts indicate that, since the revolution, Tunisia has obtained nearly $36 billion in donations and loans by many parties, including the European Union, the World Bank and the International Monetary Fund (IMF). Funds of various amounts and interest rates came from the African Development Bank and friendly Arab and European countries.

Economists said Tunisia’s ability to fulfil its external financial obligations has become questionable, stressing that defaulting on its debts would place the country in a spiral of the debt rescheduling. Such an outcome would be a major blow to the country’s reputation in international financial markets because Tunisia has never fallen behind on repaying debts since independence.

As the country gets further mired in its political crisis, more economic alarms sound. In December, the IMF withheld disbursement of $1.2 billion to Tunisia, the sixth and seventh instalments of a 2016 loan, provided that the required reforms are completed.

Tunisian economist Radhi Meddeb said 2020 is going to be more difficult for Tunisia than previous years, given that economic indicators do not bode well and are exacerbated by a deepening political crisis. He told a Tunis radio station that 2020 marks a new phase for Tunisia since it represents the first time the country will be paying off more debt than it will be borrowing.

“Tunisia will be paying 12 billion dinars ($4.3 billion) in debt service, while it will only borrow 11.7 billion dinars ($4.2 billion). This means that the borrowed funds will not go to investment and development projects. They will not even be enough to cover the debt,” Meddeb said, pointing out that development represents a major problem for Tunisia, which has never experienced a similar situation.

Many experts say the country’s predicament is worse than imagined. Tunisia started the new year without promises for external resources it needs and which were estimated at $4.3 billion, especially considering the IMF’s refusal to release the remainder of the 2016 loan.

“2019 was a difficult year for Tunisia at all levels, especially with regard to its external debt, which has grown greatly, and that makes the coming challenges very difficult to meet,” said economist Ezzeddine Saidane.

He called for a rapid intervention to save the economy through a structural reform programme. “President Kais Saied must convene all parties concerned and make a complete and serious diagnosis of the situation and then embark on a comprehensive reform process,” he said.

The issue of the difficulty of settling accumulated debts creates another problem for Tunisia related to obtaining new loans from the international financial market. Tunisian state institutions tried to alleviate the public’s fears by saying they are searching for alternatives based on a new programme to be discussed with donor institutions.

Tunisian Central Bank Governor Marouane El Abassi, speaking of the IMF decision to withhold its loan disbursement, said: “Tunisia has accomplished many of the reforms agreed upon and other reforms are being completed.” He said Tunisian officials and the IMF would discuss a new programme.

There have been questions regarding the loans and donations obtained by successive administrations since the 2011 revolution. Reports indicate that 2020 and 2021 will be the most difficult for Tunisia at all levels. A report by the Tunisian Accounting Office (Financial Court) last March indicated that, by 2020 and 2021, Tunisia will be required to pay off 123 external loans dating from 2012-16.