The Tunisian parliament’s approval of a $500 million loan from the African Export-Import Bank (Afreximbank) to finance the state budget on 1 June speaks of the severity of the country’s economic plight.
The economic crisis in Tunisia has steadily spiralled against the backdrop of rocky talks between Tunis and the International Monetary Fund (IMF) over a $1.9 billion assistance package and mounting political tensions between the government and opposition.
Tunisia’s vital tourist industry is reeling, especially in the wake of the shooting that occurred on 9 May outside the Al-Ghriba Synagogue in Djerba, killing three policemen and two civilians, one Tunisian and the other French.
The shooting took place during the annual pilgrimage to the synagogue, which attracts hundreds of Jews from Europe and Israel every year. Double-digit unemployment also persists in Tunisia, reaching a record-breaking 16.1 per cent in the first quarter of this year.
The Covid-19 pandemic plunged Tunisia into economic difficulties, and the country is still suffering from the repercussions of the lockdowns, suspension of economic activities, and interruptions in production associated with it.
The political tug-of-war between Tunisian President Kais Saied and his adversaries have also aggravated the deterioration of living standards. Clashes between the government and demonstrators protesting against political reforms and, more recently, the 2023 Finance Law adopted in February have contributed to protracting and exacerbating the crisis.
This context forms the background to Saied’s remarks on 23 May accusing certain “circles and lobbies” of attempting to ignite unrest by causing food shortages in Tunisia. “We will not allow those people to tamper with people’s lives and food supplies, including of bread, sugar, coffee, oil and other essential goods... A bunch of criminal networks are trying to starve the people,” Saied said.
This was not the first time that the president has attributed the economic problems in Tunisia to “conspiratorial practices.” During a meeting with the Tunisian minister of trade on the problem of rising prices Saied said that “we will not abandon the Tunisian people to those who abuse their right to a dignified life.”
Tunisia has turned to international donors to help to solve the economic crisis. Technical talks began with the IMF last year, but negotiations over an agreement have run aground over differences on its conditions.
Political strains and economic distress have cast a dark cloud over life in the country. The weakening Tunisian dinar, which has lost 43 per cent of its value in recent years, may boost some Tunisian exports, but it may not attract investment in the current political climate.
Meanwhile, it erodes the purchasing power of ordinary Tunisians, makes debt-servicing more expensive, and could increase the budget deficit. The country’s international credit rating risks a further decline if Tunis is unable to remedy its financial problems and ward off the spectre of sociopolitical unrest.
However, President Saied and the government of Prime Minister Najla Bouden have been exploring a number of short-term and longer-term steps to remedy the crisis. The most recent measure was the bill approving the half-a-billion-dollar credit agreement between the Tunisian government and the African Export-Import Bank (Afreximbank).
On the same day, Saied proposed the introduction of new taxes targeting the country’s wealthiest, a measure that would enable the state to avoid having to bow to the “diktats” of the IMF in order to win its approval of the $1.9 billion loan.
He said that all Tunisians benefited from the subsidies that are currently in place in the country, including the wealthiest. Rather than lifting those subsidies, as the IMF would require, the government could “introduce additional taxes for those who benefit from the subsidies without needing them,” he added.
Negotiations with the IMF were broken off in April in protest against “diktats” that would require Tunisia to implement economic reforms such as lifting state subsides.
The Tunisian government has also begun to encourage the growth of small and medium-sized enterprises (SMEs) as a means to stimulate growth, boost production, and create jobs.
The move has sparked interest among international donors, and in February the World Bank approved a $120 million package to help to finance them. In late December 2022, the German KfW Development Bank, which specialises in financing infrastructure development and alleviating poverty, approved a loan of €300 million to finance projects in renewable energy, water management and rural development.
At the end of last year, Berlin announced a grant of €105 million to Tunisia in the framework of two technical cooperation agreements signed between the two countries.
President Saied has personally been able to attract some sizeable European investments thanks to his good relations with a number of European governments.
Rome has been a prominent advocate of the need to support the Tunisian economy. Ahead of the summit meeting of the G7 group of countries in May, Italian Prime Minister Giorgia Meloni urged Europe to marshal support to help Tunisia overcome its economic difficulties as a means to stem illegal immigration and to combat terrorism.
If Saied’s measures have provided some relief to the low to middle-income segments of Tunisian society, he along with others in government recognise that more long-term solutions are needed in the framework of a strategic development and investment vision.
* A version of this article appears in print in the 15 June, 2023 edition of Al-Ahram Weekly
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