Three scenarios facing Tunisia

When the arrival of a shipment of bananas to Tunisian markets turns into an event worthy of the official television station devoting a celebratory report to it during the main evening news bulletin, we must know that the economic situation in the country is not good at all.

We see President Kais Saied still stressing “the need to combat speculation and rising prices” and calling on citizens to “boycott the goods with prices that such speculators and monopolisers are raising”, even though everyone knows that these goods are not available in the markets due to the state being unable to secure them, not because of monopoly. These goods include grains, rice, coffee, sugar, flour, etc., and this is proof that the state is in a terrifying state of denial.

In Tunisia, there are experts who can correctly diagnose the country’s economic situation, but their voices are not heard. However, foreign research bodies seemed interested in this, such as what was prepared by the Malcolm Kerr-Carnegie Middle East Centre at the end of last month in a report titled “The Build-up to a Crisis: Current Tensions and Future Scenarios for Tunisia.” The report stated that “Acute commodity shortages are a novel phenomenon in Tunisia. These shortages are due to the combination of a very poor agricultural season and the scarcity of foreign exchange, which has made it difficult to compensate by increasing imports. This is particularly the case with products distributed by SOEs. Because these SOEs were already highly indebted and had not received sufficient budgetary transfers, they were unable to increase their purchases abroad.” This is exactly what the president does not want to admit.

Read: Tunisia olive oil exporters lament missed opportunities

The report, prepared by three researchers, including Tunisian Hamza Meddeb, adds: “In its budget for 2023, Tunisia’s government planned to borrow around $5 billion from international partners to finance its primary deficit and service the public debt. But as the country risk ratings rose, Tunisia lost access to the Eurobond market and even to the bilateral and multilateral flows that were initially pledged to Tunisia and conditioned on an IMF agreement. As a result, Tunisia was unable to borrow more than half of what it needed, increasing pressure on the domestic financial market. The treasury is now short of liquidity to meet essential expenses, which is unprecedented.”

As Tunisia enters a presidential election year, decision-makers face a major dilemma, according to the report, as “a hard economic adjustment risks unleashing a socio-political crisis. Not engaging in a correction, however, may well engender a future economic meltdown. Buying time is easiest politically, but it often means only postponing the crisis, leading to an even larger explosion. The challenge is to find the narrow path to escape a crisis by generating confidence in a national program that is politically acceptable and that can lead to a brighter future.”

“To make matters worse, macroeconomic and political instability have begun to deeply harm the country’s productive capacity. The risk of a serious financial crisis has risen, and corrective action is needed to ward it off.” In the face of a situation like this, “buying time is easiest politically, but it often means only postponing the crisis, leading to an even larger explosion,” according to the report. Instead of buying time and postponing the crisis, the better option, according to the Carnegie report, is “to grow out of the difficulties. But this would require a completely new style of leadership that builds a coalition for change, as well as sufficient social trust, to embark on an ambitious reform drive.”

“It seems that the easiest political option is to procrastinate, buy time, and postpone the crisis, which threatens the situation to explode further,” according to the report.

In contrast to procrastination and “postponing the crisis”, the “best option”, according to the Carnegie report, lies in “promoting economic growth in order to overcome the imminent challenges, but this path requires a new form of leadership that works to form a coalition for change, and build sufficient of confidence within society, in order to embark on the ambitious reform project.” All of this is currently not possible due to the prevailing political suffocation.

The report noted that “With the current democratic backsliding, Tunisia has lost the “democratic rent” that allowed it to gain access to cheap and plentiful financial assistance from Western partners and institutions,” believing that “in the coming months, it will be more difficult for Tunisia to reduce its overall debt, in part because the cost of servicing its external debt is rising. In 2023, debt servicing amounted to around $2 billion. With debt servicing for 2024 projected to be around $4 billion in 2024, the challenge will be even greater.”

Watch: Londoners discuss Tunisia and political Islam

Hence, the report says that decision makers should consider these three possible scenarios, which are summarised as follows:

The first scenario is Tunisia’s reluctance to carry out reforms and implement a programme in agreement with the International Monetary Fund (IMF), which will keep the internal and external deficit large, and the country will then be forced to cover this through local loans, postponing the payment of outstanding arrears and printing banknotes.

The second scenario is agreeing on a programme with the IMF and carrying out some reforms. This will likely be accompanied by additional financing provided by other countries, which would ease pressures on external accounts.

The third scenario involves launching a credible reform process that succeeds in driving economic growth. This would address the debt problem that burdens the country.

Unfortunately, Tunisia currently appears to be in the middle of the first scenario, at a time when Tunisians continue to stand in long queues to obtain a specific number of basic materials as if they were in a time of war. Meanwhile the head of state makes visits here and there, in a premature election campaign, to talk about matters which are unrelated to people’s problems or worries, including, for example, the possibility of converting several areas of the Tunisian desert into green areas!

This article first appeared in Arabic in Al-Quds Al-Arabi on 19 March 2024

The views expressed in this article belong to the author and do not necessarily reflect the editorial policy of Middle East Monitor.