At a grocery shop in a rundown district of central Tunis, Khaola, a civil servant, bemoaned recurring shortages of basic foods and the soaring prices that have forced her to stop buying meat and fruit.
“There was a period when you could not find flour or semolina, now it’s better but they only give you two packets,” said the divorced mother of two teenagers. “There is no sugar, and rice is scarce. Prices are so high, I can no longer afford meat or tuna and I haven’t bought fruit for a month.”
The Ukraine war has dealt a severe blow to Tunisia’s economy which was badly scarred by coronavirus and had been moribund for years before the pandemic. Increases in global food and energy prices sparked by the conflict pushed inflation up to a record 8.1 per cent in June, adding to the burden on a population which has seen its living standards plummet over the past decade since Tunisia’s 2011 revolution against autocratic rule.
Economic growth averaged an anaemic 1.8 per cent in the years between 2011 and 2020, when the economy contracted by 9.3 per cent as a result of the pandemic. It is expected to grow 2.5 per cent this year but unemployment stands at 16.8 per cent, hitting 38.5 per cent among the young.
High prices for wheat and oil imports have piled pressure on the strained public finances of a heavily indebted government which subsidises bread and fuel for its 12mn people.
“Since independence in 1956 we have not lived a catastrophe in public finances like the one we have been experiencing since 2020,” said Fadhel Abdel Kefi, a former investment minister and leader of the opposition Afek Tunis party. “The government owes money to milk producers, bakers and construction companies. After our bonds were downgraded by Fitch rating agency to CCC [in March] the international debt market has been essentially closed to us because the interest rates required are too high.”
On at least one occasion in May ships carrying wheat from Spain and Romania were forced to wait outside the port of Sfax until the government paid suppliers so the cargo could be unloaded, according to a western diplomat in Tunis and local press reports.
Officials say the budget deficit will hit 9.7 per cent of gross domestic product this year, up from the 6.7 per cent originally forecast. But even before the Ukraine war, the finance minister said Tunisia needed to find some $7bn of extra financing in 2022.
The economic crisis comes against a backdrop of political uncertainty. Kais Saied, the elected populist president who last year shuttered parliament and seized the levers of powers, has called a referendum on a new constitution. The move, expected to be approved by voters, has been slammed by political opponents as the final step in the dismantling of the democratic system established after the 2011 revolution.
The proposed charter gives the president extensive powers over government and the judiciary and limits the role of parliament. Until Saied’s power grab, Tunisia was seen as the only successful democratic transition among Arab countries which overthrew autocratic leaders in 2011.
Saied has cast himself as the country’s saviour after a decade of economic decline and a succession of weak coalition governments. But during his year as sole ruler, analysts say beyond speeches attacking corruption he has offered no vision to salvage the economy. To prevent economic collapse the government is seeking a loan agreement with the IMF of up to $4bn.
That could be at risk because of the president’s stand off with the powerful General Union of Tunisian Workers, UGTT, the biggest organised force in the country which has rejected proposals to cap the public sector wage bill and restructure subsidies — part of the measures needed to secure the IMF loan.
A strike called by the UGTT last month paralysed public transport, air travel and state-owned industries. More strikes that would include the civil service are threatened.
“We accept an agreement with the IMF, but not with the conditions of the fund,” said Anouar Ben Kaddour, assistant secretary general of the UGTT. “We refuse the lifting of subsidies, or freezes on civil service hiring and salaries. We also refuse the privatisation of public companies.”
Tunisia has a poor record with IMF loans. In the past decade it signed two agreements totalling $4.6bn but it failed to implement reforms amid union opposition and popular protests.
This time the stakes are high for Europe as well as Tunisia. Diplomats say France and Italy are pressing for an IMF deal to prevent an economic collapse that could send migrants across the Mediterranean.
“The last thing we want to see is violence and people leaving for economic or political reasons,” said a western diplomat in Tunis. He said the IMF was “being a bit more flexible on preconditions and understood the difficulties of requiring reforms before the negotiations.”
The IMF said last month negotiations would start within weeks. To shore up public finances in the interim the European Union and the World Bank have advanced hundreds of millions of dollars to cash-strapped Tunis. The World Bank in June approved a $130mn loan to support wheat and barley imports while in May the EU disbursed a €300mn loan.
“After adopting the [new] constitution, Saied can get the IMF deal,” said Hamza Meddeb, scholar at Carnegie Middle East Center. “The big question after that is then what? The country will be highly polarised and there will still be an economic and social crisis.”
He predicts the economic situation will erode Saied’s popularity whether or not he carries out austerity measures to be agreed with the IMF.
But for now many Tunisians say they are still pinning their hopes on Saied. “He is not a thief and he should be given a chance,” said a shopkeeper in Tunis. “He only had one year in office. We should judge him in five.”
Source: Economy - ft.com
