Tunisia’s economy teeters on the brink of collapse

Brics breakaway

Mahmoud Ben Mabrouk, spokesperson for the pro-Saied 25 July Movement, said Tunisia might seek to join the Brics group as a "political, economic, and monetary alternative that allows Tunisia to open up to the new world, granting the country economic benefits that improve living conditions."

But this is not only unrealistic, it is also difficult to implement. Tunisia urgently needs foreign currencies like dollars and euros to repay its outstanding debts to international and European lenders.

The proposal also seems illogical: the size of the country's economy is estimated at $45 billion, with an debt level of up to 80% of its gross domestic product.

Algerian agenda

Opposition groups in Tunisia – both Islamists and secular liberals – believe the president is enforcing an Algerian agenda through which he is sidelining the country from traditional allies in the Maghreb and Euro-Mediterranean regions.

Algerian President Abdelmadjid Tebboune had stated that Saied's opponents "threaten Tunisia's stability" and "seek to topple the Tunisian president and state." In response, Nejib Chebbi, leader of Tunisia's National Salvation Front, underlined his opposition to Algerian interference in Tunisian affairs.

Chebbi's retort is the Tunisian opposition's first challenge of what they call the "Algerian tutelage over Tunisia," which is pushing the latter to "take stances that aggravate its regional and international isolation."

Migrants motivate Italian intervention

Rome's mediators with the IMF were also dealt a painful blow. In a bid to circumvent an influx of migrants to its shores should the Tunisian state collapse, Italy's Foreign Minister Antonio Tajani suggested the provision of €300 million in urgent European aid to Tunisia in exchange for the implementation of the financial and economic reforms requested by the IMF.

Italy warned that any delay in funding could spark a monetary crisis, which would exacerbate the situation in the country and threaten the whole Mediterranean region.

Rome is hardly interested in backing Saied, who is already sidelined by most of Europe. Its main concern is rising fear of a new wave of migrants on its borders.

A New York Times article recently detailed how Saied exploits European anxiety over illegal migration and uses it as leverage in countering the EU's threats of allowing an imminent collapse. The article cites the Tunisian Forum for Economic and Social Rights (FTDES) as saying that the Tunisian Coast Guard intercepted tens of thousands of migrants, around 16,000 of whom have arrived in Italy so far this year, according to the United Nations. 

Tunisia is the departure point for tens of thousands of migrants hoping to reach the Italian coast, most of whom come from Sub-Saharan Africa. Migration is so sensitive an issue that it has become a key point of contention in the internal politics of many EU states, who are all united by the hope that the IMF and Tunisia reach a deal that prevents imminent collapse and the subsequent "migration tsunami."

The EU's 27 foreign ministers have been vocal about their concerns over Tunisia's precarious situation, the mounting threat of a monetary and economic crash, and its unprecedented political and social challenges.

In an EU foreign ministers meeting in Brussels in late March, EU foreign policy chief Josep Borrell had painted a bleak picture of Tunisia's political, economic, and security future. 

The European warning over a Tunisian collapse pointed to a potentially unprecedented flow of migrants and the dangers of tragedy in the Mediterranean Sea, where lives could be lost trying to cross the body of water.

A warning for Washington

The warning was also meant for Washington: any deal with the IMF, bad as it may be, is a better than a crash in Tunisia. The country is already the weakest link in North Africa, bordered by fighters and terrorists in Libya and Russian fighters from the Wagner Group private army in the African Sahel spanning a quarter of the continent.

The EU dispatched envoys from Belgium, Italy, and Portugal to meet with Kais Saied and evaluate risks and potential resolutions. However, the EU itself is divided over which solution is best.

France and Italy are willing to provide economic and monetary support for the pugnacious president if it means averting a civil war or military coup. There were rumours of such developments during Saied's two-week absence for medical reasons in Ramadan.

Other European states believe the only solution is an agreement with international lending institutions on a package of domestic reforms as a primary condition for financial aid.

But that requires not only domestic consensus but also a greenlight from Washington, which does little to hide its disapproval of Saied's domestic and foreign policies and his undemocratic seizure of power in the birthplace of the 2011 Arab Spring.

Observers wonder why international lenders abandoned Tunisia and left it alone to grapple with economic and financial hardship. 

In response to Saied's racist remarks against migrants from sub-Saharan Africa —  which prompted acts of violence against nationals of several Sahel countries — World Bank chief David Malpass asked his staff to halt cooperation with Tunisia on the Country Partnership Framework 2023 - 2027.

The UN Committee on the Elimination of Racial Discrimination (CERD) also condemned Saied's statements and incitement against Africans and his claims that they are part of an international conspiracy to replace Tunisia's Arab identity with an African one. The African Union and human rights organisations described the statements as "dangerous racist hate speech."

Human rights groups, including the FTDES, say the total number of irregular migrants does not exceed 21,000 in a country of 12 million people, according to The Economist. 

The government was counting on funding from the World Bank and the IMF to fill its 2023 budget gaps, estimated at no less than $5 billion. AFP cites a World Bank official as saying that "new grants for Tunisia are unlikely before things clear up and a new partnership framework is established."

In February, the World Bank Board of Executive Directors approved a $120 million loan to help Tunisia address the liquidity constraints in the Ministry of Finance and support small- and medium-sized enterprises (SMEs) at risk of closure.

Tunisia's tough year

Tunisian Central Bank Governor Marouane El Abbassi predicts a tough year ahead. Poor growth looks set to be compounded by high rates of inflation at over 10% and unemployment at more than 15%. 

"Tunisia will be in dire straits if it does not reach an agreement with the IMF soon on a new loan, especially since negotiations between the two parties remain stalled," he warned.

In mid-October 2022, the IMF and Tunisia had reached a staff-level agreement to support economic policies and reforms with a 48-month Extended Fund Facility (EFF) using special drawing rights (SDRs) equivalent to about $2 billion.

The IMF's Executive Board was expected to approve Tunisia's programme request in a meeting scheduled in December, coinciding with the Tunisian president's visit to Washington to attend the US-Africa Leaders' Summit. But discussion of the proposal was postponed.

Observers believe that reflects US discontent, if not anger, with Saied's reckless policies and pointed anti-Semitic statements, which Washington publicly condemns.

Political posturing backfires

Diplomatic sources told Al Majalla that Saied adopts such controversial stances to corral monetary and political support from Algeria to help stop the Tunisian currency's collapse.

Algeria had given Saied a $200 million loan and promised him a deposit of a similar value in the Tunisian Central Bank if he takes Algiers' side in its struggle with Rabat for regional power. Algeria also uses gas as a bargaining chip to persuade Italy and France to support Saied and ensure he remains in power.

However, political posturing can also be counterproductive. After a Japanese-African economic summit held in Tunis late last year was attended by the chief of the Moroccan separatist Polisario Front, Rabat was enraged and relations were damaged with most other African capitals.

Tokyo went on to reject any support for Tunisia outside the umbrella of an IMF deal, with Tunisia ultimately falling into a trap that its former presidents managed to avoid for six decades.

Observers agree that the overall situation in Tunisia is worrisome. Even the most pessimistic predictions did not foresee such a dire crisis in the country that kicked off the Arab Spring with its 'Jasmine Revolution' — an uprising so peaceful compared with bloody equivalents elsewhere in the Arab world. 

Hobbled hope

High hopes were placed on Tunisia's democratic openness, economic development, and social justice, all offering fertile ground for prosperity. Women in the country have high levels of education and freedom, the middle class is a large component of society, and its youth are highly ambitious.

The diverse economy benefits from tourism, agriculture, phosphate, and an industrial sector that manufactures exportable goods. Its moderate foreign policies and openness to international financial institutions is aided by its geographical proximity to European markets.

Tunisia was the perfect candidate for post-revolution progress and advancement, but 12 years and several Arab Spring-governments later, the country seems to have regressed instead. Finances are in the red, and other indicators are equally subpar.

Many a poem praised Tunisia's green landscapes and white beaches in the 1950s. Much like the real Lebanon, this "Lebanon of the Maghreb" had it all: a tourism magnet for people of all nationalities, religions, and beliefs, coupled with a free, independent society. Yet here are these two countries today: one already in the eye of the storm and the other inching ever closer to it.

Islamist rule in Tunisia left the country worse than it found it, for women, investments and the economy, which fluctuated between modest growth and recession between 2011 and 2019. In 2023, the IMF says growth will fall to 1.6%.

Price problems in prospect

Months of increasing shortages mean there is agreement that Tunisia's financial bottleneck seems more and more impossible to clear. It is affecting the availability of basic commodities like sugar, semolina, oil, coffee and fuel. Over 300 medicines are inaccessible. Price hikes are likely across the board.

Any agreement with the IMF requires not only internal agreement with trade unions, political parties, and civil bodies; but also the parliament's ratification of socially sensitive reforms such as selling public companies, devaluating the dinar, cutting subsidies, and other proposals up to liberalising the entire economy.

Trade unions affiliated with the Tunisian General Labour Union (UGTT) are opposed to any financial measures that undermine workers' rights, which prompted the president to arrest union leaders and accuse them of inciting strikes. 

Emmanuel Moulin, president of the Paris Club, an informal group of official creditors, had underlined in a message to Saied the necessity of reaching a reconciliatory arrangement with financial institutions and credit rating agencies before making any debt rescheduling request.

Moody's had downgraded Tunisia's long-term foreign-currency issuer ratings to Caa2 with negative outlooks, in what experts described as a warning to foreign governments and banks of the imminent collapse of the Tunisian economy.

News website Univers News said the downgrade indicates Tunisia's inability to repay its external debts, describing the move as a practical "declaration of bankruptcy."

The fate of the Tunisian economy is open to all possibilities. In the words of Josep Borell in the EU foreign ministers meeting: "The worst is yet to come. Brace yourselves for a hot summer in the Mediterranean."