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Tunisia’s fledgling democracy is on a collision course with the IMF

By David Whitehouse
Posted on Tuesday, 2 July 2019 17:25

Nabil Karoui, head of Tunisia's Nessma TV station, has been targeted by the new electoral law. REUTERS/Anis Mili

Tunisia is drifting dangerously towards clashing with the International Monetary Fund (IMF) over its funding terms.

This year’s presidential elections are more likely to hasten the crash rather than avoid it.

In May, prime minister Youssef Chahed responded to strikes by declaring a 6.5% raise on the minimum wages for industrial workers and farmers, as well as pensions for 700,000 private-sector retirees. This was in defiance of the IMF recommendations, which demanded a more conservative fiscal policy.

Disbursement delayed

The IMF only approved a $247m loan disbursement to Tunisia in June this year, the sixth payment in a $2.8bn loan programme. That package depends on Tunisia cutting public spending and the budget deficit. The gap since the last disbursement, in September 2018, reflected the IMF’s displeasure with Tunisia not meeting its commitments, according to the Economist Intelligence Unit (EIU). The latest payment, however, will help Tunisia cover its 2019 budget deficit, but the country will have to resort to other sources of borrowing at a higher cost, said the EIU.

Researchers at Oxford Analytica said the increases in wages and pensions would have “international repercussions as disgruntled foreign creditors may refuse to continue financing Tunisia without evidence that the government will control its spending”. The decision to increase the minimum wage may also increase union-backed protests over further wage increases by creating a precedent, it argued.

Dinar dispute

On 26 June, Capital Economics, the London-based economics research consultancy, said the government and the IMF still disagreed over exchange-rate policy. It went on to argue that the recent appreciation of the dinar is unlikely to be sustained in light of the large current account deficit. The research group’s findings predicted:

  • persistently high inflation and further interest rate increases;
  • and a weakening dinar ending the year at 3.80 to the euro (versus 3.25 now).

Slowing economy

Tunisia’s economy slowed sharply at the start of this year, led by the agriculture sector, with first-quarter GDP growth of 1.1%, the worst in three years. That would put a damper on ambitious economic reforms before the presidential elections in November, said Eurasia Group analyst Zachary Burk. He went on to say that given the strength of the country’s unions, “one must question whether any government will be able to fully push through the IMF-mandated reforms”.

Political intrigues

Public hostility – a key constraint on implementing reforms – was likely to be aggravated by electoral law amendments in June that appear designed to bar popular candidates from running. The new law stop candidates who ran private media or worked for non-governmental organisation one year before the date of the elections.

Many see this as a transparent attempt to eliminate from the running Nabil Karoui, founder of the Nessma TV channel and a frontrunner for the presidency, and Olfa Terras, founder of the Aish [3ich] Tounsi movement.

Oxford Analytica said the electoral amendments “highlights the urgency of establishing a constitutional court to protect Tunisia’s democratic transition”. Eurasia Group’s Burk was more forceful, saying that the amendments risked “further damaging the credibility of the political class ahead of the elections, and potentially that of the democratic process itself”.

Bottom Line:

The Arab Spring’s only democratic success story is at risk if the government disregards the views of its international lenders and arbitrarily excludes presidential candidates.

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