TUNIS, May 31 (Xinhua) — In April 2021, Tunisia started to seek a 4-billion-U.S. dollar loan from the International Monetary Fund (IMF), which was described by then Prime Minister Hichem Mechichi as the “last opportunity” to rescue the country’s stricken economy.
However, the Tunisian government is still in preliminary talks with the IMF for the bailout a year later. Experts warned that if the labor union’s opposition to structural reforms and the political turmoil continue, Tunisia would be unlikely to clinch the loan agreement with the international lender this year.
STRUGGLING FOR FUNDS
The Tunisian economy has gone from bad to worse in recent years. While the economy has struggled since the Arab Spring uprising in 2011, its problems are aggravated by the COVID-19 pandemic that broke out in 2020, when Tunisia’s gross domestic product (GDP) contracted by an unprecedented 8.8 percent. In 2021, the public debt in Tunisia surged to nearly 38 billion dollars, or 82 percent of its GDP. Last October, the credit rating agency Moody’s downgraded the Tunisian debt to Caa1 from B3, warning that the North African country could slide into default. To save Tunisia from bankruptcy, the government has been seeking multiple loans from outside, including the IMF loan, though few people think any sum higher than 3 billion dollars is likely.
To unlock the IMF loan, Tunisia needs to carry out deep structural reforms, including freezing wages, cutting energy and food subsidies, and privatizing some state companies. On Monday, the Tunisian government proposed urgent measures to cut the public sector’s pay, which has reached a record level of 15.6 percent of the GDP in 2022, up from 10 percent in 2010, leading to a limited budget capacity for public investment. However, the measures are unpopular among Tunisians, who have been struggling to make ends meet even before the pandemic. “I’m so worried about the rise in food prices, as the government is mulling a cut to various subsidies,” Wajij Haffouthi, a local reporter, told Xinhua. On Tuesday, the Tunisian General Labor Union (UGTT), the country’s largest labor organization which boasts over 1 million members, announced that it would hold a strike over cutting wages and the economy on June 16.
The prolonged political crisis in Tunisia is another important reason for the IMF’s hesitation to lend the money. On July 25, 2021, Tunisian President Kais Saied sacked the prime minister and suspended the parliament in response to mass protests against the government’s handling of the COVID-19 and the economy. On March 30 this year, Saied announced the dissolution of the parliament, and the new parliamentary elections will be held at the end of the year. On May 25, the president issued a decree calling voters to a referendum on a new constitution, which has been rejected by the UGTT. Fostering political stability, concluding the institutional transition in Tunisia, and consolidating the foundations of good governance and the rule of law would strengthen the recovery, according to a new report by the Paris-based Organisation for Economic Cooperation and Development.
Tunisian economist Azzedine Al-Saeedan viewed the loan agreement with the IMF as “an absolute necessity,” even if it is not sufficient to save the country. “The president and the prime minister must tell the people the truth about the economic, social and financial conditions, and it must be said frankly and clearly,” Saeedan said. “Tunisia is now like a patient who must stop the bleeding first. Then, it can be healed through deep reforms,” he said, warning that if the labor union organized strikes in the public sector, it would greatly affect the government’s negotiations with the IMF.