High stakes for Tunisia after IMF agreement

Tunisian officials breathed a sigh of relief on Oct. 15 after the International Monetary Fund announced preliminary approval for a $1.9 billion loan package. The country’s politicians viewed it as a vote of confidence for their policies, while government technocrats felt vindicated in the way that they negotiated the deal.

The protracted talks over the agreement took more than 15 months and occurred amid Tunisia’s worsening financial crisis and growing doubts about the prospect for agreement.

By itself, the relatively small loan won’t alleviate Tunisia’s budget deficit, which is expected to reach 9.7 percent of GDP this year, and its nearly $40 billion debt burden. 

But the authorities hope the deal will unblock bilateral loan agreements and be the stepping stone for economic recovery.  

Success in this regard will hinge on the credibility of Tunisia’s diplomatic pitches as the country tries to convince Western partners and oil-rich regional donors to come to its aid.

If approved by the IMF executive board in December, the loan is expected to be disbursed in eight installments of less than $250 million each, starting in January. Intermittent release of funds will enable periodic IMF reviews, a routine process in similar loan agreements. 

But in Tunisia’s case, the extra caution seems to stem from the country’s inability in recent years to deliver on pledges of reform embedded in other loan deals. Since 2011, successive governments viewed big spending and public-service hiring as necessary to placate discontent — despite their devastating economic costs.

To deliver a comprehensive reform program this time, and to unleash “Tunisia’s potential for inclusive and much-needed job-rich economic growth,” as envisioned by IMF Middle East and Central Asia Director Jihad Azour, political and social stability will be crucial.

Almost nobody in Tunisia would dispute the IMF’s objectives to see the government unfetter private initiative, encourage investment and introduce greater tax equity. What’s controversial, however, is the desire to cut public spending — including civil service wages and what the IMF calls “generalized wasteful price subsidies.”

Unless he seeks a pragmatic middle-ground, Saied risks a political opposition that coalesces with the trade unions to shape a common front against the IMF-sanctioned reforms

Oussama Romdhani

There’s wariness that the contemplated measures could mean more unemployment and higher inflation at a time when most Tunisians complain of increasing hardship. There’s also concern that the bureaucracy could be overwhelmed by the daunting tasks of overhauling the subsidy system and downsizing public services. 

Part of the plan is therefore to try to limit the reforms’ impact on vulnerable segments of society through an expanded social safety net and measures such as direct cash transfers. Still, Tunisian economist Radhi Meddeb believes the reform program could be “too difficult to implement from the social and political perspectives.”

Some of the predicted difficulties are tied to likely opposition from the main trade union — UGTT. After summer negotiations with the government, the UGTT’s leadership faced criticism from its rank and file for accepting modest wage increases below inflation forecasts. The union won’t yield as easily to a new set of government demands.

The IMF’s insistence that Tunisia “strengthen governance and transparency in the public sector” is understandable, considering the budget deficit faced by many public enterprises — including those enjoying virtual monopoly in their sectors, such as the tobacco manufacturing enterprise or the national water and electricity companies. 

In a recent interview, IMF Managing Director Kristalina Georgieva revealed that the privatization of “some state-owned companies” was among the issues discussed by the fund with Tunisian officials. 

Without the union’s acquiescence, however, the opening of companies to private sector participation, much less full privatization, could spark social turbulence. 

Beyond the possible resistance of the unions, the most daunting obstacle could be the country’s politics. Indeed, the absence of an inclusive process involving political parties and civil society will make a national consensus around IMF-backed reforms difficult to forge.

Today, political factors remain the deal’s elephant in the room. Despite criticism, President Kais Saied is on a solitary path to reengineer the system according to his own vision. 

Although IMF executive board approval is virtually guaranteed, many view the two-month delay as a way to assess political progress in the country in conjunction with the Dec. 17 legislative vote. Ballot results and turnout rates could offer an indication of where the political process is heading. Many parties already intend to boycott the election.

Across the political spectrum, populist discourse prevails. Most parties opposed to Saied, including Ennahda’s Islamists and their Free Destourian nemeses, are basing their narratives on alarm over the deterioration of living conditions. They are also pressing the government to disclose the true extent of the economic crisis and to be more transparent about the nature of the envisaged austerity measures. 

Unless he seeks a pragmatic middle-ground, Saied risks a political opposition that coalesces with the trade unions to shape a common front against the IMF-sanctioned reforms.

The entire political class could also find itself swept away by spontaneous expressions of discontent as heralded by recent protests in poor districts of the capital.

Furthermore, the Tunisian president, who opposes decisions that could penalize the poor, may not offer a stalwart defense of the reforms, especially if social upheaval sets in.

To preempt these scenarios, the government and the president must take ownership of the reform plan, offer convincing arguments for the population to accept the sacrifices it entails, and lobby the political class to stand behind the process.

Tunisia today finds itself at a crossroads: Either face the consequences of fractious politics, or engage in a long-delayed reform process to help the country finally reach its potential.

• Oussama Romdhani is the editor of The Arab Weekly. He previously served in the Tunisian government and as a diplomat in Washington, DC.

_{Copyright: Syndication Bureau}