Analysis: How Tunisia Achieved Financial Collapse | Business and Economy News

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Tunis, Tunisia – The shock that followed President Kais Saied’s July 25 takeover has passed, and Tunisians are now waking up to one of the most dangerous economic crises since independence.

Because everything is politicized in Tunisia, people like to harangue who is responsible for the country’s economic collapse rather than understanding its real causes and discussing the best solutions to save it.

Decades of corruption, patronage and the absence of any form of strategic planning are not the only symptoms of the chronic economic crisis inherited from post-revolutionary Tunisia. Some phenomena have worsened. Others were born with the revolt.

Although readily available, Tunisians attach little importance to actual figures on their country’s finances and external debt.

Official government data shows that Tunisia has around 700,000 public workers, including teachers in schools and universities. In 2020, the total wage bill was around $ 5.6 billion, absorbing nearly 70% of the state’s annual resources.

Whether for legitimate rights or simply for political purposes, thousands of strikes and sit-ins have taken place every year since 2011.

Supported by the very strong Union Générale Tunisienne du Travail, or UGTT, workers in the public and private sectors obtained variable pay increases after the 2011 revolution, more than ever before.

Absenteeism rates for civil servants are high and industrial production is close to zero. The UGTT, the main Tunisian union, played a major political and social role after 2011.

“The UGTT has closely and strongly contributed to all stages of the political process in Tunisia since 2011,” noted Adel Samaali, Tunisian banker and financial expert.

“This organization was represented by ministers and senior officials in all governments formed after the revolution. Their opinions and decisions have always been heard and taken into account.

Historically controlled by Tunisian Marxist parties and far left trade unionists, the UGTT is often criticized for its bureaucracy and corruption and accused of obstructing any plans for social and economic reforms.

The consumer goods distribution sector is controlled by powerful and corrupt middlemen who are neither producers nor sellers but those who decide on prices.

Bureaucracy, systematic corruption in customs and public services, and decadent legislation discourage any form of investment by Tunisians or international companies. Hundreds of foreign companies that were here eventually left the country.

A handful of families and business groups have controlled the entire Tunisian economy since 1956.

Although rich in natural resources – phosphate, oil and gas, salt – and in agricultural products – wheat, olive oil, dates, fish, fruits – these sectors contribute little or no to the gross national product.

Added to political instability and security incidents, mainly since 2014, production and export hit their lowest rates ever.

The devaluation of the Tunisian currency has led to a rise in prices and an unprecedented rate of inflation estimated at 6.2% today.

As Tunisia’s unemployment rate hit 17.8% in March, another 600,000 Tunisians fell below the poverty line after two years of the COVID-19 pandemic.

Protesters carry flags and banners during a demonstration against the takeover by Tunisian President Kais Saied on October 10 [File: Zoubeir Souissi/Reuters]

A huge foreign debt

Ideological conflicts and political arrangements have prevented all governments, parliaments and elected presidents since 2011 from addressing the real sources of the crisis.

Tunisia’s total external debt now exceeds $ 40 billion.

In the short term, the newly appointed government faces a budget hole of more than $ 3 billion for the remaining period of 2021, said Georges Joseph Ghorra of the International Finance Corporation (IFC).

Ghorra, country director of IFC in Tunisia, warned that this budget hole “could get worse” due to the fall of the dinar and the rise in oil and wheat prices on international markets.

Filling this gap requires a complementary finance law and a parliament to debate and vote on it, which is not the case today in Tunisia.

By the end of the current year, Tunisia needs to borrow 15 billion dinars ($ 5.3 billion) for salaries and debt repayment.

Ridha Chkoundali, financial expert and university professor, links the financial crisis to “the post-revolutionary economic situation”.

“The public sector has supported most of the social unrest while the private sector has contracted due to investor fears of political and security instability,” Chkoundali said.

Samaali explained that Tunisia “inherited most of this debt, $ 22 billion, from the Ben Ali era.”

“The installment debt repayments and the huge nominal increase for public workers since 2011 have contributed to the current situation,” Samaali said.

“The various governments that followed the fall of the Ben Ali regime were forced to regularly borrow money to pay off the oldest debts.

How July 25 made the crisis worse

Since his election in 2019, President Saied has added more problems to Tunisia than he has provided solutions.

Favoring populist politics and one-man rule, Saied does not believe in foreign aid to Tunisia and rejects international cooperation.

In May 2020, during a visit to France, Saïed shocked Tunisians and others when he said the situation in Tunisia was “not good for foreign investment”.

He even lambasted the work of international institutions and rating agencies. “The rating agencies cannot give us the ratings they want. We are not their students and they are not our teachers ”, declared the Tunisian president.

While discussions with the International Monetary Fund on a third loan were suspended after Saied’s measures, the recent downgrade of Tunisia’s credit rating by Moody’s to “C” has highlighted the present and future repercussions of the bankruptcy. takeover of Saied on July 25.

“This downgrading did not surprise me and it means that Tunisia urgently needs deep structural reforms,” ​​said Samaali.

“Without these economic reforms, Tunisia will enter an unprecedented crisis and will soon be unable to obtain new loans, except on very harsh terms.

“A clear roadmap”

Chkoundali noted that international rating agencies – such as Moody’s, Standard & Poor’s and Fitch Ratings – are closely monitoring political developments in Tunisia.

“[They] take into consideration the political aspect and use scientific data to assess and rank countries, ”he said.

“Saied’s comments on the need to change the approach to sovereign ratings of international rating agencies are not based on any scientific principle. Saied must set a deadline for exceptional measures and unveil a clear roadmap for the period ahead. “

On the economic and financial level, Chkoundali urged the government of new Prime Minister Najla Bouden Romdhane to “do its best to convince the International Monetary Fund to restart negotiations with Tunisia” on new installments.


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