Tunisia has been teetering on the edge of a disastrous economic fallout. The consequences of this came to the fore on July 25, as economic grievances partly triggered the nationwide protests, which preceded President Kais Saied’s decision to freeze parliament for 30 days and dismiss Prime Minister Hichem Mechichi later that day. Further exacerbating the situation is a new deadly wave of the Delta variant of Covid-19 that broke out in July.
Amid the political and public health crisis, the country is now once again at the mercy of the International Monetary Fund (IMF). However, the IMF’s continued influence could trap the country in a persistent cycle of debt and inflation, as the now leaderless government is led by Saied and looks for a quick fix for its economic challenges.
“We are closely monitoring the evolving situation in Tunisia,” an IMF spokesperson told Reuters on July 26, as the organization affirmed its ongoing support to the country.
Despite being romanticized as the only successful post-Arab Spring democracy to emerge from the 2011 Jasmine Revolution, Tunisians have endured crippling living conditions since then, such as rising inflation, a scarcity of jobs, and a dissolving middle class. Civilians have repeatedly taken to the streets to express their frustrations, with some even calling for a “second revolution.”
The Covid-19 pandemic has fermented a more volatile situation, with the forced lockdowns delivering a blow to Tunisia’s economy and its tourism sector. The government imposed new restrictions in July to counter an unprecedented surge of Covid-19 cases in the country, even though it previously admitted it cannot afford another lockdown.
Tunisia’s parliament voted on approving a US$4 billion IMF relief package in May.
Tunisia’s parliament voted on approving a US$4 billion IMF relief package in May, with then Prime Minister Hichem Mechichi claiming IMF support was the “last opportunity” to save Tunisia’s economy. The plan included cutting subsidies, slashing public spending, and tightening austerity measures. It was welcomed within Tunisia’s establishment, as Tunisia’s Central Bank Governor Marouane Abassi urged the parliament to accept IMF demands to secure another loan, or else it could face an “explosion.”
Prior to the vote, the IMF had already coaxed Tunisia into accepting its loan package, with the condition of reforms. An IMF report released in February revealed that Tunisia’s public debt had reached 87 percent of its GDP, and national unemployment had spiked to 16.2 percent by September 2020, although some estimate the figure to be much higher.
Despite the worrisome financial report, the IMF has urged Tunisia to impose further reforms including ensuring higher tax revenue, cutting its 17.6 percent civil service wage expenditure, and restricting energy subsidies to deal with its fiscal crisis—even as Tunisians were protesting a lack of jobs and economic development.
Predictably, Tunisia’s most powerful labor union, UGTT, denounced these plans, particularly since the government had kept quiet about the details of the IMF loan, though both sides had reached a conditional agreement in April. A document obtained by Reuters showed that the government planned to encourage voluntary redundancy on 25 percent pay, early retirement packages, and offering staff part-time work at 50 percent of full pay.
The devastating impact of such reforms is clear and appears to only be worsening. In July, Tunisia allegedly further raised prices of basic goods like drinking water and sugar in order to appease the IMF, reported Nawaat.
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“Bread Riots” and IMF Influence in Tunisia
Tunisia began its shift towards IMF dependency in 1986, under the rule of Zine al Abadine Ben Ali, who favored the organization’s neoliberal reforms. In 1983-84, Tunisia cut bread subsidies following IMF pressure, prior to obtaining the loan. Protests which were labeled “bread riots,” subsequently erupted, which police forces of the former authoritarian government violently repressed.
The IMF has often attracted debate around its role. Though the organization has claimed to support sustainable economic growth in developing countries, it has been criticized for pushing for neoliberalism, bolstering regimes of Western-friendly dictators, and keeping poorer countries dependent on Western financial aid.
The IMF has been criticized for keeping poorer countries dependent on Western financial aid.
Even after Ben Ali’s ousting, Tunisia became ensnared in a crippling debt trap that hindered its economic flourishing. In January 2011, Moody’s downgraded Tunisia’s credit rating to Baa3, which is only one level above “junk” grade, per the New York-based investor service company’s ratings. When such a downgrade occurs, it often triggers an increase to sovereign bond prices and push borrowing costs higher for a country’s government.
Following this credit score drop, Tunis was bound to the Deauville Partnership of the Organization for Economic Co-operation and Development (OECD), which was formed in 2011 under the auspices of the French presidency. The pact’s stated aims were to provide loans to countries in the Middle East and North Africa (MENA) undergoing post-Arab Spring transitions, by facilitating an “economic framework for sustainable and inclusive growth.” In the case of Tunisia, it was effectively bound up by the IMF neoliberal policy terms due to its soaring debts.
Protesters face Tunisian police officers during a demonstration in Tunis, Tunisia, July 25, 2021. Violent demonstrations have broken out in several Tunisian cities as protesters express anger at the deterioration of the country’s health, economic, and social situation. (AP Photo/Hassene Dridi)
“Since 2011, the foreign public debt increased substantially because of this partnership, expanding from 40.7 percent of the GDP in 2010 to 63.7 percent of the GDP in 2017. Successive governments have increasingly lost their ability to maneuver (e.g., ‘policy space’) on political and economic decisions because of this spiraling debt,” wrote Jihen Chandoul, Head of Policy Research and Advocacy and Co-founder of the Tunisian Observatory of Economy. She added that the Deauville Partnership served “as a cornerstone of the economic policies adopted in Tunisia during the transition period.”
Tunisia made various agreements with the IMF throughout its post-revolution transition, including a loan disbursed from 2013 to 2015, without a vote from Tunisia’s legislature. This has led to a sharp depreciation of the Tunisian dinar, to levels not seen since 1991 during the IMF’s last structural adjustment period, contributing to the sharp decline of Tunisians’ purchasing power for basic goods.
This dependency on conditional IMF support has dealt a blow to Tunisia’s revolutionary aspirations. Indeed, among the demands of Tunisian protestors in 2011 were not only calls for an end to police violence and autocracy, but also pleas to address economic concerns. Many people protested because staple food became difficult to afford, with others demanding an end to the neoliberalism that Ben Ali’s regime pushed.
Urgency for New Measures
The recent political upheaval and the coronavirus crisis have put Tunisia in an even more fragile position today. Health Minister Spokesperson Nissaf Ben Alya declared on July 8 that the health system had “collapsed,” as people suffering from Covid-19 symptoms were flowing into its hospitals, and Tunisia became the most infected Arab and African country.
It is clear that IMF intervention has only worsened the situation. In October 2020, Oxfam – an organization dedicated to the alleviation of global poverty – warned that over 80 percent of IMF Covid-19 loans will force poorer countries to accept austerity measures. This, the NGO explained, could limit people’s access to healthcare and income support following the aftermath of global lockdowns.
Tunisia was among the high-risk countries Oxfam noted in the report, pointing out that its cuts of public sector wages and jobs could also mean fewer nurses, doctors, and community workers, at a time when its healthcare system needs more support. After all, Tunisia had just 13 doctors per 10,000 people at the onset of the Covid-19 pandemic, Oxfam added.
IMF relief will likely be perceived as a necessary remedy to help Tunis withstand such current threats.
It appears Tunisia has been rendered dependent on external support, with the IMF becoming a dominant actor in shaping the country’s economic future. It has pushed post-revolution Tunisia into further debt —while hitting hardest the poorest of the poor— and prevented it from restructuring its own economy. Nevertheless, in the short term, as Tunisia faces a growing crisis with its uncertain political state and rising Covid-19 infections, IMF relief will likely be perceived as a necessary remedy to help Tunis withstand such current threats.
To improve Tunisia’s long-term economic sustainability, however, international financial support unattached to IMF pressure – particularly from Europe – could target diversification. This may invigorate the nation’s economy, instead of attaching clauses to its fiscal policies. It could also enable Tunisia to serve as a true model for solid democratization in the region, and help stem the socio-economic woes and popular protests, should this dependency on IMF support fade.
