The economic crisis in Tunisia is intensifying due to an unprecedented economic recession, challenges in securing new financing, and a decrease in foreign investments. According to a report by Capital Economics in late February, Tunisia is at a growing risk of experiencing a disorderly balance of payments crisis and potential sovereign debt default. The situation worsened as Tunisia depleted its limited foreign reserves to meet obligations on international bonds.
The escalating crisis in the nation appears poised to intensify further, exacerbated by the escalating discord between the Labor Union and President Kais Saied. Moreover, apprehensions regarding a current draft law aimed at governing the formation and funding of associations contribute to underscoring the profound financial and social turmoil currently afflicting Tunisia.
Crisis indicators
The financial crisis in Tunisia has peaked, escalating in complexity alongside the deterioration of economic indicators.
1- High external debt: Tunisia is burdened by a substantial external debt totaling approximately $12.3 billion, representing roughly 80% of the nation’s gross domestic product. While Tunisia has made partial payments towards its financial obligations, this alone does not resolve the crisis. The repayment of external debt has been achieved at the cost of domestic investment and essential requirements of the Tunisian population, contributing to significant shortages of various goods in Tunisian markets. Furthermore, Tunisia is facing the imminent repayment of $4 billion in foreign debt this year, marking a 40% increase from the previous year, amidst challenges in securing external financing.
2- The absence of foreign direct investment: Tunisia encountered challenges in securing significant external financing recently, failing to reach an agreement with the International Monetary Fund for a $1.9 billion loan. The IMF’s conditions include the removal of subsidies on fuel and essential food items, as well as the reduction of wage freezes in the public sector. Furthermore, the IMF requires the sale of shares in struggling state-owned enterprises, a proposition rejected by the Tunisian president due to concerns about potential social unrest. President Kais Saied warns that such actions could reignite past social upheavals, such as the bread riots of January 1984, resulting in casualties and subdued public discontent.
Fitch anticipates external financing in Tunisia to reach approximately $2 billion by the conclusion of 2024, which includes a $500 million loan from Saudi Arabia. Additionally, the European Bank for Reconstruction and Development announced on February 20, 2024, its plans to finance new projects in Tunisia. Nevertheless, these funds may not suffice to mitigate the economic crisis in the country.
3- A Decline in macroeconomic indicators: The economic performance deteriorated significantly due to the inadequacy of conventional strategies in addressing the financial crisis, as evidenced by a remarkable downturn in economic metrics. As per data from the Tunisian National Institute of Statistics, the inflation rate surged to 7.8% in January 2024, while the unemployment rate soared to 16.4%. Projections from the United Nations report “Economic Situation and Prospects for the Year 2024” anticipate Tunisian economic growth to approximate 1.8%.
4- The effect of internal crises on the economy: The Tunisian interior experienced numerous crises that significantly affected the economy, particularly highlighted by the strained relationship between the Tunisian Labor Union and President Kais Saied. This tension arose following criticisms directed at the union’s president, Noureddine Taboubi, during a major assembly of workers at Casbah Square on March 3. The situation unfolded amidst governmental delays in initiating social negotiations aimed at enhancing the welfare of union members in the public sector, alongside condemnations of the declining purchasing power of workers and retirees. Supporters of the Tunisian General Labor Union convened outside the Prime Minister’s headquarters on March 1 to protest the worsening social and economic conditions. Protesters displayed banners bearing messages such as “Economic and social rights are fundamental to genuine democracy” and “Advocating for social dialogue and purchasing power.”
Simultaneously, a proposed legislation governing the formation and funding of associations has sparked significant apprehension within the nation. This development aligns with the prevailing economic challenges, given that numerous of these entities play a pivotal role in fostering traditional sectors, providing vocational education, and offering support to victims of domestic abuse.
Multiple directions
Tunisia is currently facing an unparalleled economic crisis, intensified by political discord between President Kais Saied and his adversaries in the opposition. This situation poses potential ramifications for President Kais Saied’s future and his political authority in the forthcoming period. Several trends can be identified within this framework:
The primary trend lies in the enduring and noteworthy prominence of the Tunisian president, President Saied, as supported by local assessments of his capacity to sustain a significant presence in Tunisian affairs. This is attributed to the potential opportunities for addressing the ongoing economic challenges, particularly following a series of proactive actions, such as the selection of Fathi Al-Nouri as the new head of the Central Bank in the midst of the year. The recent appointment may signal a shift in monetary policies following prior disputes and instances of direct government funding. Preceding this development was the inclusion of three new ministers in the cabinet under the leadership of Ahmed Al-Hashani, with ministerial responsibilities spanning the domains of economy, industry, energy, and employment.
President Kais Saied continues to garner significant backing from various societal segments within Tunisia, notably following his refusal to adhere to the stipulations set forth by the International Monetary Fund concerning subsidy removal and wage adjustments. Notably, on January 21, President Kais Saied reiterated his stance against acquiescing to any external demands or impositions as a means to address the challenges facing the domestic economy amidst the prevailing economic and financial turmoil.
On the contrary, there exists a notable European inclination towards bolstering the Tunisian economy, exemplified by Zia’s recent trip to Brussels. The European Union has demonstrated a significant interest in enhancing Tunisia’s economic landscape, evident through a series of agreements and endeavors. Odile Renaud-Basso, the President of the European Bank for Reconstruction and Development, undertook a visit to Tunisia on February 19, 2024. During her visit, she underscored the commitment of European Union nations to back the reform agenda aimed at fostering economic prospects, financing the private sector, and enhancing the environmental sustainability of the economy. Furthermore, she articulated the European Bank’s readiness to assist Tunisian authorities in their reform implementation endeavors geared towards bolstering growth, employment opportunities, and supporting marginalized segments of society.
The second trend represents a political challenge for President Saied. Despite the presidential efforts to navigate the ongoing economic crisis, President Kais Saied faces the risk of encountering a political setback in the upcoming phase due to the failure to achieve a significant breakthrough in addressing the economic challenges. This situation could potentially lead to a severe financial collapse, consequently impacting President Saied’s popularity. Several indicators suggest the plausibility of this scenario, including:
Firstly: The president visited Parliament in February to seek approval for a government proposal to secure direct funding of $2.25 billion from the Central Bank. This initiative was intended to settle immediate foreign debts. The incremental depletion of the country’s foreign currency reserves could potentially trigger a surge in deposit withdrawals, consequently resulting in a devaluation of the national currency.
Secondly: The adverse impacts of the austerity measures implemented by the governments led by Kais Saied have exacerbated, with the persistent scarcity and unavailability of essential commodities in the Tunisian market remaining a significant concern.
Thirdly: the deep-seated political divisions in Tunisia have manifested in its economic performance, as evidenced by the low voter turnout of 14% in the recent parliamentary elections, coupled with opposition parties abstaining from participation and alleging electoral manipulation in favor of the ruling faction.
Fourthly: Tunisia’s credit rating has been downgraded, with Fitch Ratings Agency maintaining the country’s rating at “CCC-” in December 2023, foreseeing a sustained economic downturn.
Fifthly: The decline in living and economic conditions is associated with the potential exacerbation of social tensions and the disruption of the traditional balance of the ruling regime. This situation is compounded by growing concerns about the country’s capacity to sustain and guarantee employee wages amid a severe financial crisis, potentially leading to a resurgence of labor protests orchestrated by the Labor Union.
The third trend indicates a relative decline in President Saied’s legitimacy. While President Kais Saied has faced challenges in addressing Tunisia’s financial crisis, this does not necessarily signify a complete erosion of his political authority. It is anticipated that his popularity will diminish to some extent without a total loss of credibility. This projection is underpinned by the President’s stance against the privatization of state assets and his willingness to consider reconciliation in corruption cases in return for the restitution of governmental rights. Nonetheless, the prevailing political polarization and opposition from certain factions within Tunisia could diminish his domestic influence.
A Complicated Crisis
The economic crisis in Tunisia could have significant and immediate implications for President Kais Saied’s position in the Tunisian political landscape. Despite his implementation of various measures to tackle the financial crisis, the forthcoming complexity, particularly due to the absence of a deal with the International Monetary Fund and constraints in fulfilling the nation’s requirements, might disrupt its conventional equilibrium in the upcoming phase.