Tunisia's agreement with the IMF is going through a difficult stage

Middle East News
2023-07-26 | 04:27
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Tunisia's agreement with the IMF is going through a difficult stage
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Tunisia's agreement with the IMF is going through a difficult stage

President Kais Saied of Tunisia faces severe criticism towards the International Monetary Fund (IMF), making it challenging for his country to secure new funding from the international institution, according to experts and informed sources on the matter.

During the signing of a significant memorandum of understanding between Tunisia and the European Union on the issue of irregular migration last Sunday, Saied once again lashed out at the financial institution, asserting that "the global monetary system can no longer continue in the same way and with the same content."

In a speech delivered to President of the European Commission, Ursula von der Leyen, Saied strongly expressed his views on the IMF, stating, "The old curse is thrown upon it. It would have been better for you and us if you were never born or had never seen the light of day." He called for finding new ways of cooperation beyond the current global monetary system.

The IMF initially granted Tunisia preliminary approval in October last year. However, negotiations over the $1.9 billion loan have since stalled, and talks between both parties have come to a standstill since the end of 2022, with no progress made.

The debt of Tunisia amounts to 80% of its total GDP, making it urgently in need of financing to pay salaries of public sector employees (around 680,000 administrative workers and at least 150,000 in public companies), as well as other expenditures.

Nevertheless, Saied has repeatedly rejected the "dictations" proposed by IMF experts, which include policy reviews on subsidy and reforms in government-owned companies, as well as reducing public sector wages.

Economic expert and researcher at the University of Tunisia, Aram Belhaj, believes that "the agreement is stalled due to Saied's rejection of the reforms proposed by his government and presented to the IMF, especially those related to subsidy cuts."

Belhaj added, "If Tunisia's position is not clarified by the end of August, the IMF agreement will be void."

Economic expert in banking affairs, Azeddine Saidane, emphasized that "the negotiations are completely stalled, and Tunisia is the one obstructing it." He also mentioned that the agreement "has become outdated," and a reevaluation of the file is necessary based on new data related to growth, inflation, and the deficit.

Saidane explains, "The President saw in these reforms things that could politically penalize him if they were met with strong opposition from Tunisians."

Back in April last year, Jihad Azour, the director of the IMF's Middle East and North Africa department, stated that the IMF had not received "any request from Tunisia to review its program."

A source familiar with the matter told AFP that "since then, nothing has happened."

In early June, Saied once again ruled out removing subsidies, proposing alternative solutions such as imposing taxes on the wealthy. However, the economic indicators do not point to an imminent breakthrough in the financial crisis. The budget deficit reached 8% in 2022, with two-thirds of it attributed to fuel subsidies, which increased due to the Russian invasion of Ukraine.

The source close to the file warned, "There are no solutions to replace the gradual increase in fuel prices stipulated in the IMF program," which spans over four years.

Saidane advises against resorting to raising taxes again since the state already has "the highest tax burden in Africa" and has reached "the maximum limit."

But what if Tunisia decides to forgo the IMF? Can it survive, or will it default on its debts?

It is expected that the Tunisian government will be able to fulfill its obligations in 2023, amounting to about 21 billion Tunisian dinars, including 12 billion (around 4 billion euros) in foreign currency. This seems possible due to revenues from the tourism sector, phosphate exports, and the decline in energy prices, according to the experts.

Belhaj argues, "However, without an agreement, the situation will become more difficult. The risks of defaulting on debts will be significant in 2024 and 2025."

He adds, "Tunisia seems to have chosen to prioritize debt repayment. However, this will be at the expense of supplying essential products."

In recent months, the Tunisian markets have witnessed intermittent shortages of some essential food items such as flour, rice, sugar, vegetable oil, and gasoline.

This financial crisis has severe repercussions in other areas as well. The government is almost incapable of financing any new investments, which leads to an economic recession with weak growth of around 2% and an unemployment rate of over 15%.

Additionally, the state increasingly relies on internal borrowing through local banks, undermining its international reputation.




AFP
 

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IMF

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