In Face of Protests, Tunisia Needs Bold Economic Reforms

A Fesh Nestannaw protest in Tunis. Photo via Getty Images.
A Fesh Nestannaw protest in Tunis. Photo via Getty Images.

Faced with a rising trade deficit and falling foreign exchange reserves, and already tied into a large conditional loan from the IMF worth $2.9 billion, Tunisia’s economy is in the midst of a stagflationary crisis of inflation and slow growth.

Restrictions on imports, new taxes and prices increases have spurred inflation. The collapse of tourism as a result of terrorist attacks in 2015 and the rise of oil prices are only making matters worse. Under the Finance Law announced in January this year, prices of consumer goods have been hiked and additional taxes have been imposed. The recent Fech Nestannaw [What are we waiting for?] protests over the 2018 budget call for a reversal of austerity measures.

For Tunisia, the current macroeconomic situation is gloomy. Public debt increased from less than 44.5 per cent of GDP in 2013 to 70 per cent in 2017; the current account deficit doubled over the same period. The Tunisian dinar lost 20 per cent of its value against the euro in 2017. The informal sector is booming and represents half of GDP, with the bloated public administration monopolizing 40 per cent of the budget despite efforts to reduce it.

The government grind

The failure of governments since 2011 to successfully improve the economic conditions of Tunisians has less to do with the support available from international partners and more to do with Tunisia’s internal blockages. Political elites have proved ineffective at both tackling the economic crisis and at addressing the resistance of unions and political interest groups.

Fundamentally, policy decisions, which seek to alleviate the pressure from marginalized sections of society, such as those in poor urban areas or disenfranchised regions, have not yet been taken. Successive governments have sought to forestall social and economic concerns by implementing temporary measures, but these policies have ultimately served to exacerbate anger and feelings of exclusion.

The reason for this lack of change is three-fold. First, many social institutions, such as the UGTT (Union Générale Tunisienne du Travail, Tunisia’s largest labour union), have had effective veto power over government decisions. For example, opposition to the suspension of public salary increases in 2016 as a measure to lower the public sector wage bill threatened a general strike that would have brought general administration to a grinding halt. The UGTT in particular has built itself decisive leverage in its support of the government, which is in large part due to the role it played in helping political parties strike a compromise during its crisis in 2013–14. This has made economic reform more difficult and dependent on negotiations and further compromise.

Second, the state administration is considered by new political leaders as a vestige of the former regime and capable of blocking any transformative reforms. This helps explain the commitment of the president, Béji Caid Essebsi, to adopt controversial legislation granting amnesty to Tunisian bureaucrats accused of corruption under the ancien regime of Zine al-Abidine Ben Ali.

Third, the established business elites seek to protect their privileges and benefits from the existing regulations through the maintenance of corrupt and clientelist relations. Crucially, this comes at the expense of new emerging entrepreneurs from marginalized regions who aspire to carve a place among the established elites but instead are confined to operating in the informal sector.

For a large part of the Tunisian population, the state remains disconnected and unavailable. For some, the perception of the role of the state is limited to law enforcement and does not include infrastructure and public service provision. This perception is indicative of the frayed relationship between the Tunisian state and its regions.

A new agenda

Tunisia is in need of a strategic policy of investment in infrastructure, in education and vocational training that could create jobs, foster social cohesion and preserve the country’s fragile democracy. It will be crucial to promote the private sector in the interior regions, many of which have a failing public sector and a strong informal sector. The state must be able to play the role of investor but also drive development, which requires encouraging greater foreign investment.

This need for a transformative economic agenda is why Tunisia must rethink and develop its foreign economic relations with its neighbours and international partners. This includes exploring new patterns of partnership with the EU and cooperation with global powers such as China, which is increasingly active in the Mediterranean and in North Africa through its Belt and Road Initiative. Articulating clear international cooperation priorities with a national development strategy would help overcome the long legacy of social and regional fractures.

Saad Aldouri, Research Analyst, Middle East and North Africa. Dr Hamza Meddeb, Associate Fellow, Middle East and North Africa.

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