Attachments
What’s new? Under President Kais Saïed, Tunisia has gone from the reform period spurred by the 2011 uprising to an increasingly populist, authoritarian model of government. International Monetary Fund (IMF) financing, together with governance and economic reforms, could offer a way out of the crisis, but Tunis is resisting.
Why does it matter? If Tunisia does not reach a new loan agreement with the IMF, the likelihood of default on its external debt in 2024 or 2025 will increase significantly. Default, in turn, could exacerbate the risk of violence and imperil already fragile domestic stability.
What should be done? The IMF should offer Tunisia financing with less stringent conditions to reduce the risk of social unrest. While encouraging the IMF to take this approach, Tunisia’s foreign partners should keep governance and human rights on the agenda. Donors should be prepared to provide emergency assistance in case of default.
Executive Summary
Since July 2021, when President Kais Saïed concentrated power in his own hands, Tunisia has taken an autocratic turn amid a growing economic crisis. Saïed has accompanied his efforts to build an authoritarian system with stridently nationalist rhetoric that has sparked vigilante attacks on sub-Saharan migrants. His resistance to Western influence has led him to reject the terms of a proposed International Monetary Fund (IMF) loan that could stabilise the country’s ailing economy by balancing the budget and restoring investor confidence. Without a loan, the country may default on its foreign debt in 2024 or 2025. To avert the socio-economic disaster that could ensue, the government and IMF should work toward a revised agreement that would ease requirements for spending cuts and other economic reforms, to avoid shocking the system. Tunisia’s foreign partners should actively support such a deal, while urging Saïed to protect African migrants and others from vigilante violence and ensuring that human rights stay on the agenda. In case of default, they should be prepared to provide emergency assistance.
Tunisia’s political climate has changed radically since July 2021. In that month, Saïed invoked Article 80 of the constitution to declare a state of emergency and stage what is widely considered a self-coup – replacing the country’s semi-parliamentary system with a presidential one that arrogates almost all government authority to himself. Peddling a program inspired by nationalist and leftist ideology, the president plays upon resentment, notably of the former political class and Western countries, to boost his popularity. His nationalist rhetoric has created a climate conducive to criminal violence against sub-Saharan migrants.
Stifled by repression, Tunisia’s opposition is disorganised, divided and distracted, while large sections of the population are preoccupied with survival in the face of deteriorating socio-economic conditions. Among ordinary Tunisians, the fear of repression that disappeared in the wake of President Zine El Abidine Ben Ali’s overthrow in the 2011 uprising has resurfaced. Over the course of 2023, arrests and convictions of public figures, especially politicians, have accelerated. More than 50 of them are in prison on a range of charges or in exile under international arrest warrants. Additionally, since the war in Gaza started on 7 October, much of the population as well as the political class has been more focused on expressing solidarity with the Palestinians than on tensions at home.
The main economic indicators remain alarming. Over the past ten years, political instability and increased spending to the detriment of investment slowed economic growth. More recently, the country has experienced a series of shocks deriving from the COVID-19 pandemic and Russia’s all-out war in Ukraine that have further constrained growth and driven up inflation. Foreign debt has soared, approaching 90 per cent of GDP in 2022. The debt burden prompted international agencies to downgrade Tunisia’s credit rating, making it virtually impossible for the country to get loans from abroad.
Tunisia’s international partners are divided, including internally, over the stand they should take to confront these developments, which they view as leading the country in the wrong direction. In the U.S., members of Congress regularly denounce Tunisia’s authoritarian drift and human rights violations, but the executive branch has nurtured its security partnership with Tunis, which has proven resilient. The EU, led by Italy, is largely silent on the president’s autocratic turn, keen to minimise the risk of increased migration fomented by an economic implosion. The African Union (AU) has expressed outrage at the attacks on sub-Saharan migrants, but Algeria and Syria are forging increasingly cordial links with Tunisian leaders, for whom they feel an ideological affinity.
To counter the economic downturn, Tunisia’s foreign partners have encouraged Saïed to accept a deal with the IMF – the terms were laid out in a staff-level agreement in October 2022 – that would help the country meet its scheduled debt repayments. But Saïed and his supporters reject the economic reforms attached to the loan, fearing they would increase poverty and trigger social unrest. While the IMF appears to be open to more flexible arrangements, even such a compromise may go too far for Saïed. Although he has kept channels to the IMF open, Saïed (who portrays Tunisian elites as in cahoots with Western donors to the detriment of the Tunisian people) may simply prefer to forgo a deal and take his chances with default on the foreign debt.
That would be a mistake. Although Saïed’s supporters and some economists say Tunisia may be able to find other sources of foreign exchange (eg, through revenues generated through remittances, subventions from friendly governments like Algeria or phosphate and oil sales), these scenarios are rife with uncertainty. Arguments that Tunisia may be able to weather default – for example by drawing on foreign reserves while it briskly reschedules its debt – are similarly wobbly. They tend to ignore the ways in which the country’s significant risk factors could start a downward spiral. These include a massive domestic debt load, which may be difficult to service if the country faces a credit crunch as the result of default, and the prospect of surging inflation should the government print money either to pay its domestic creditors or make the public-sector payroll. Economic hardship could drive citizens into the streets, create violent competition for scarce resources and even lead army officers trained in the West to challenge the government.
Under the circumstances, the priority for donors and the IMF should be to coax Saïed’s team back to the table, where they should offer Tunis a revised deal with less stringent terms – both to help manage the prospect of social unrest and to help Saïed see his way to accepting a loan. While the odds are not great, this approach could still work, and it is worth pursuing. In parallel, donors should work to bolster programs for coordinated engagement with Tunisia in the G7 Plus format – which could be broadened to cover a wider array of topics – and also work more concertedly to synchronise policies with regional bodies such as the African Union so that Tunis faces a more united front of outside actors.
Western donors also should work to keep human rights – including for sub-Saharan migrants – and governance reform on the diplomatic agenda, framing their recommendations as ways to help prevent a build-up of grievances among the public. Whether or not Tunis buys the rationale, this framing is less likely to engender pushback than an appeal to values or principles, which it is likely to see as an effort to impose Western mores and degrade its sovereignty. Finally, donors will also need to prepare emergency support packages to supply Tunisians with the necessities of life should the current path lead to default and the shocks that would likely follow.
Persuading Tunisia to accept arrangements that allow it to avoid default, while encouraging more rights-respecting behaviour on its part, will require flexibility and tactful diplomacy by donors and partners. Even then, success may be a long shot. So long as there remain openings for reaching an IMF deal, however, outside actors should continue to do what they can to make best use of them, even as they get ready for worst-case scenarios that unfortunately seem all too likely.
Tunis/Brussels, 22 December 2023