Voodoo economics leads Tunisia to the brink

February 26, 2021 — Leave a comment

—-This article by *Francis Ghiles (Maghreb Center associate, and associate fellow at the Barcelona Centre for International Affairs) first appeared in the Arab Weekly, on Friday 26/02/2021.—–

Rating agency Moody’s this week downgraded the Tunisian government’s long-term foreign currency issuer ratings to B3 from B2 and maintained its negative outlook.

The time of economic reckoning is fast approaching for Tunisia’s young democracy. Rating agency Moody’s this week downgraded the Tunisian government’s long-term foreign currency issuer ratings to B3 from B2 and maintained its negative outlook, which means that a further downgrade “would be likely if fiscal and public sector reform implementation is even more protracted, keeping the debt burden rising higher and for longer than Moody currently expects, potentially raising debt sustainability concerns.”

In plain English, that means that if the Tunisian government continues to borrow, not least in foreign currency, and essentially pay the wages of a bloated civil service and state company payroll, the country’s foreign debt burden will become unbearable and it will default on its foreign debt.

That, in turn, means the International Monetary Fund (IMF) and the country’s major economic partners will step in to put the economic train back on the rails.

Ten years of voodoo economics coupled with political opportunism, practiced by nine successive governments of different political hues, whether the Islamist Ennahda, the now-declining Nidaa Tounes or the Islamists’ ally Qalb Tounes (the vehicle of a TV magnate who has just been released from jail after serving time on suspicion of corruption), have brought the country to its knees.

Moody’s notes that “post pandemic, a prolonged period of subdued growth and most likely gradual fiscal consolidation will raise the debt burden to over 90% of GDP in the next few years, reducing Tunisia’s resilience to future shocks.” The cost of borrowing will increase not least because the 65% foreign currency share of the debt stock makes its very vulnerable to any increase in interest rates worldwide. Foreign exchange reserves may stand at a reasonable $8.7 billion as of December 2020, but that needs to be set against declining foreign investment and shrinking manufacturing.

Magical thinking is another way of characterising the management of Tunisia’s economy. Successive governments have bowed to the pressure of the trade unions to inflate the state payroll: State air carrier Tunisair, which is de facto bankrupt, employs twice as many agents as necessary (more than 8,000) to work an ageing fleet where even spare parts are not guaranteed.

Successive governments have often recruited under pressure people whose only qualification were their connections to the parties in power. Many times, the hiring served to appease protesters even if it meant filling ghost positions.

Despite this fuite en avant, only 38.5% of those of age to work (15-65, by the World Bank’s definition) are employed, roughly half of their peers in the EU. Unemployment among young people stands at 35.7% and is 30.1% among university graduates. Between one third and one half of economic activity is informal, thus escaping taxation while bureaucracy produces yet more forms to fill, thus feeding corruption. The state has become predatory and is feeding off of its young people, most of whom dream of escaping what is for them a prison. With an economic contraction of 8.8% in 2020 and no vaccine rollout yet in place, prospects are not rosy for this year.

The former, highly respected Central Bank governor of pre-revolution days, Taoufik Baccar, expressed his sorrow, not to say disgust, at the reversal of efforts made over a quarter of a century to ensure that Tunisia received a good rating from the four major rating agencies — Standard and Poor’s, Moody’s, Fitch and R&I. In the late 1990s, the only other country in Africa that had bothered to secure such a rating was South Africa. Tunisian officials worked hard because they knew that such ratings were essentials to attracting foreign investors. In 2007, as Baccar notes in his book “Le Miroir et l’Horizon,” the Japanese R&I rated Tunisian bonds A-, the highest the country ever achieved and on par with far more developed countries. The A-, A and A+ ratings Tunisia achieved in those years spoke of a country moving forward and playing its cards well in the game of globalisation. Such hard work was of no interest to Ennahda leader Rached Ghanouchi or to former Presidents Moncef Marzouki and Beji Caid Essebsi. The first inserted his party into the web of vested interests and corruption that all to often passes for business circles in Tunisia, the second was a demagogue and the third was immensely beholden to family interests.

Tunisian President Kais Saied, who was elected fifteen months ago, has declared all out war on corruption. Before entering the Carthage Palace in December 2019, he was a constitutional law professor who had no political experience. His pious ways are not to the liking of all Tunisians, but his honesty is beyond a shadow of a doubt and he has decided to fight. As the guardian of the constitution, he refuses to receive ministers tainted with corruption and is engaged in open warfare with Ghannouchi, who is also speaker of parliament, from where he eyes a parallel foreign policy. According to Tunisia’s 2014 constitution, diplomacy and defence are the prerogatives of the head of state, who resents Ghannouchi’s competition.

When Saied made the unprecedented move of receiving 27 European Union ambassadors Monday night, he made his thinking very clear. Many of those present were happy to engage with the head of state and made clear the EU was ready to help Tunisia if a serious blueprint for reform were presented to them. The president’s attitude was described by some of his critics as “rigid.” But, as the saying goes,“a fish rots from the head down.” In Tunisia, the head does not include the head of state. But there are enough other actors vying for that role in the small youthful country.

—*Francis Ghilès is a Maghreb Center associate, and an associate fellow at the Barcelona Centre for International Affairs.— 

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