Ten years ago tiny Tunisia with its “jasmine revolution,” sending longtime authoritarian President Ben Ali, into exile was the first in the region to spark economic and political changes under the sweeping Arab Spring umbrella. Unlike neighbors Egypt, Jordan and Morocco it had a relatively vibrant post-independence constitution-based record of democratic participation and social rights, most notably in women’s equality, which has translated into regular all-too-frequent elections with successive coalitions drawn from Islamic, secular and labor union-based parties. Another prime minister was appointed from late last year after compromise among these feuding groups, with a dozen cabinet ministers reshuffled just before the decade anniversary that sparked nationwide bloody protests again over income stagnation and 35% youth unemployment in particular. The damaging effects are clear on Europe’s shores, where 13,000 Tunisian emigrants crossed the Mediterranean last year, one-fifth of total arrivals through that route and a four-fold increase from 2019.
Clashes between demonstrators and police stretched from the capital Tunis to coastal towns like Sousse, traditional bastions of tourism accounting for 15% of gross domestic product, to inner poorer provinces reflecting an historic urban-rural divide. Over 500 were arrested in defiance of COVID curfews and lockdowns, with the economy shrinking 8% last year following meager less than 2% average growth from 2011-19. A $750 million spring emergency loan from the International Monetary Fund only enabled an estimated 2% of GDP in direct individual and company virus aid, one-third the global norm and lagging North Africa peers. Governments have turned repeatedly to the Fund under multi-year programs with core elements of fiscal stabilization and state enterprise reform consistently missed. In 2018 to close the perennial budget deficit most flagrantly due to a bloated civil service, tax hikes were proposed that prompted street violence and were soon revoked. Public debt has doubled over the past decade to reach 90% of national income this year, over the emerging market agreed danger zone and leaving scant room for maneuver. In this pinch Prime Minister Mechichi and his team have asked bilateral creditors including the US, European Union and Japan for payment extensions and resorted to direct $1 billion central bank borrowing to cover operations.
Sovereign ratings agencies have routinely downgraded the country to speculative status and the state-dominated banking sector outlook is negative with double-digit levels of bad loans and more to come once virus forbearance periods end. International accounting standards go into effect in 2022 to highlight the extent of capital and balance sheet harm. Tourism earnings fell 65% last year, and phosphate and auto assembly exports have suffered from factory shutdowns and weak global demand. Other than international development lending and aid, balance of payments inflows to cover the current account deficit rely heavily on remittances, a rare bright spot in 2020 with 10% growth to $2 billion. However, this improved sum also reflects the mass Mediterranean boat exodus, and is uncertain to be repeated pending the disposition of France-Europe family reunification, asylum, and temporary stay claims.
Gross domestic product recovery put at 4% this year will amount to half of last year’s loss, and the IMF expects a fiscal gap in the 7-9% range depending on a “social compact” for health and social protection while trimming government worker, state company, and energy subsidy spending. It urges bank cleanup and private investor sales, and corporate governance and anti-corruption actions with teeth. A December virtual mission was emphatic that the central bank’s reputation for low inflation and relative independence were at risk from budget monetary financing.
The US in past meetings of its bilateral economic council through the State Department, inactive in recent years, has tried to convey policy reform and stabilization messages to official counterparts and partially guaranteed commercial bond issues, in an agenda otherwise subsumed by international lender priorities and anti-terror security cooperation. After a decade of flailing efforts a private sector-led initiative is long overdue to break the debt-stagnation- emigration cycle with fresh investment and funding in exchange for convincing business and banking-friendly steps that bridge political, wealth and regional divides. The government-to-government dialogue should be revived after enthusiasm flagged midway through the Arab Spring decade.A standing commercial support group of US and global executives may offer novel solutions and an overlooked constituency for addressing the despair that drives migration. Absent a hopeful pause reviving the original revolutionary spirit, Tunisians attempted escape in the tens of thousands will inexorably multiply into six figures as a result of compounding debt/poverty tragedies at home.
Gary N. Kleiman is an ISIM Georgetown Affiliate. Kleiman pioneered and recognized expert in the field of global emerging economies and financial markets. He founded the first consulting firm dedicated to providing independent analysis and advice to public and private sector clients and was an adjunct professor and developed an emerging market finance course for the Georgetown University School of Foreign Service.