Is Tunisia Headed For A Lebanon Crisis Scenario?

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Supporters of the Tunisian opposition take part in a rally in the capital Tunis March 13, 2022 against President Kais Saied’s assumption of power and the economic crisis in the North African country. (Photo by Anis MILI / AFP)

Dana Hourany

Oil, sugar, butter, flour, coffee and even mineral water have largely disappeared from Tunisian supermarkets. The cash-strapped country is not the first country to suffer food shortages in the MENA region, but its government is unresponsive.

The summer in Tunisia was eventful. On July 25, Tunisians voted in a national referendum in favor of President Kais Saied’s new constitution, which expanded his influence and centralized executive and legislative powers in his grip.

Next on Saied’s agenda was the electoral system introduced in 2011, which he strongly opposes. It was clear from the outset that the Tunisian President was aiming to overhaul the system of government, ignoring the dwindling economic situation, for which he delegated responsibility to the ministers.

Meanwhile, essential goods continue to disappear from store shelves as sporadic queues form at gas stations in different parts of the country.

Experts say the situation could be alleviated if the government goes ahead with an International Monetary Fund rescue package that Tunisia hopes to secure by October. But skeptics question the country’s ability to meet IMF terms and warn of worsening political instability in the coming months.

A long time coming

Tunisia’s economic challenges have long weighed on its society. During the authoritarian rule of President Zine Al Abidine Ben Ali in 2011, the poor economy sent people onto the streets to demand sweeping reforms.

Although this sparked the Arab Spring uprising in many countries in the MENA region, the unrest in Tunisia did not result in the desired economic reforms and left many disappointed. As a result, foreign investors withdrew from the market, economic development was constantly delayed, and national debt reached new heights.

“The Tunisian authorities were increasingly caught in a cycle of borrowing to pay off their previous debts and developing accumulated debts that would lead to a situation where a crisis was imminent,” Intissar Fakir, senior fellow and director of the Northern Institute of the Middle East The Africa and Sahel program said Fanack.

“Everyone was focused on the political transition during the uprising, so the focus was not on the economy. The state therefore offered short-term solutions to stabilize the country and neglected the demands and needs of the people in the long-term,” she added.

lockdowns and war

The coronavirus added to the blow, forcing companies whose activities require direct contact with customers to close. A World Bank report showed that the tourism sector and international trade were hardest hit by the pandemic. The country’s GDP would contract by 9.9 percent in 2020 after a brief 0.9 percent growth in 2019.

For a quick round of damage control, the government has taken several measures to support its vulnerable sectors, address job protections and suspend taxes for businesses while providing financial support to businesses and workers, to name a few of those detailed in the report.

However, this did not affect the skyrocketing unemployment rate, which remains high compared to the days prior to 2011. Export growth has also slowed, as revealed by the World Bank’s global pandemic shock report; Exports of mechanics and electronics fell 2.4 percent in 2019, textile exports fell 6 percent, and food exports fell 13 percent in 2019.

Then came Russia’s war against Ukraine, which pushed global inflation to an all-time high and triggered energy and grain deficits in countries with vulnerable economies, including Tunisia.

Another Lebanese scenario?

Lebanon was hit by similar hardships early in its economic meltdown in 2019, drawing some parallels between the North African and Levantine countries.

The two nations have import-dependent economies that are vulnerable to external shocks, but differ in the underlying reasons for political uncertainty. Resolution of Lebanon’s economic crisis, for example, is hampered by the inability of its leaders, who come from different sectarian backgrounds and parties, to form a government. This continues to block $3 billion of IMF aid.

In Lebanon, lawmakers on Friday debated the annual state budget for 2022 in a contentious parliamentary session that reportedly lacked economic and social vision, while opposition MPs dismissed the budget proposal as a failure. In Tunisia, the government and the Tunisian General Union (UGTT) have reached an agreement to increase the wages of civil servants by 5%.

However, the two countries suffer from monopolization. Wealth and assets are in the hands of the wealthy few who control national airlines, central banks and food imports. In such a scenario, the prices of goods and services are subject to the vagaries of parallel markets and cartels, not to mention organized corruption.

Lebanon’s economic collapse is much more advanced. Whether Tunisia will follow a similar path remains to be seen. But connections are already being made and patterns seen.

In his article “Tunisia Could Follow the Same Path as Lebanon,” investment banker and Council on Foreign Relations member Kurt Davis Jr. said that “recent reactions to Tunisia by other countries and a continued flow of money into the country from the international community suggests that with enough people (and countries) Tunisia is still on the right. But on the other hand, so was Lebanon until it wasn’t anymore.”

IMF Differences

Another important difference is the IMF negotiations. Lebanon reached a staff-level agreement with the IMF in April on a US$3 billion lending program. However, the country has been slow to implement the crucial measures needed to move the deal forward, leaving lawmakers pessimistic and concerned.

Tunisia, on the other hand, has already begun trying its hand at the reforms needed to secure the billion-euro deal with the IMF.

However, the deal could impose harsh conditions, including cuts in state subsidies and state-owned enterprises, and a reduction in public sector employment, which could trigger strong opposition from the UGTT.

Fakir says that despite the country’s urgent financial distress, the conditions demanded could be painful for the population in the short and medium term.

What’s happening now?

Aymen Bessalah, a nonresident fellow at TIMEP, told Fanack that food shortages varied from city to city, as some goods disappeared and then reappeared while vendors rationed their supplies. However, queues at gas stations are not commonplace.

“Officials attribute the supply shortages to international circumstances linked to consumer panic buying. Official statements also suggest that after-school care providers are trying to raise prices by creating temporary shortages,” Bessaleh said.

“However, circulating rumors suggest that Tunisia’s bond rating downgrade is pushing international suppliers to require upfront payments, creating significant shortages,” added Bessalah.

According to the expert, EU member states that continue to provide Tunisia with funds do not want to perpetuate the crisis in order to avoid an increase in the exodus of irregular migrants. Almost 13,500 Tunisian migrants have traveled to Italy in lifeboats since the beginning of this year.

As inflation continues to rise, Fakir says Saied has no economic vision and is ill-equipped to face financial troubles. She also questions the ability of his advisors to influence his decisions.

“Rather than solve the problem directly, he attacks speculators and urges suppliers to lower their prices. He’s just playing on populist sentiment and choosing not to address the real issues directly,” she said.

Bessaleh doubts the outcome of the IMF deal. The money could be used to get a better rating to reach international markets, but the expert argues that the government will not have enough funds to close the budget deficit.

“The situation will spark riots and protests, if not now then in January once the annual budget gets underway. We will then see further price increases, potential subsidy cuts and a reduction in wages, which are a key red line for Tunisians,” Bessaleh said.

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