Tunisia: New wave of protests highlights the country’s difficult socioeconomic situation

8/02/2021

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Event

On 16 January, violent protests erupted in at least six Tunisian cities including Tunis. The protests have spread to other cities and continued since then. Disillusioned youths are protesting against the worsening socioeconomic situation and perceived corruption. On 26 and 27 January, the protesters camped in front of the parliament that was at that time approving the fifth government change since the 2019 elections. Parliament approved the appointment of the 11 new ministers nominated by Prime Minister Hichem Mechichi in an attempt to bring freshness to the government. Tunisian President Kais Saied expressed his disapproval of the new cabinet earlier in the same week, listing as reasons the absence of women and the possible conflict of interest for some of the new appointees.

Impact

Since the Arab Spring, the country’s socioeconomic situation has deteriorated. The discontent is especially high amongst the Tunisian youths as they resent the lack of economic opportunities. In 2020, the average unemployment level for those aged 15-24 was around 36%, compared with 16% for the total population. The difficult economic situation and the efforts of the successive governments to introduce austerity measures have fuelled several waves of protests in the aftermath of the Arab Spring. The last protests are part of a wider discontent movement.

In the last decade, the country has experienced structural economic and fiscal difficulties. The public finances have deteriorated significantly, and public debt to GDP has passed from 39% in 2010 to 72% in 2019 as the country continues to run public deficits. Furthermore, the total external debt levels have risen significantly and reached more than 100% of GDP in 2019, more than two thirds of which was public external debt. The reasons reside mainly in the serial twin deficit (fiscal and current account deficits) that the country runs and the depreciation of the currency. These internal and external imbalances have been aggravated by the current Covid-19 pandemic. External restrictions heavily impacted the tourism sector, a key sector for the Tunisian economy and a significant source of foreign currency. Real GDP growth was stagnating around 1.8% in the decade preceding the pandemic and it is expected to have contracted by 8.2% in 2020. The economic impact of the pandemic is expected to raise unemployment and poverty levels, worsening public discontent. The Italian minister of the Interior reported that illegal immigration from Tunisia to Italy has increased by almost 400% from 2019 to 2020, due to the difficult socioeconomic situation in the country. Fiscal vulnerabilities have increased as well. A fiscal deficit of 11.5% of GDP is expected for 2020 compared with the 3.9% deficit in 2019, mainly due to the effort to respond to the Covid-19 pandemic and the fall in fiscal revenues. Furthermore, public debt is expected to have reached 84.8% of GDP in 2020 compared with 72.3% in 2019 and it is projected to increase in the following years, with more than two thirds of the total public debt being external debt. The current fiscal situation risks putting the country on an unsustainable debt path.

Tunisian authorities have hinted at the intention of starting a new IMF programme. Reforms targeting the civil service wage bill, energy subsidies, and state-owned enterprises will be crucial to restore fiscal sustainability and improve macroeconomic stability. However, implementing reforms deemed painful might be challenging for the authorities due to the fragility of the government, the strength of trade unions, and the risk of further social unrest.

Tunisia’s short-term political risk classification remains at 5/7 even though the country was severely impacted by the Covid-19 pandemic amid a sharp drop in tourism receipts and goods exports. On the positive side, the country benefited from the IMF emergency loan under the Rapid Financing Instrument and the current account deficit is expected to have narrowed amid a sharp drop in imports and resilient remittances. The medium- to long-term political risk classification also remains unchanged at 6/7, but the rise in public debt levels is putting pressure on the classification.

Analyst: Andres Hernandez Cardona – A.HernandezCardona@credendo.com

8/02/2021

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