Tunisia: The new President will need to guide the country through difficult times

Event

On 13 October Kais Saied was elected President. The law professor defeated media mogul Nabil Karoui decisively, obtaining 72.71% of the votes in the run-off election. Kais Saied is an independent who ran for office without being a member of a specific party. The election marks another successful democratic transition for Tunisia, 8 years after the toppling of Ben Ali. In the parliamentary elections of 6 October 2019, the main parties that were part of the previous government all lost seats. Nevertheless, the democratic Islamist party Ennahda, which was part of the previous government, remained the largest party and now has 2 months to form a coalition. The formation of the government is likely to be a challenge, and any resulting coalition is likely to have only a slim majority. This is expected to complicate the implementation of further economic reforms.

Impact

In the last few years Tunisia has been governed by a weak coalition, which was formed in August 2016 as a consensus-seeking alliance between nine political parties and the largest trade unions. The coalition was hampered by internal party division, polarisation between the two largest factions and weak leadership. The infighting within the political parties, for example, led to the previous Prime Minister being suspended and later removed from his own party, Nidaa Tounes, after criticising the role of previous President Essebsi’s controversial son, Hafedh, within the party.

The results of both the legislative and presidential elections are a clear indication that Tunisians are increasingly frustrated with the parties that previously controlled the country. The fact that Kais Saied was not connected to any party went strongly in his favour. There are multiple reasons for this but two in particular stand out. First of all some of the socio-economic factors that played an important role in the Arab Spring protests have not improved but have instead worsened compared to the period before the Arab Spring. Economic growth has been subdued since 2013, and the tourism sector, which is a large employer in the country, was strongly impacted by the terrorist attacks of 2015. The result has been that unemployment has remained stubbornly high – around 15% in 2018 (but more than 34% among people under 25 years old). Additionally the corruption perception remains high and, in general, the population feels alienated from the political elite in the country. Secondly, there is strong discontent among the population over the measures that the government has taken in order to reduce the government deficit such as the reduction of energy subsidies and the attempt to reduce the public-sector wage bill. In a context of low growth these kinds of reforms are especially painful for the population even though the government has combined them with social measures to support the poorest in society.

Nevertheless, the Tunisian economy needs further reforms. Tunisian public finances have, for example, significantly deteriorated in the last nine years. Due to large public deficits, the gross public debt-to-GDP ratio increased from around 44% of GDP in 2011 to 77% of GDP at the end of 2018, and is expected to rise further to 85% of GDP by 2020. Additionally the external debt level has been rising. Historically this is due firstly to the widening fiscal deficit (and increased external borrowing), secondly to the still very large current account deficit in combination with low foreign direct investments, and thirdly to the depreciation of the currency. The gross external debt-to-GDP ratio increased from around 50% of GDP in 2011 to almost 100% of GDP in 2018, which is a very high level. Up to now the reform process has been mixed. Since May 2016 Tunisia has been under a USD 2.8 bn IMF programme, but performance in this programme was weak until mid-2017. Then things improved and important measures were taken, but since the start of this year the reforms have slowed again in the light of the upcoming elections and currently it is still expected that the reform drive will halt during the formation of the government, which could take several months. Once the new government takes office, the reform programme will have to be its first priority in order to keep public finances sustainable, reduce the unemployment rate, reduce corruption in the country and improve the business environment.

Analyst: Jan-Pieter Laleman – jp.laleman@credendo.com