President’s Power Grab Risks Sending Tunisia Down Lebanon’s Path
(Bloomberg) -- The power grab by Tunisia’s president pushed the country’s fragile democracy to the brink. Now it’s menacing the economy.
More than three weeks after firing the prime minister and suspending parliament, vowing to save the nation as anti-government protests raged, Kais Saied is yet to unveil a return to elected rule. The lack of progress risks delaying a long-awaited deal with the International Monetary Fund and plans to sell debt overseas in October, raising fears among some analysts of a tumultuous Lebanon-style default.
Lebanon, where political deadlock collapsed the economy, “is a chilling example of how much worse conditions can become when there are evenly matched but irreconcilable forces at play,” said Hasnain Malik, head of equity research at Tellimer Research, which sees Tunisia at high risk of default.
The foundering of a nation at the nexus of Africa, Europe and the Middle East would have repercussions beyond Tunisia, possibly sending another surge of restless youth across the Mediterranean.
Coming a decade after Tunisia’s uprising that ended autocratic rule, it would also imperil “a haven of free expression for people around the Arab world,” said Sarah Yerkes, a senior fellow at the Carnegie Endowment for International Peace.
External debt’s on track to reach almost 100% of gross domestic product next year. Inflation is at its highest since fall 2019, and unemployment is rising at its fastest pace since 2010, when simmering discontent exploded against dictator Zine El Abidine Ben Ali. Since then, frequent changes of government, sporadic terrorist attacks against the key tourism sector, and Covid contributed to the malaise. The economy shrank 8.6% last year.
The 63-year-old Saied, a former law professor, won a 2019 election riding a wave of discontent with the bickering and perceived careerism of post-uprising politicians. Moderate Islamists in parliament denounced his July move -- made amid protests over the handling of Tunisia’s Covid outbreak-- as a coup.
But elsewhere it met with popular support and the powerful UGTT trade union that’s long opposed the subsidy and wage cuts the IMF suggested were needed for an economic overhaul offered its backing. It’s now demanding a roadmap for a return to democracy.
The constitutional provisions Saied invoked to impose the emergency measures can apply for 30 days, with any extension needing the approval of the suspended parliament and constitutional court. This week, the president said he “won’t back down.”
“If it was dictatorship, other measures would have been taken,” Saied said on a visit to Tunis airport. “Have we built gallows? Did we execute someone by firing squad?”
Saied urged businesses to reduce prices -- some heeded the call -- and banks to lower lending rates. But he’s made no structural changes to tackle corruption, streamline the bloated public sector whose wage bill is one of the world’s highest relative to GDP, or court foreign investment.
While there’s rising risk of default if public finances aren’t bolstered, it’s more likely Tunisia will have to restructure its debts, said James Swanston, an economist for the Middle East and North Africa at Capital Economics.
Cost-cutting during the pandemic may prove politically unpalatable, he said. “A new government will probably have to make concessions to secure power and austerity will be put on the back-burner.”
Without an IMF program or related bilateral and multilateral support, Tunisia’s international reserves “could face material depletion by end-2022,” Bank of America said. Net foreign-exchange reserves were about $7.4 billion at the end of July, enough for 219 days of imports, slightly down from the year before.
‘Very Dark Place’
A former official in the government of Hichem Mechichi, the prime minister fired July 25, described the economic situation as hazardous and unpredictable.
Saied has hinted at talks with “brotherly” countries. Seeking funds from Saudi Arabia and the United Arab Emirates is the only likely solution, with an IMF deal taking at least another six months, the ex-official said.
“Tunisia has a period of months to show the world that it means business and it’s moving towards something constructive, or risk entering a very dark place,” said Tarek Megerisi, a senior policy fellow at the European Council on Foreign Relations.
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