Tunisia on brink of default as government drags feet on reforms

Tunisia is now the African country facing the highest default risk as the government remains reluctant to implement reforms to be eligible for an IMF package of $2 billion.

With one of the world’s highest wage bills in terms of percentage to GDP, Tunisia under autocratic president Kais Saied, is unwilling to implement painful reforms that include cutting subsidies.

As its public debt soars to $37 billion or 80% of the country’s GDP with a budget deficit of 10%, Tunisia is on the brink of default. Morgan Stanley ranked the north African country among the top three likely defaulters.

Imported inflation worsened prospects for public finances with the trade deficit soaring to 15% of GDP, while inflation hit double digit figures in recent months.

The country resorted to limiting imports, leading to shortages of basic goods including bread, coffee, butter and occasionally fuel.

Foreign exchange reserves now cover less than 90 days of import needs at a mere $7.8 billion.

President Kais Saied who overturned the democratic achievement of the country is using the migration card to get western aid.

The EU has offered to give Tunisia nearly 1 billion dollars in aid in return for stopping migrants. However, the bulk or 900 million dollars will be disbursed as macroeconomic aid dependent on the conclusion of a deal with the IMF.

The terms of the IMF deal however need to be updated as the government delays reforms which president Saied fear would trigger protests against his autocratic rule.

Either way, Tunisia heads straight to an economic abyss that recalls the Lebanese or the Venezuelan scenario if the status quo perdures.