Dim prospects for Tunisian economy as President Saied cuts ties with IMF

Tunisia’s President Kais Saied has suspended ties with the IMF after shunning the reforms it conditioned for a lifeline deal that could have made it easier for Tunisia to access foreign loans.

The failure of the $1.9 billion offered by the IMF in exchange for reforms puts Tunisia in an uphill battle to access funding to spur growth, renew its ageing infrastructure and develop state enterprises.

Surfing on a populist wave, Saied said that Tunisia will have to rely on its people and its economy. This announcement, between the lines, is an omen for tough times ahead for the Tunisian people.

The IMF had conditioned a reform of state enterprises, cutting state payroll, and opting for targeted subsidies.

None of those painful measures in the short term but beneficial in the long run were accepted by the president.

His move breaks a privileged relationship with the IMF, which gave Tunis over 4 billion dollars of funding between 2013 and 2020, making the North African country the 13th largest beneficiary of the fund.

The president is also indifferent to the inflated public payroll with 56 employees per 1000 inhabitants, compared with 15 in Morocco and 18 in Jordan.

As investors shun Tunisia, President Kais Saied further entrenches the country’s economic isolation, leaving its economy relying on volatile farm exports and a tourist sector sensitive to political instability.

Meanwhile, Tunisia under Kais Saied failed to tap into its phosphates potential that is yet to reach half the level of its output in 2010.

As Tunisia’s economic independence erodes due to procrastination on painful but necessary reforms, Tunisia’s dependence on authoritarian Algeria increases. Tunis has been relying on gas supplies and grants by Algeria since Kais Saied took power. This put Tunis prey to Algerian pressure to side with its inconsistent foreign policy stands.

Tunisia was recently ranked 149th among the least economically free countries in the World, outperforming Algeria by a tiny margin, according to the Heritage Foundation Economic Freedom Index.

Tunisia, a country that lacks natural resources or significant hydrocarbons, should have accepted the 1.9 billion dollars offered by the IMF in return for implementing reforms that would safeguard public finances in the long run and help the country access other sources of foreign funding.

Without access to debt in hard currencies, Tunis could face the consequences of the Paris Club.