Should Tunisia expect the worst?

Like other countries in the world, Tunisia will be affected by the sluggish international situation, which will affect the purchasing power of Tunisians and their standard of living. These consequences will be all the greater if the country fails to implement the necessary structural reforms and therefore does not receive IMF financing. Furthermore, Fitch Ratings estimates that a strong social opposition could delay a possible agreement between Tunisia and the IMF, which pressures Tunisia to join the Paris Club.

The International Monetary Fund (IMF) has just updated its report on the outlook for the world economy, which highlights a further slowdown in the world economy.

According to this document, several shocks hit a global economy already weakened by the pandemic, leading to a slowdown in growth, a decline in household purchasing power and a tightening of monetary policy. Global inflation has been revised upwards due to higher food and energy prices as well as persistent supply and demand imbalances. It is expected to reach 6.6% in advanced countries and 9.5% in emerging and developing countries this year. By 2023, disinflationary monetary policy should take effect and global output should increase by only 2.9% “.

Worse, the IMF does not exclude ” scenario where downside risks materialize, inflation rises further and global growth falls to around 2.6% and 2.0% in 2022 and 2023, respectively, an outcome in the range of 10% lower in the earnings distribution since 1970 “.

Meanwhile in Tunisia, the authorities are elsewhere: they are celebrating, happy about the so-called landslide victory for Kaïs Saïed’s draft constitution, which was submitted to the referendum. But have they prepared for the scenarios that are coming, which make the major world powers tremble with fear, who are our commercial partners, but above all our financial partners? Mouth is closed! No idea and radio silence.

That said, the various authorities are happy to publish green indicators that reveal the Tunisian prodigy: increase in real or declared investment, inflation under control at 8.1% in June 2022 compared to what is happening in the world and a small report on foreign trade, which does show a worsening of the deficit, but which does not give a detailed overview of the situation.

Recall that Tunisia has banked on an agreement with the IMF to close its 2022 budget and attract a total financing of 12,652 MD, mainly from Tunisia’s partners and other donors.

However, the last press release of the IMF delegation on 18 July 2022 refers to discussions ” fertile on a new arrangement under the Extended Fund Facility (MEDC) to support the authorities’ economic policies and reforms.

But is IMF support guaranteed? Several external observations do not think so.

In fact, in a press release published at the end of July 2022, the rating agency Fitch Ratings estimates that strong social opposition could delay a possible agreement between Tunisia and the IMF, pushing Tunisia to join the Paris Club. The approval of the new constitution will certainly be perceived by the creditors as a support for the stability of the region and they would be willing to give their support. However, the agency believes that the differences between the government and the Trade Union Center remain an obstacle, recalling that the Tunisian General Labor Union (UGTT) had certainly expressed its inclination to cooperate with the government, but had opposed the main points of the reforms demanded by the IMF for the conclusion of an agreement with Tunisia, which ” would limit the government’s ability to keep the reform agenda on track “.

Furthermore, the IMF confirmed in its press release of 18 July: We hope that the social partners and other important stakeholders can be united in this endeavour. Given the urgency of the situation, broad support will be essential to reduce macroeconomic imbalances, create stability and support the job-creating growth needed to realize the country’s significant economic potential for the benefit of all Tunisians. “.

The same concerns are raised by the American investment bank Morgan Stanley, which believes that while several African countries are in negotiations with the International Monetary Fund to obtain financing, Tunisia appears to be the most vulnerable.

And to explain that with a budget deficit of almost 10%, one of the highest public wage expenditures in the world, it will be difficult for Tunisia to get the expected financing from the IMF. For her, although the negotiations have been going well since January 2022, no agreement has emerged so far, noting that an IMF delegation has been visiting Tunisia since the beginning of July with the aim of officially starting the negotiations. However, nothing has been announced yet.

Last March, the same American banking institution did not rule out Tunisia defaulting on the payment.

In its update, the International Monetary Fund has issued certain recommendations.

As rising prices continue to drastically reduce living standards around the world, policymakers should prioritize moderating inflation. A tightening of monetary policy will inevitably have real economic costs, but any delay will only exacerbate them. Targeted budget support can help mitigate their effects on the most vulnerable sections of the population, but in light of public budgets already strained by the pandemic and the need to adopt a generally disinflationary macroeconomic policy, these measures will need to be offset by an increase taxes or lower public spending. In addition, tighter monetary conditions will also affect financial stability and require judicious use of macroprudential instruments, increasing the need for reform of debt resolution frameworks. Measures to address specific impacts on energy and food prices should focus on the most affected categories without distorting prices “, he advised.

In Tunisia we are still in euphoria, no worries about what is happening in the world. No communication from the government or the ministries about what is happening at the global level and about how Tunisia intends to counter or rather reduce the negative effects of this situation which can only affect us.

Meanwhile NOUIRA

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