An Economic Recipe for Unrest Ignites in Tunisia

Blistering youth unemployment, mounting government debt, corruption and COVID are spurring unrest in Tunisia.

By Patricia Sabga

26 Jul 2021

A lack of opportunity, especially for young people. Punishing debt. A broken social contract. Pandemic pressures making it all so much worse.

This economic recipe is nourishing social and political unrest throughout the world this year. South Africa experienced it earlier this month. Cuba, too. Now it’s Tunisia’s turn.

Each of these countries has its own unique set of circumstances. But in the context of the Middle East and North Africa, the stakes for Tunisia feel very high.

After all, Tunisia is the birthplace of the Arab Spring and has been lauded as its lone success story- a nation that cast off its long-serving, authoritarian president and emerged Phoenix-like from the flames of protest committed to democratic reforms, the rule of law, and an economy that would serve the people and not just corrupt elites.

But the phoenix never soared. Political deadlock and economic weakness have a symbiotic relationship. They feast on one another, and in Tunisia, both have grown stronger in the process.

More than a dozen governments have run the country since the Arab Spring, while the economy has languished.

Average annual economic growth between 2011 and 2019 was an underwhelming 1.5 percent, according to the World Bank.  Investments and exports never recaptured their pre-Arab Spring strength. Corruption though remained rampant.

Then the pandemic struck.

Tunisia’s economy shrank 8.6 percent last year, and another 3 percent in the first three months of this year on an annualized basis, according to government data.

Tourism, a bedrock of the economy that brings in foreign exchange, was decimated in 2020. Manufacturing – another mainstay – was also badly hit.

Those pandemic disruptions propelled the official unemployment rate to 17.4 percent by the end of last year, compared with a pre-pandemic level of 14.9 percent. In the first three months of this year, it had risen to 17.8 percent according to the National Institute of Statistics.

But that number does not capture the full scope of despair and frustration sweeping the nation’s young people.

Youth unemployment was north of 42 percent in 2011, according to the World Bank. By 2019, it had come down to roughly 35 percent, but the International Monetary Fund reckons it climbed back above 36 percent by the final quarter of last year.

It was Tunisia’s youths who seeded and nurtured the Arab Spring. This year, a new generation has hit the streets to protest political ineffectiveness, corruption, and a chronic lack of opportunity.

Meanwhile, the country is now on the downslope of its third and most punishing wave of COVID-19 infections that saw its healthcare system this month collapse and more lockdowns imposed.

In a stunning example of global vaccine inequality, only about 7 percent of Tunisians are fully vaccinated, according to the latest figures by Our World in Data.

The government has tried to lessen the financial blow of lost jobs and income from COVID restrictions by scaling up existing cash transfer programmes to struggling households.  That kind of fiscal support has been championed by the IMF and World Bank for blunting COVID economic damage around the world.

But that and other pandemic response measures – along with declining revenues – have worsened Tunisia’s fiscal deficit and its debt situation.

Government debt reached 88 percent of gross domestic product (GDP) by the end of 2020, compared with 72 percent the year before, the World Bank noted in April. Economic growth was expected to pick up this year, but not enough to return Tunisia’s economy to its pre-pandemic footing.

The country could definitely use an IMF bailout. But negotiations have stalled with the international lending agency for a reported $4bn loan.

IMF packages usually come with painful strings attached to achieve what the agency calls “sustainable” finances. And indeed the agency in the past has nudged Tunisia to slash its public sector wage bill, as well as fiscal support for state-owned firms and general subsidies.

But pulling that support away would inevitably lead to job losses and financial pressure on households – certainly in the short term.

That would be tough enough for the government to pull off if times were good and it enjoyed widespread support among the electorate. But times are terrible right now and the nation’s political leadership is fractured. Again.

Credit rating agencies are taking note. Earlier this month, Fitch Ratings downgraded Tunisia to a ‘B-’ with a negative outlook, citing the failure to agree to a new funding programme with the IMF.

On Monday, Fitch responded to the latest political crisis, writing in a press release: “The Tunisian president’s decision to suspend parliament and dismiss the prime minister may add further delays to an IMF programme that would alleviate the country’s large financing pressures.”

That leaves the country where it has been for a decade – fragile politically, fragile economically, and bereft of a strong government that can deliver on the economic promises of the Arab Spring.

SOURCE: AL JAZEERA