Tunisia's Staggering Economy Lurches Toward a Nosedive

Article Summary
The Tunisian government's mismanagement and misrepresentation of state debt continues to exacerbate the country's economic crisis.

“Taking advantage of shortages in order to increase prices leads straight to hell. In Rome, speculators were sentenced to death by stoning.”

According to this approach expressed in an excerpt from Economics for Dummies, Tunisia's Ennahda government is probably going to hell. Why? The answer is simple and is being experienced on a daily basis: The Tunisian economy is sinking into the abyss of crisis that is unprecedented, even during past dictatorships.

It has been two years and the crisis persists. None of the lifelines that were thrown to the rulers, especially from the outside, have allowed even one economic sector to get back on its feet. It should be said that the lifelines that were sent to Tunisia did not have the desired effects, in light of unavailable economic strategy and rescue plans that are doomed to fail.

Moreover, political bargaining is exhausting for everyone. The taxpayer has gone broke by the economic achievements of the best government in history; he no longer knows what to do and has suffered from increased prices and taxes and decreased purchasing power. The taxpayer seems to know about politics more than the economy. How else could the lack of response to all economic aberrations, which the Islamist government made them subject to, be explained? This is “economic disaster for dummies.”

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Below, three aspects of the economy will be addressed in order to depict with primary colors the current economic landscape.

The first aspect concerns economic growth and budget deficit. The 2013 growth rate will be 3%. Compared with 2010, before the revolution broke out, the growth rate ranged between 4.5% and 5%. However, given the damage that was suffered in 2011, when the GDP shrank by 1.9%, the 3% rate is considered a real growth rebound.

Nevertheless, beware that the specter of terrorism and political violence might create a lack of security and instability that greatly influences economic growth. Tunisia has experienced political assassinations and terrorist attacks throughout 2013. Moreover, the first economic reaction to these tragic events was manifest in a drastic fall of the Tunis Stock Exchange, TUNINDEX, by 1.8%. Thus, although 2012 was marked by an economic recovery with a 3.6% growth rate, 2013 will mark another relapse.

As for the budget deficit, it is a real wound. The finance minister said the deficit rate would be 7% in late 2013, which is still under control. He could not have been more wrong. According to the economic experts, the budget deficit for this year will range between 10 and 11%.

Although we would like to give the benefit of the doubt and adopt the figure of 7%, the budget deficit has nearly doubled over the span of a year. In 2012, it stood at 4.8%. Given that the budget deficit means that the state spends more than it receives (revenues excluding loan repayment are less than the expenses excluding loans), this implies that the state funds have a gap of about 10% that should be bridged. In the assembly room, the amount of 5.1 billion dinars (about $3.1 billion) was announced to determine the level of the budget deficit. Worse still, an economist even says the deficit might reach 10 billion dinars (about $6 billion) by 2014.

The second aspect concerns the external debt of Tunisia. For 2013, the country's external debt reached 46% of the GDP, according to different statements made by the minister of finance. At times, this rate nears 47%, but as long as the 50% threshold is not exceeded, the Ministry of Finance does not worry itself too much. Unable to give much credit and trust to the minister of finance, we ran the news by economic experts. Still, the news is never good; according to Mourad Hattab, the debt ratio of Tunisia will amount to 180% or $27 billion of external debt by the end of 2013.

The country is up to its neck in debt to allow an additional budget, in other words, to be able to fund government spending. But the fact is that the repayment of these debts must absolutely go by the taxpayer. It is up to him alone to pay the external debt of Tunisia without getting an ounce of profit. It is worth recalling that among the largest and bulkiest state expenditures are those of the National Constituent Assembly, which amount to 35 million dinars or nearly 120,000 months of the guaranteed minimum wage, and the counting continues.

This debt entails three major issues. First, it should be noted that this debt is of a consumption nature, which means that money will not be refunded as a return on investment in the event that the debt had been used in the creation of projects and not to fund government spending.

Second, the Tunisian dinar has fallen by 10.5% on the foreign exchange market. It should be noted that the more the dinar loses value the more it will cost the head of the government, or rather the taxpayers, to repay it. Taxpayers will not receive a letter of credit from the Word Bank or the International Monetary Fund (IMF), from which the troika has taken out loans, drowning itself in debt. In fact, the dregs of Tunisian society are the ones who will go through hell to pay off this debt.

Third, there is the problem relating to inflation, which reflects the ongoing increase in prices, resulting in a temporary decline in the value of the dinar.

At the end of December 2010, the inflation rate was around 4.4% — a reasonable rate, reflecting some sort of control over prices of consumer goods. However, by the end of December 2013, the inflation rate is likely to stand at 10%, which is an increase of 100% over three years.

For months now, economists, who have been called pessimistic and anti-revolutionary, have been sounding the alarm about an imminent economic crisis.

The national economy is increasingly deteriorating due to useless policies of a government that is unaware of the dangers of such a strategy on the economic fabric and taxpayers. Today, Tunisia is teetering on the brink of bankruptcy while politicians continue to bicker about seats of power.

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