Bleak outlook for Tunisia's economy

Several economic scenarios could potentially play out in Tunisia amid unstable security and bad governance, none of which look good.

al-monitor A general view of the Tunis Stock Exchange is seen in Tunis, May 7, 2013.  Photo by REUTERS/Anis Mili.

Topics covered

tunisian economy, tunisian revolution, tunisian politics, economy, economic crisis

Nov 10, 2013

Ibn Khaldoun, historian and one of the foremost voices on social politics, dedicated most of his Al-Muqaddima introduction — which studies cycles of sociopolitical change in the Maghreb — to coming up with a theory that would explain the factors behind the birth and fall of the states. According to his approach, upheavals and struggles in the underbelly of society have generally driven the ruling dynasty to isolate itself and become progressively softened by the luxury of power, eventually losing its cohesion and governing force. In this way, it slowly and cyclically made way for a new, more powerful dynasty.

This procyclical approach of analyzing social and political struggles in North African societies offers some valuable lessons.


The similarities to the country's current manner of governance have been the subject of much analysis. In reality, it is clear that the dislocation of the state and the deregulation of the institutions that manage the national economy can be seen everywhere, despite the complete incompetence of the former/current government.

The treasury’s balance was no greater than 359.1 million dinars (about $260 million) at the end of October, while Tunisia currently maintains a foreign [debt] deficit of 76.48 billion dinars ($45.63 billion), the highest ever according to statistics published by the Central Bank of Tunisia.

The financing needs of the country for the 2014 budget are projected to be in the order of 9.7 billion dinars ($5.8 billion) despite an anticipated gap of 1.7 billion dinars ($1 billion), according to official figures from the Ministry of Finance.

The state of the Tunisian economy, made fragile by the underuse of means of production and the weakness of public and private investment, is critical — particularly since the main providers of funds have had their last word. The African Development Bank (ADB) effectively decided to cancel a $250 million loan to Tunisia, having made the decision to no longer allocate it any loans until the political-economic climate becomes completely clear. The World Bank canceled its release of part of a 500 million dinar loan ($298.62 million). Islamic sukuks (or bonds) for 1 billion dinars ($597.27 million) are expected in an “adequate” regulatory framework, allowing for the mobilization of funds from the International Monetary Fund (IMF), which had opened a precautionary credit in our country in the amount of 2.8 billion dinars ($1.7 billion). After only withdrawing 244.9 million dinars ($146.3 million), the institution put in another block, stipulating the imposition of fiscal and financial reforms that have yet to be set in motion.

In another plan, international financial institutions are insisting that funds in the amount of at least $2.9 billion be pumped in to prevent the Tunisian financial system from going bankrupt.

All of the above mentioned indicators betray a system of governance that, specifically over the past two years, has been characterized by laissez-faire policies in terms of managing spending that has reached exorbitant levels without regulation or respect for the most basic norms in risk management.

Scenarios of socioeconomic stress

Evaluating the general situation in Tunisia today is almost exclusively based on the evolution of policies, particularly regarding security. Certainly, the degradation of macroeconomic ratios is expected. The amplification of the risks we will face are evidence of the intensity of [different] stressors [that are present], based on two main theories of how to be aware of an [impending] new downgrading of the sovereign rating and the inevitable rise of terrorism.

Thus, three scenarios can be seen. The first has a high probability of occurring and hinges on the escalation of violence and attacks, as well as the creation of a strict budgetary plan to gain access to the IMF loan. In the framework of this scenario, a fall in tourism revenues and direct foreign investments is anticipated, as is the emergence of a significant social risk and the following of fiscal measures that deter capital and encourage fraud.

The second scenario has a moderate likelihood of happening and would be known by a constitutional block and a failure to hold elections. This in turn may lead to political and social violence, and perhaps even all-out social breakdown. Weak foreign aid and the continued absence of visibility are likely to have an impact on direct foreign investments.

The third scenario has a weak probability of happening, but may correspond to a second popular uprising accompanied by a default of payments, barring unlikely assistance from the IMF, World Bank and other large funders.

This crisis Tunisia is dealing with is unprecedented in the country’s long history. Its virulence and the problems it has caused — and will cause — are unparalleled. We will be unable to quantify their scope immediately. For now, though, given the recorded deficits in public finances and the state’s receipts, as well as the method of evaluating risk, we can estimate the volume of the economic and financial crisis to be around 8 billion dinars ($4.8 billion).

The impact of terrorism on the economy has a direct correlation with the amplification of deficits and losses of at least 30% each year, according to the most optimistic studies by the National Center for Risk and Economic Analysis of Terrorism Events at the University of Southern California, based on the experiences of countries who have fallen victim to terrorism.

Ibn Khaldoun is right again — the cycle of violent socioeconomic change is cyclical and spread out over a more-or-less long period.

In any case, the crisis characterized by social and political troubles will certainly end in profound changes in the economic and social spheres of our country. We can only hope that the light at the end of the tunnel is not far away.

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