Tunisia’s economy has been on a tightrope for years, and the war in Ukraine has only compounded its problems. The problems are of such caliber that since March the rationing of some basic products has been imposed due to supply problems. “You can only buy two kilos of rice, flour or sugar per person. But at least now there are no more problems with the bread”, explains Zied, owner of a grocery store in a popular neighborhood of the capital. Weeks ago, long queues formed to buy subsidized bread, the basis of the Tunisian diet. Tunisia, which imported 50% of its grain consumption from the Ukraine and Russia, has been severely hit by the war. The wheat that is now consumed was imported before the conflict, but prices have risen and the country (of 12 million inhabitants) is not in a position to pay on credit due to its solvency problems. On supply problems he plans a tradition of “bread riots” when its price increases.
Unable to recover the growth rates prior to the 2011 revolution – this year’s forecast is 2.4% – the country has been accumulating large public deficits, and now its public debt already exceeds 90% of GDP. Before the end of the year, it will have to cover a budget hole of some 4,000 million euros, something more complicated now by the decision of the Fitch agency in March to downgrade the country’s solvency to the level of junk bonds. The energy bill has multiplied in parallel with the price of oil, subsidized in Tunisia, since in the budget it was calculated on a base of 60 dollars a barrel, far from the current 114. The Government has also raised the price of electricity.
The subsidies it grants cannot absorb the entire increase in prices. “In the last month and a half, gasoline has risen four times! But our rates have not moved for 10 years, ”complains Kamel, a veteran taxi driver. In a country where the minimum wage is 403 dinars (125 euros), inflation is 7.5% and youth unemployment is 40% in many regions, large sections of society are at risk of malnutrition if the situation economy worsens.
Rumors are circulating on the street that the state only has funds to pay civil servants’ salaries next month, and that it could declare bankruptcy. “These fears are exaggerated. There is no threat of bankruptcy, because the state will always be able to resort to internal financing from Tunisian banks,” says Majdi Hassen, director of the thinktank economic IACE. “Without help from the International Monetary Fund (IMF), the problem may be the payment of credits in foreign currency. Next year we have several large maturities. But before bankruptcy, other measures would be chosen, such as a strong devaluation of the currency, strict capital controls… They would be very painful measures”, he adds. Among his biggest concerns, that the Executive does not increase the controlled prices of some products and thousands of farmers leave the field because they cannot cope with the rising cost of fuel and pesticides.
The Government of Kais Said, the president who suspended the Constitution last year to arrogate full powers, has been negotiating the granting of a loan with the IMF for months. According to sources familiar with this situation, the main obstacle is of a political nature: the organization demands a broad social and political consensus that includes the UGTT, the all-powerful Tunisian union, to prevent the agreed reforms from remaining a dead letter again. Said refuses, however, to any type of internal agreement, and the negotiations are in a impasse.
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Most political analysts consider that the position of the UGTT, the only actor with the capacity to mobilize the streets, will be key to the economic and political future of the country. He has called a civil service strike for June 16, a sign that his relationship with Said is souring. For its part, the opposition seems to be waiting for a future social explosion to topple Said and his project for a new regime. “The president still enjoys wide popularity, but things are changing. The situation is not yet mature, but social discontent is increasing”, believes Jawhar Ben Mbarek, one of the leaders of the opposition National Salvation Front.
In addition to increasing the deficit and inflation, the war in Ukraine will also impact the tourism sector, essential for creating jobs and earning foreign exchange. In 2019, more than 630,000 Russian tourists and 30,000 Ukrainians visited the Maghreb country. Most will not return this year.
Hassen sees this situation, however, as an opportunity. “In summer, Tunisia, Egypt and Turkey may end up capturing tourists who cannot go to Europe or the United States. And in winter, we could attract European retirees facing gas bills of €600 a month. It will be cheaper for them to live here”, slides the economist.
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