Tunisia: Debt - Tunisia Should Initiate New Social Compact - Analysis

Tunis/Tunisia — An analysis conducted by Friedrich Ebert Stiftung and erlassjahr.de called on Tunisia to initiate a new social compact that must start with comprehensive debt relief and a true national dialogue on economic reforms that are not prescribed by the IMF.

Presented on Thursday in Tunis, the analysis entitled "The Tunisian debt crisis in the context of the COVID-19 pandemic: Debt repayments over human rights?, that the civil society should proactively demand that the human rights of Tunisian people should be prioritized over creditors' rights to be paid in full."

Th document called that "the civil society should also demand to be equally heard in occasions such as the discussions with the IMF mission. Decisions that affect the lives of millions of people must not be taken behind closed doors at the Ministry of Finance and in Washington."

According to the same source, the economic fallout from the COVID-19 pandemic has pushed up public debt to 87% of the country's GDP in 2020, up from 72% in 2019.Given the dire situation, the Tunisian government officially applied for a new IMF financing program in April 2021, which is not yet finally agreed.

The IMF suggested a reform scenario for Tunisia whose key element is a heavy internal adjustment, restoring the primary balance from -8.2 percent in 2020 to 0.1 percent in 2023. This shall be achieved by, for instance, reducing the public wage bill, phasing out energy subsidies and targeting social spending, the paper pointed out.

If all the reforms and financing conditions are implemented and despite the sacrifices made by Tunisia domestically, it will not be possible to reduce a large part of the country's debt, the paper's authors say.

The IMF's reform scenario does not include any recommendations for debt relief or signs of a change in creditors' positions, the authors added. It did not even recommend that the Tunisian authorities adopt the path of debt restructuring, the same source said.

The paper described the initiatives taken by creditors during the COVID-19 period to alleviate the country's debt as "ineffective" and "not comprehensive," given that 27% of Tunisia's debt is contracted with the IMF and other official creditors.

Tunisia has not been included in the Debt Service Suspension Initiative taken by the Development Committee (World Bank & IMF) and the G20 Finance Ministers to help the poorest countries cope with the disastrous economic impacts of the COVID-19 pandemic, the paper reveals.

Several experts attending the conference stressed the need to launch an effective reform package by securing external financing from the IMF.

Academic Souad Triki pointed out that Tunisia's widening state budget deficit and high debt should not hide several small details that need to be reformed, pointing out the need to encourage public investment.

In the same vein, she proposed the creation of a so-called "labour market," which will oversee the redeployment of workers in the public sector, thereby allowing the Tunisian administration to be more efficient and increasing the country's competitiveness.

Some researchers raised the need to achieve harmony at the national level, particularly with regard to debt restructuring.

Economist Hamza Meddeb considered that the economy has been hit hard by the COVID-19 pandemic, which has worsened unemployment and poverty and that real reforms, which have not yet been implemented despite their launch years ago, can help rebalance the economy.

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