Index trend
Previous Quarterly Editions
Expropriation Risk: 64 64 63 63 ►Political Violence Risk:57 57 57 57 ►Terrorism Risk:51 53 53 53 ►Exchange Transfer and Trade Sanction Risk: 54 54 54 55 ►Sovereign Default Risk:83 83 83 83 ►
Overall Risk Temperature: 64 (Significant) TREND ►
Special topic: Relationship with the 'global rules-based order'
Under President Kais Saied, Tunisia has witnessed a sharp turn toward a form of populist nationalism that had long circulated among segments of the population but was mostly not part of the political elite. Saied regularly speaks in conspiratorial terms about plots between internal and external enemies.
This discourse has extended to the international institutions that uphold the “rules-based” order, in particular the International Monetary Fund (IMF). Saied has stated that his government will not submit to “diktats” in its negotiations with the IMF and has claimed some were trying to sell the country to foreign powers. More recently, the government has strongly criticised the United Nations Security Council over the failure to agree on a resolution to end the “genocide” in Gaza. It accused its members of “irresponsible use of the veto power” and stopping the body from carrying out its function.
However, Tunisia has not taken an active position to undermine or revise the rules-based order as it stands. For the most part, Saied’s attacks on these institutions appear to be primarily for domestic public consumption rather than signaling any particular policy approach. Disengagement on the international scene is perhaps more common than direct conflict. In practice, officials below the president continue to cooperate with global institutions, seemingly with relatively little friction.
TREND ►
An International Center for Settlement of Investment Disputes tribunal ruled in Tunisia's favor in December 2023 in a long-running expropriation claim brought by the Dutch ABCI Investments. The latter had sought damages worth US$12 billion in a dispute over its failed attempt to buy a stake in the Banque Franco-Tunisienne in 1982. As such, Tunisia is no longer subject to outstanding expropriation claims from international companies.
Nonetheless, the unpredictable and autocratic style of the president is a concern for businesses, especially given that judicial independence is eroding simultaneously. Several businessmen have been arrested over the past 18 months, notably the tycoon Marouane Mabrouk, who was detained in November over allegations of embezzlement during the rule of former President Zine El Abidine Ben Ali. Saied has stepped up calls in recent months for prosecutors to take tougher action against business leaders over historical corruption claims, seemingly in an attempt to pressure them to accept settlement deals that would provide the state with a much-needed injection of funds.
Numerous political opponents and critics of the president remain in pretrial detention or have been sentenced on spurious sedition charges, with new arrests continuing to occur regularly. Rached Ghannouchi, leader of the opposition Ennahda Party, was sentenced in February to three years in prison and the party fined $1.1 million over alleged illicit foreign funding. Ghannouchi had been speaker of parliament and Ennahda the largest party prior to Saied’s unilateral dissolution of the legislature and assumption of sweeping “emergency” powers in a July 2021 self-coup.
Despite this, demonstrations by opposition political parties against the government appear to be losing momentum. This is likely the result of intimidation, repression and fatigue after almost three years of unsuccessful protest; however, a presidential election later this year is likely to heighten tensions, raising the prospect of an intensification of opposition activism and a concomitant police crackdown.
The election commission announced in late February that presidential polls would be held in September or October, ending speculation that Saied could opt to postpone the vote by claiming that a 2022 constitutional referendum extended his mandate. There is a strong chance that opposition parties will boycott the process (or be prevented from participating). Turnout is likely to be low; in December 2023, the local elections saw a turnout of less than 12% amid widespread political disillusionment and disengagement.
Terrorist attacks are an ongoing threat, although extremist organizations’ communications and organizational networks have been effectively disrupted since two mass shootings in 2015. On January 31, the government extended a state of emergency that has been in place since then.
Most recent incidents tend to have been “lone-wolf” attacks, three of which took place in mid-2023: In May, a member of the National Guard shot dead three security officers and two worshippers at a Jewish pilgrimage site, while separate knife attacks in June and July left one police officer dead and another wounded.
Having risen slightly over late 2023 and early 2024, the Central Bank of Tunisia reported that its foreign currency reserves had dropped by around $1 billion to $7.4 billion, following payment on a Eurobond that matured in mid-February. The bank said that the reserves were equivalent to 105 days’ worth of imports — close to the critical level of three months.
At the same time, Saied’s administration has introduced legislation that effectively forces the central bank to lend the government money to finance its deficit and help it repay foreign debt. The legislation, approved by the cabinet in late January and ratified by parliament within days, was passed against the advice of the governor of the central bank. The move risks a devaluation of the local currency, as the bank will be obliged to increase the monetary base and could increase pressure on its foreign exchange position.
On the other hand, Prime Minister Ahmed Hachani in March announced other measures that would streamline regulations on foreign exchange processes and ease foreign financial transactions. The initiative is part of a wider set of promised reforms to improve the business climate, which in turn is linked to ongoing talks with the IMF over a financial support package.
Financing risks are very high. External debt has risen significantly over several years and currently stands at around 90%. The government continues to run large budget deficits; the deficit in this year’s budget is forecast to be 6.6% of GDP, which is likely to be covered through further domestic borrowing.
In January, the government confirmed that it had successfully paid all of its domestic and foreign debt obligations last year. Around $4 billion in foreign debt comes due this year, and the state budget for the year indicates that debt servicing costs are projected to hit 14.1% of GDP in 2024, compared with 13.1% last year and 10.0% in 2022. Meeting with IMF Director General Kristalina Georgieva in Davos earlier this year, Hachani expressed confidence that all debt would be repaid on schedule in 2024.
In March, the European Union provided the Tunisian treasury with 150 million euros as part of a 900-million-euro economic stabilization program; however, the government will require a larger injection of foreign funds, as well as undertaking painful fiscal reforms, to avert a default. Negotiations with the IMF over a $1.9 billion support package have stalled since a staff-level agreement was reached in 2022. It seems improbable that a breakthrough will be possible before the presidential elections in the fall (not least because the reforms demanded by the IMF would be deeply unpopular).
