Previous Quarterly Editions
Expropriation Risk: 63 64 64 64 ►Political Violence Risk:58 57 57 57 ►Terrorism Risk:51 51 51 53 ►Exchange Transfer and Trade Sanction Risk: 55 54 54 54 ►Sovereign Default Risk:83 83 83 83 ►
TREND ►
Protest intensity to date* 2022 2023 Very High HighUnrest risk in 2024**Cost of living: Very HighAnti-austerity: Medium
*Note: Protest intensity is calculated based on ACLED. **Risk levels are calculated by WTW. Where data are missing no risk level will be displayed. For details of 'anti-austerity' calculations, see the essays in the introduction; for details of 'cost-of-living' calculations, see the previous edition of the Index.
Tunisia’s public debt challenges predate the COVID-19 pandemic, having their roots in the 2011 revolution. Political instability following the ouster of President Zine El Abidine Ben Ali was accompanied by sluggish growth. Several high-profile terrorist incidents led to a decline in the tourism sector — a cornerstone of the national economy and a key source of foreign currency. That was compounded by a collapse in tourist numbers during the pandemic. Meanwhile, phosphate exports, another major source of income, have been undermined by industrial action and mismanagement issues over several years.
Western countries provided loans in the aftermath of the revolution to support the country’s democratization, with the expectation that political reforms would be accompanied by economic ones; however, successive weak governments struggled to push through subsidy and wage cuts amid resistance from powerful labor unions. Likewise, various conditions of a 2016 International Monetary Fund (IMF) program worth US$2.9 billion went unimplemented in the face of recurrent protests.
Tunis has continued to run substantial fiscal deficits, with this year’s budget pointing to a funding shortfall of around US$2.9 billion. That appears to have been designed on the assumption that long-running talks with the IMF would lead to a new US$1.9 billion facility.
The government has made some progress on reforms being demanded by the IMF, including an agreement with labor unions to control public sector wage growth; however, President Kais Saied in spring 2023 appeared to reject certain other conditions, declaring that he would not yield to “diktats.”
Negotiations with the IMF have stalled. Instead, Saied has spoken of the need to explore alternative funding sources, including changing the law to allow (or force) the central bank to finance the budget.
Saied was elected in 2019 on a populist platform that capitalized on popular disillusionment with the fractious party politics of the post-revolution period as well as perceived external interference. Since a self-coup in 2021, he has cited domestic and international “conspiracies” as a means of deflecting popular anger over rising living costs as well as justifying his repression of opposition forces.
The president’s base comprises leftists and nationalists. Saied appears to be reluctant to alienate them and has expressed ambivalence even over subsidy cuts that the government is nominally committed to. The administration’s approach raises questions over whether an agreement is possible with the IMF.
Saied’s government has sought to erode the independence of the judiciary, with the president openly demanding the dismissal of judges who do not make the “right” decisions. Such moves undermine the rule of law and guarantees of due process, which become more pertinent given the rising risks of a debt crisis.
However, thus far, the authorities have not signaled any intention to seize foreign assets or target international companies operating in Tunisia. Instead, the focus has been on domestic individuals and organizations perceived as opposed to the administration, as well as recovering public funds that were embezzled during the Ben Ali era.
Demonstrations and strike actions are a regular occurrence in many Tunisian towns and cities, fueled by a range of grievances. Thus far, the authorities have successively managed to ensure that these protests do not gain momentum or evolve into a genuine threat to government authority.
Political factions continue demonstrations against the crackdown on government critics; most recently, the president has demanded that government ministries “cleanse” themselves of those who have been “unduly appointed.” Such protest actions have been taking place for over two years and appear to be declining in intensity as fatigue sets in and repressive measures undermine political parties’ ability to mobilize.
The government also weathered strikes and demonstrations organized by bakeries in August 2023, after a crackdown on private operators profiteering from subsidized flour as well as seemingly introducing unofficial limits on state-controlled bakeries’ access to flour. Such incidents are likely to reoccur as the government struggles with the cost of subsidizing food imports.
Although terrorism risks have declined since two high-profile attacks in 2015 left dozens of tourists dead, smaller-scale incidents have continued to occur, and the country remains under a state of emergency, which is expected to last at least until the end of 2023.
In May 2023, a member of the National Guard shot dead one of his colleagues, two police officers and two worshippers at a Jewish pilgrimage site on the island of Djerba. The incident was the first fatal terrorism attack in the country in almost three years, although several non-fatal incidents have occurred within that time, mostly targeting members of the security forces.
At the same time, the military remains engaged in operations targeting terrorist cells that remain active in the mountains along the border with Algeria.
The central bank has indicated that its foreign currency reserves have strengthened during mid-2023, driven by an increase in remittance inflows and strong tourism figures. The bank in September 2023 stated that its reserves amounted to US$8.4 billion, equating to 116 days of imports — up from US$7.5 billion at the same time in 2022, which was equivalent to 111 days of imports.
Nonetheless, the president’s statements in September 2023 that he hoped to revise legislation to allow the central bank directly to finance the state budget may prompt concern, not least given that the bank’s governor has previously warned against such a move.
In a political context where Saied has sought to erode the independence of numerous state institutions, there is a risk that the central bank could be forced to take measures that would lead to a significant devaluation in the Tunisian dinar if new external sources of funding cannot be secured.
As of mid-September, Tunisia had met around three-quarters of its debt servicing obligations for 2023, with around US$700 million in repayments outstanding by the end of the year. Yet without approval of a new IMF facility, the government is likely to fall short of its target of US$5.5 billion in external financing laid out in the budget, despite a US$500 million soft loan from Saudi Arabia announced in July and 127 million euros (equivalent to US$134 million) promised by the European Union in exchange for Tunisian assistance on migration management.
Local banks already hold close to half of Tunisia’s public debt and are unlikely to be able to step in with additional financing. With a further US$2.6 billion in external debt falling due in 2024, a sovereign default grows increasingly likely unless a deal is secured with the IMF, which would unlock further funding from other sources (such as a US$1 billion loan proposed by the European Union in June).
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