Previous Quarterly Editions
Expropriation Risk: 62 46 62 62 ►Political Violence Risk:59 59 67 60 ▼Terrorism Risk:55 53 51 51 ▼Exchange Transfer and Trade Sanction Risk: 55 55 55 54 ►Sovereign Default Risk:75 75 75 83 ▲
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Geopolitical alignmentEast 1 2 3 4 5 West
Alignment five years agoEast 1 2 3 4 5 West
Degree of contestationSettled 1 2 3 Contested
President Kais Saied, who has taken an authoritarian direction since his election in 2019, has also shaken up Tunisia’s diplomatic establishment, having sacked several key figures within the foreign ministry. Notably, Saied has brought Tunisia into closer alignment with Algeria, to the anger of the latter’s regional rival Morocco. Equally, as U.S. and European officials express concern about democratic backsliding, Saied has responded angrily by denouncing ‘foreign interference’.
Saied ascribes to an established Arab nationalist current within Tunisian politics that espouses suspicion of Western involvement. Yet in practice there is little evidence of Tunisia pivoting away from its traditional partners in Europe and North America. Nearly all foreign direct investment comes from the European Union, in particular France, and the economy is deeply enmeshed with that of Europe.
Despite cooling ties under Saied, Tunis retains defence and security relationships with the U.S. and European states, focused on counterterrorism and border security.
Although Tunisia joined China’s Belt and Road Initiative in 2018, economic ties with China remain comparatively weak and there have since been no announcements of major Chinese investments or infrastructure projects.
Similarly, political and economic ties with Russia are underdeveloped, despite the deepening relationship with Algiers, Moscow’s main partner in North Africa. Unlike its neighbour, Tunisia sided with Western countries in March by voting in favour of a UN General Assembly resolution calling on Russia to halt its invasion of Ukraine, begun in February 2022.
In recent months, prosecutors have ordered asset freezes on politicians and civil society groups associated with the Islamist-leaning Ennahda party, one of the main voices of opposition to Saied, although there is no indication that foreign companies are targeted.
However, the seemingly political nature of these moves will only add to concerns over the rule of law. They coincide with continued upheaval within the judicial establishment as Saied has attempted to purge dozens of senior judges and assert personal control over top judicial appointments, leading to a bitter standoff and a series of strikes by magistrates.
TREND ▼
Political and socio-economic grievances continue to fuel protests. Notably, demonstrations took place around July’s referendum on a controversial new constitution. Claiming a national emergency, Saied in 2021 unilaterally froze parliament and dismissed the government, vowing reforms he said would guarantee stability. Earlier this year, he unveiled a draft constitution that considerably expanded the presidency’s powers. The referendum endorsed the new text but was marred by widespread apathy: the official turnout was around 30%, which may even be an overestimate.
On the economic front, Tunisia has yet to recover from the COVID-19 pandemic, which decimated the vital tourism industry. Unemployment has been coming down but remains high, standing at 15.1% at the end of the second quarter. At the same time, rising costs of basic goods are applying further pressure on household budgets, with annual inflation hitting 8.6% at the end of August.
Protests over the political or economic situation often end in minor clashes with the security services, although intentional acts of political violence have not been observed. Moreover, discontent on various fronts has not coalesced into a coherent and sustained opposition movement. Nonetheless, tensions are likely to mount as economic pressures grow and the country heads towards parliamentary elections scheduled for December 17, the first organised under the new constitution. Several political parties have already been banned from participating in the poll.
No terrorist attacks have taken place in Tunisia this year or last year, although the military continues to carry out operations in the remote mountains on the Algerian border, where armed groups remain present. Regular reports persist of low-level clashes in that area, seizures of weapons caches, and the arrest or death of individuals suspected of belonging to extremist organisations. Likewise, the porous border with Libya also increases the risks of infiltration by armed groups. In mid-July, a soldier was killed in that region, reportedly in a shoot-out with a gang of smugglers.
The country’s foreign currency reserves have declined over the last six months. In April, their level had risen to USD8.1 billion on the back of increased remittance flows and a nascent rebound in the tourism industry at the beginning of the year. However, as of August, they had slid to around USD7.5 billion, enough to cover 115 days of imports, compared with 124 days at the same time the previous year.
Tunisia still subsidises many basic foodstuffs and energy. However, this is putting added pressure on the country’s foreign exchange position given rising commodities prices in the context of Russia/Ukraine crisis, as well as the strengthening of the U.S. dollar against which the dinar has lost 16% of its value over the last year. Indeed, in the first eight months of 2022, the trade deficit exceeded USD5.2 billion, up by almost two-thirds on the previous year, driven mostly by increases energy prices.
TREND ▲
The summer 2022 edition of the World Bank’s ‘Tunisia Economic Monitor’ forecasts the fiscal deficit will reach 9.1% of GDP this year, compared with 6.7% originally predicted in the annual budget. Tunis has received financial assistance to cover its growing import bill, with the European Bank for Reconstruction and Development announcing in August that it would lend EUR150 million for grain purchases, equivalent to USD148 million. However, the default risk largely hinges on the ability to secure an International Monetary Fund (IMF) support programme, under negotiation for many months.
In this regard, there have been several positive developments. Saied’s administration ended a long-running dispute with the powerful General Tunisian Workers’ Union (UGTT) over public-sector pay, agreeing in mid-September on a 3.5% increase. Buy-in from the UGTT is regarded as a precondition for any IMF programme. Concurrently, the government announced a cut to fuel subsidies, representing another point of contention with lenders, and raising the price of cooking gas for the first time in over a decade. Against this backdrop, the central bank governor announced he expected an agreement on a IMF package worth USD2 billion to 4 billion within weeks.
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