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As the West fears for Tunisia’s survival, prospects for an IMF bailout wane

Empty shelves in a supermarket aisle in the Tunisian capital due to a lack of essential goods.

The West has offered financial assistance out of concern that a collapse in Tunisia’s economy could lead to an escalation of migration to Europe.

The likelihood of Tunisia securing the largest agreement, a $1.9 billion bailout from the International Monetary Fund, is diminishing.

In October, the inflation-ravaged and severely indebted nation reached a tentative loan agreement with the IMF in Washington.

It would require Tunisia to implement what the IMF refers to as a “comprehensive economic reform program” that phases out petroleum and electricity subsidies.

However, President Kais Saied has consistently rejected “foreign dictates that will increase poverty.”

In March, US Secretary of State Antony Blinken warned Tunisia’s economy “risks plummeting” if an agreement is not reached with the IMF.

This was in response to European Union foreign policy chief Josep Borrell’s concern that a collapse “economically or socially” in Tunisia would result in a new influx of migrants to Europe, an assessment which Tunisia rejected.

The majority of migrants arriving by sea in Italy this year are from Tunisia and Libya, according to Italy.

“Tunisia is a nation in extreme distress, and clearly leaving it to its fate could have very serious consequences,” Italian Prime Minister Giorgia Meloni told reporters at a conference with Saied and other Mediterranean leaders on Sunday in Rome.

The European Union and Washington have been troubled by Saied’s increasing authoritarianism, in addition to the economic situation.

Since dismissing the government in July 2021, he has amassed extensive authority. Later, he disbanded parliament and forced through a new constitution to replace the one ratified in 2014 after the Arab Spring revolution.

Nearly ‘buried’

With unemployment and inflation exacerbated by the aftermath of Russia’s invasion of Ukraine, many Tunisians have joined sub-Saharan Africans in fleeing the country, which is located just 130 kilometers (80 miles) from Lampedusa, Italy.

Following the IMF-supported reform program, the European Union indicated in June that it could offer a long-term loan of approximately 900 million euros to the country.

However, Aram Belhadj, a lecturer and researcher at Tunisia’s University of Carthage, stated that the IMF agreement is “blocked” because Saied “rejects the proposed reforms,” especially regarding fuel subsidies, which would lead to higher costs for public transportation and deliveries.

According to the International Monetary Fund, consumer prices in Tunisia are expected to rise by 10.9% this year.

“If there is no clarification on Tunisia’s position by the end of August, the IMF agreement will be buried for good,” Belhadj said.

According to economist Ezzedine Saidane, the president saw in the necessary reforms “things that would penalize him politically.”

Under the terms of the agreement with the IMF, Tunisia would also be required to restructure 100 monopolistic and often severely indebted state-owned corporations.

“Tunisia blocked” the agreement, Saidane stated, and “negotiations are currently completely stalled.”

“Increasingly challenging”

Mid-April, IMF regional director Jihad Azour stated that he had not received “any request from Tunis to revise its program.”

Since then, Saied has reaffirmed his support for subsidies and maintained his assaults on the international financial system.

At the conference in Rome, Saied reiterated his proposal for “a new global financial institution” to establish “a new human order in which hope replaces despair.”

He has proposed “taking money from the rich and giving it to the poor,” but it would be difficult.

The entire eight percent budget deficit in 2022 was caused by state subsidies, primarily for energy, after Russia’s invasion of Ukraine drove up global prices.

In the first half of 2022, the state’s petroleum subsidies bill increased by 370 percent year-over-year, according to official figures.

A source close to the negotiations stated, “There is little that can replace the gradual increase in pump prices foreseen by the IMF program.”

Saidane advised against a tax increase due to the country’s “the highest fiscal pressure in Africa.”

Approximately 80 percent of gross domestic product is owed.

Without an IMF agreement, according to Belhadj, “the situation will become increasingly difficult,” with a “very high” risk of debt default in 2024 and 2025.

According to Saidane, the Tunisian government “appears to have chosen to prioritize debt repayment. However, at the expense of providing basic necessities.”

In recent months, intermittent shortages of flour, rice, sugar, and fuel have resulted in vacant shelves and lengthy lines.

Russia’s withdrawal from an agreement allowing grain exports from the Black Sea last week has reignited concerns of shortages or price increases that could affect vulnerable nations.

In Tunisia, where flour is among the state-subsidized fundamental food ingredients, this could exacerbate budgetary strain.

The government’s increasing reliance on local banks for financing contributed to a downgrade of four of the country’s financial institutions by the international agency Moody’s earlier this year.

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