Chronicle of the Middle East and North Africa

Tunisia: A Difficult Journey with the IMF

Tunisia IMF
Supporters of the Tunisian General Labour Union (UGTT) gather with national flags during a rally outside its headquarters in the capital Tunis on June 16, 2022, amidst a general strike announced by the UGTT. FETHI BELAID / AFP

Ali Noureddine

This article was translated from Arabic.

For the third time in ten years, Tunisia is seeking to reach an understanding with the International Monetary Fund on a new loan, in excess of $4 billion, based on a package of monetary and economic reforms. This loan is contingent on a package of painful conditions, the most prominent of which is a reduction in the size of the public sector which, according to Jerome Vasche, the representative of the IMF in Tunisia, is “one of the largest in the world.”

The IMF considers this particular issue as one of the most important challenges Tunisia must face as part of any economic reform strategy agreed upon with the Fund, given the size of the salary expenditures for the public sector which as of 2021 exceeded $6.8 billion. This is approximately 35 per cent of the total general budget, and is now equivalent to more than 17.4 per cent of the country’s gross domestic product, with the government promising to reduce this proportion to less than 15% of GDP.

Harsh IMF terms

It soon emerged that the conditions for the new IMF loan would not be limited to reducing the public sector salary bill or the number of its employees. Rather, as negotiations progressed between the Tunisian government and the IMF, it became clear that the terms would include the abolition of government subsidies in the electricity, fuel and gas sectors, as well as the application of harsh austerity measures on the state’s general budget. The series of reforms that the government negotiated with the Fund also included raising the prices of public services and restructuring public institutions, which would involve the privatization of some public utilities, a reduction in the number of their employees, and a certain number of layoffs.

In short, the new IMF program currently being negotiated would include a series of painful measures impacting living standards, especially for low-income groups and those working in the public sector. The harshest of these conditions pertains to ​​freezing wages for a period of five years, meaning these wages would not benefit from hikes to keep up with expected inflation. To fully grasp the severity of the five-year wage freeze, specifically in terms of the deterioration that will occur in terms of purchasing power alongside the rise in market prices, it is worth noting that that the inflation rate reached 7.2 per cent last March.

Tunisian General Labor Union strike

In protest of these harsh terms, and to head off the final agreement between the Tunisian government and IMF, the Tunisian General Labor Union announced one of the largest comprehensive labor strikes in the country’s history. The union, which represents the largest gathering in Tunisia, mobilized hundreds of thousands of workers and employees from 159 public institutions across the country in order to force 97 per cent of official departments and public administrations to commit to this strike. As result, with its strike on July 16 of last year, the union dealt a painful blow to the Tunisian government and the understandings it had achieved with the IMF.

The most important consequence of this strike were the political implications, as the Tunisian General Labor Union, which includes more than a million members across the country, transformed into President Kais Saied’s fiercest opponent. The union thus created a bloc capable of challenging Said’s economic and social policies, and his attempts to consolidate his power by inviting assistance from the IMF, even if it came at the expense of the livelihoods of the most vulnerable social strata.

The Tunisian General Labor Union’s ability to break Saied’s influence can best be understood by noting that the strike it staged completely paralyzed maritime and air navigation, and disrupted mobility and public transport throughout the country, while postal institutions, social funds and electricity companies closed their doors.

The union strike soon presented an opportunity for opponents of the authorities to rally against Saied. These foes ranged from judges, lawyers, and unions to opposition parties of various colors and ideological backgrounds, and civil society institutions that resented the president’s clampdown on public liberties. A year earlier, the president froze Parliament’s authority, dismissed the former prime minister, and carried out what appeared to be a coup against the country’s constitutional institutions. Saied subsequently proceeded to move against the Tunisian judiciary, which had accumulated sufficient evidence to confound the president politically in the midst of such a confrontation with the union.

The strike obstructs the understanding with the IMF

The strike was a significant setback for the IMF and Tunisian government negotiators, which were confident about making progress before the disruption. The IMF stipulated the need for “community consensus” in Tunisia on any economic program that the government sought to agree with the fund, meaning the authorities must reach an understanding with the union on the package of reforms. The IMF insisted on this precisely because the strong union movement in Tunisia could obstruct the implementation of any economic program that did not receive its explicit approval.

Therefore, the general strike, and the extent of the popular rejection of the terms that leaked from the Tunisian government’s negotiations with the IMF, were a message that the program which the government negotiated with the IMF did not enjoy “community consensus.” This led many to believe that the government’s strained relationship with the UGTT would make it difficult to convince the IMF of the state’s ability to implement any reform program agreed upon in the negotiations. It thus became clear that the government, prior to resuming talks with the IMF, would have to go to a difficult negotiating table with the Tunisian General Labor Union in order to agree on the measures the union could accept. This course would result in more time wasted before Saied succeeds in obtaining the promised support from the fund.

Previous unsuccessful experiences

This was not the first time that Tunisia engaged in negotiations with the IMF, during which it had to reconcile the Fund’s harsh conditions with the red lines imposed by the country’s union movement. On the two previous occasions in which the IMF agreed to grant loans to Tunisia in exchange for reform measures, the country failed to adhere to the terms to the letter, and thus was unable to implement the agreed programs.

In 2012, Tunisia reached an understanding with the IMF on a reform program, based on which it received a $1.74 billion loan. At that time, the reforms requested by the IMF included tightening monetary policy, raising interest rates, adopting a more flexible policy for the local currency exchange rate, and increasing tax collection rates. At the time, Tunisia was to receive the loan in tranches over a period of about two years, provided that the disbursement of the funds would be contingent on its commitment to the program’s terms. However, when the disbursement of the loan commenced in 2013, Tunisia was unable to comply with all the provisions due to the security turmoil that the country was experiencing. This resulted in postponing the disbursement of the balance of the funds that Tunisia was supposed to receive from the IMF.

After the numerous difficulties faced by that program, in 2016 Tunisia once more knocked on the door of the IMF, which agreed to grant the country $2.9 billion loan in return for agreeing on a package of economic reforms that the country would have to implement by 2020. It was once again agreed that Tunisia would receive the loan in tranches, this time over a period of four years, during which the amounts would be disbursed as the terms of the agreed reform program were met. And once again, having failed to implement the reforms agreed upon with the fund, Tunisia received only $1.4 billion of the loan’s value after the disbursement of the loan tranches stopped.

Fund conditions and Tunisian reality

In short, over the past 10 years, Tunisia has failed to abide by the IMF’s harsh terms, which conflict with the economic model historically employed in the country that is based on expanding the state’s management of basic facilities through a massively bloated public sector.

The IMF’s conditions also contradict the country’s political and social reality, characterized by an effective union movement capable of imposing its conditions and protecting public sector employees from austerity conditions that threaten their job security and social stability. The fund’s terms also conflict with the union movement’s rejection of any prejudice toward social benefits, foremost of which is state subsidies for some basic commodities.

Just as previous governments failed to abide by the Fund’s ready-made recipes, the current government is experiencing difficulties that prevent it from reaching a final agreement with the IMF as a result of the terms required during negotiations that were recently leaked.

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