Tunisia seen softening economic reforms to avoid unrest
TUNIS -Tunisia plans to launch long-awaited reforms to reduce its chronic budget deficit, but the measures could harm investment if the government imposes new taxes and resists cutting the bloated public sector in order to avoid social unrest.
The International Monetary Fund is in Tunis this week to review the government’s efforts to fix an economy in turmoil since President Zine El-Abidine Ben Ali was ousted in the first of the Arab Spring rebellions in 2011.
Tunisia has been praised as the only democratic success among the Arab Spring nations. But economic performance has lagged, with phosphate exports hit by strikes and tourism suffering from Islamist attacks.
Hoping to secure further IMF finance to fund the 2018 budget, Economic Reforms Minister Taoufik Rajhi said the government would launch “unprecedented reforms” to cut the deficit to 4.9 percent in 2018 from 6 percent this year. Tunisia wants to reduce the public workforce by 20,000 from 800,000, overhaul loss-making state firms, and increase taxes and social security contributions, Rajhi told Reuters. Rajhi said the government is serious about reforms this time, but analysts say Prime Minister Youssef Chahed is likely to amend the proposals in order to calm social tensions. That would put Tunisia at odds with its lenders. Since 2011, nine governments have failed to cut the deficit and the country needs $3 billion in foreign loans next year alone. “The government is heavily reliant on financial assistance from multilateral lenders – such as the IMF – which are putting pressure and conditioning their support on the implementation of structural reforms, notably on the fiscal front, (and) job cuts in the public sector in particular,” said Raphaele Auberty, Tunisia analyst at BMI Research.
On the other hand, “risks of social instability in the country are limiting the scope for fiscal consolidation without triggering large-scale protests,” she said.
A spokesman for the IMF said the fund and Tunisia agreed urgent reforms were needed, “including tax reforms and measures to limit the further growth of the public wage bill that risks becoming unaffordable and is among the highest in the world.”