Will Tunisia’s economic crisis deepen due to political instability?
Any political instability is likely to worsen Tunisia’s economic woes, not lessen it.
Tunisia entered 2021 plagued by crises.
With its manufacturing and tourism sectors hammered, the economy contracted by 8.8 percent in 2020 and shrank a further 3 percent in the first quarter of 2021.
The resultant health crisis that followed put a severe strain on the country’s medical system, with the virus having claimed the lives of over 16,000 Tunisians. Grappling with a third wave, less than 7 percent of the country is fully vaccinated.
In addition to their economic and health woes, Tunisians are now saddled with deepening political uncertainty after president Kais Saied froze parliament and dismissed prime minister Hichem Mechichi on July 25, announcing that he will temporarily rule by decree in what critics have called a “constitutional coup”.
Saied also issued a 30 day-long nationwide curfew yesterday amid growing civil unrest, as Tunisia’s nascent (and the Arab world’s only) democracy prepares for what could turn out to be its greatest test.
Hailed as the single success story that remained from the ashes of the Arab Spring – which it spectacularly birthed in 2011 – Tunisia’s protests jettisoned a corrupt autocratic regime to transition towards democracy, rule of law, and economic justice.
A decade later however, political gridlock, corruption and economic sluggishness have stubbornly persisted.
Those trends played a part in fuelling the rise of Saied, a law professor who won a landslide victory in the 2019 presidential elections.
While the country’s progressive 2014 constitution laid out a semi-presidential system wherein Saied shared powers with the prime minister, political activity had practically ground to standstill as Saied, Mechichi, and parliamentary speaker Rached Ghannouchi repeatedly failed to find consensus over power-sharing.
Those rifts shaped a disjointed strategy towards handling the pandemic, only further aggravating economic distress and political dysfunction.
Against this backdrop, Saied and his supporters are framing his power grab as an attempt at unshackling the nation from political paralysis to direct energy towards resuscitating the economy from its doldrums and stamping out corruption.
But the means by which he has chosen to pursue such an objective is being slammed as anything but democratic.
Parliamentary speaker Gannouchi condemned Saied’s actions as “a coup against the revolution and constitution,” while the four largest political parties – Ennahda, Karama Coalition, Qalb Tounes, and the Democratic Current – have all slammed the president’s moves as unlawful.
Furthermore, any attempt to solve Tunisia’s underlying economic challenges will require political stability – not insecurity.
While most political parties have come out in opposition to the power grab, beyond Saied’s base, a segment hostile towards Ennahda – Tunisia’s largest political party – are likely to back the president’s decrees. Worse case, it might not only raise the spectre of political volatility but violent protests too.
An environment marred by instability and risks to the rule of law is likely to weigh heavily on investor confidence and will only increase security risks for businesses.
Meanwhile, the pandemic has only worsened the country’s fiscal situation.
The government’s Covid response was aimed at easing the financial shock triggered by the pandemic through cash transfer relief for households. But those measures, coupled with plummeting public revenues, saw Tunisia’s debt soar.
According to the World Bank, government debt was 88 percent of GDP at the end of 2020.
Additionally, negotiations for a $4 billion IMF bailout appear to have reached an impasse.
Reacting to the political crisis in a statement released on Monday, credit rating agency Fitch Ratings said that the president’s actions “raise new political uncertainties” and “may add further delays to an IMF programme that would alleviate the country’s large financing pressures.”
It added that a fragile coalition in parliament and an entrenched opposition to “substantial fiscal consolidation measures” will only complicate efforts to secure the IMF loan.
Fitch also warned that any protracted crisis might result in reduced support from western partners, given Tunisia’s access to funding was tied up with being the only democracy that emerged from the Arab Spring.
Earlier this month, the agency had downgraded Tunisia to a “B-“ with a negative outlook due to “heightened fiscal and external liquidity risks”.