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Questions raised over Tunisia plan to tempt investors

Tunisian president Kais Saied Reuters
Tunisian president Kais Saied has said he 'will not hear diktats' to secure an IMF loan
  • Membership talks held with African Trade Insurance Agency
  • Joining the organisation would facilitate foreign direct investment
  • But concerns remain over an IMF loan and the 2023 budget

Tunisia’s latest move to reassure foreign investors is good news “on paper”, a leading analyst has said, but not enough to offset concerns about the North African country’s economy.

James Swanston, Mena economist at Capital Economics, pointed to Tunisia’s recent membership talks with the African Trade Insurance Agency, which provides trade-credit and political risk insurance to facilitate foreign and local private sector investment.

Swanston told AGBI: “If Tunisia were to become a member, it would be a benefit on paper to try and encourage investment. The issue, though, is that even with membership there are numerous other deterrents to foreign investors to invest in Tunisia.”

Samir Saied, minister of economy and planning, held talks with the African Trade Insurance Agency’s executive director Manuel Moses earlier this month. The meeting was positive, according to a report from Agence Tunis Afrique Presse – but analysts have raised questions over the country’s economy and 2023 budget.

The Tunisian government reached a staff-level agreement with the International Monetary Fund for a $1.9 billion bailout last September. The deal has yet to be signed off, however, and the country has already missed key commitments.

Officials believe Tunisia’s finances are increasingly diverging from the figures used to calculate the deal.

Questions over IMF bailout

Reuters reported that when President Kais Saied was asked whether he would accept the terms of the IMF loan – which include cuts to food and energy subsidies and a reduction in the public wage bill – he replied: “I will not hear diktats.”

Yasmine Ghozzi, a senior economist at S&P Global Market Intelligence, said: “Saied has neither publicly embraced an IMF deal nor committed to signing one if it is approved, raising concerns that he may stall reforms after the money arrives or blame them for any resulting economic pain.” 

The government’s 2023 budget “assumes an IMF programme in place”, as part of $4.8 billion in funding from external sources, Ghozzi added.

“This is more than 9 percent of GDP, which is a considerable amount compared with what it was able to tap externally in recent years,” she said.

When asked what the alternative was to the IMF loan, the president reportedly said: “Tunisians must count on themselves.”

According to the 2023 budget, Tunisia intends to reduce subsidy expenditure by 26 percent to 8.8 billion dinars ($2.9 billion).

But the government has yet to raise fuel prices this year, apparently to avoid public anger as inflation reaches 10.3 percent, the highest level in four decades.

The country has more than $2 billion of foreign exchange debt repayments due in the fourth quarter of this year and the first quarter of 2024.

“The currency looks overvalued and we think it needs to weaken at least 30 percent against the euro by the end of next year, which policymakers seem reluctant to do and could build up to a more disorderly adjustment,” said Swanston.

After anti-government protests broke out in 2021, Saied suspended parliament and moved to rule by decree – measures he said were necessary to end years of chaos. He has blamed Tunisia’s economic problems on corruption and rejected what he sees as foreign interference.

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