EU offers Tunisia $1bn loan – if it accepts IMF reforms

Tunisian Presidency via Reuters

• Money contingent on adoption of bailout plan, says von der Leyen
• European Commission president visited Tunis with Dutch, Italian PMs
• Tunisia’s President Kais Saied hits out at ‘diktats’ from funders

The European Union has offered Tunisia a €1 billion ($1.07 billion) loan to prop up its economy and tighten border controls.

Under the proposal, Tunis must agree to sweeping economic reforms, said European Commission president Ursula von der Leyen.

The International Monetary Fund agreed a $1.9 billion bailout for Tunisia last September, but it has yet to be signed off. Since then, major donors have been trying to persuade President Kais Saied to accept the IMF’s terms.

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These include cuts to food and energy subsidies and a reduction in the public wage bill. Asked in April whether he would accept the conditions, Saied said: “I will not hear diktats.”

Von der Leyen – who visited Tunisia on Sunday with the prime ministers of the Netherlands and Italy, Mark Rutte and Giorgia Meloni – said the EU assistance was contingent on the “necessary agreement” being reached.

“We are ready to mobilise up to €900 million for this purpose. And as an immediate step, we could provide an additional €150 million in budget support,” added the commission president.

After the meeting, Tunisian state media cited Saied as saying he had “confirmed” to the European leaders that “solutions cannot be in the form of diktats and the IMF should review its prescriptions”, Reuters reported.

Von der Leyen also said the EU would provide €100 million for border management, search and rescue, anti-smuggling and return.

“We both have an interest in breaking the cynical business model of smuggler. It is horrible to see how they deliberately risk human lives for profit,” she said.

She pointed to other European projects that are already helping the Tunisian economy.

The EU and European Investment Bank are investing €150 million in the Medusa fibre-optic cable project, which will connect 11 countries around the Mediterranean with high-speed broadband.

Another €300 million is being spent by the EU on an undersea electricity cable linking Tunisia to Italy.

Von der Leyen also announced plans to support student exchanges for young Tunisians under the Erasmus+ programme.

“We will establish ‘talent partnerships’ to give Tunisia’s youth opportunities to study, work or train in the EU. They will develop new skills useful for modernising Tunisia’s economy,” she said.

Fitch Ratings has downgraded Tunisia’s long-term foreign-currency issuer default rating to CCC-. This reflects uncertainty around its ability to mobilise sufficient funding to meet its large financing requirements.

It said in the absence of an IMF agreement, about $2.5 billion of external financing could be attainable in 2023, but the government’s financing plan relies on more than $5 billion of external financing.

The World Bank has forecast that Tunisia’s economy will grow by around 2.3 percent this year.

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