Tunisia Faces the Specter of Government Failure

Tunisia is staring down an unprecedented fiscal crisis while a would-be dictator smashes checks and balances.
 
 
 
By Robert Kubinec and Hamza Mighri
 
While many countries anticipate a brighter post-COVID future, Tunisia faces a spike in food and fuel prices caused by the Ukraine conflict combined with political paralysis as opposition parties push back against the authoritarian actions of President Qais Saied. These developments have led to unprecedented shortages in staples like flour and rice, a collapsing currency, and unemployment in the high teens. Furthermore, the country’s bond rating recently fell to CCC, and the Tunisian treasury only expects to fund fifty percent of the items in  the 2022 budget with current tax revenues.

Based on our on-the-ground research into the difficulties underlying Tunisia’s financial troubles, we believe that, by the year’s end, the crisis will force Saied into one of two difficult choices. Either he will dampen his dictatorial ambitions by compromising with the opposition to secure a deal with the International Monetary Fund, or he and the rest of the political elite will stumble into a wrenching political vacuum. Without external funding, Tunisia will see a collapse of middle-class incomes and a loss of basic services like electricity and gas.

While the Ukrainian war is the immediate cause of the spike in food and fuel prices, the trouble brewing in Tunisia has its roots in profound government dysfunction since the country’s Arab Spring in 2011. There have been a few notable achievements, such as Tunisia’s Startup Act, that spurred entrepreneurship by simplifying company creation and access to foreign currency. However, more ambitious overhauls of the powerful bureaucracy never materialized, in part because reforms threatened powerful oligopolies. Tunisia remains a small economy dominated by a handful of family-run conglomerates, such as the Ben Yedders, the Mabrouks, and the Elloumis. Efforts to hold established businesses accountable for crony deals in the dictatorship sputtered and died in 2017 after the largest party in power at the time, the Islamist   Nahda, agreed to kill the effort at the request of its ally, the old guard secularist party, Nidaa Tounes. 

Indeed, Tunisian political figures of the past ten years showed remarkably little change even as free elections unleashed a wave of new political parties. Tunisia’s second president, Beji Caid Essebsi, served under both of Tunisia’s prior dictatorships and ascended to the presidency at the ripe age of eighty-eight. Meanwhile, Rached Ghannouchi, now eighty himself, exercised boss-like power as the leader of the Islamist Nahda even though he did not run for office until 2019. Plenty of younger figures launched themselves into politics after the revolution, but the parliament remained dominated by informal agreements among these established power brokers. According to the parliamentary watchdog Al-Bawsala, laws often could not make it to the floor without the personal agreement of Ghannouchi and Essebsi, or his son Hafedh, resulting in abandoned legislative projects that wasted the limited resources of members of parliament.

Ostensibly, these “sheikhs” saved Tunisian democracy from collapse after a wave of terrorist bombings rocked the country in 2015. The Nobel Committee even awarded the Peace Prize to a quartet of establishment Tunisian organizations for negotiating a “national unity government.” However, this miraculous act, which involved negotiations among the same set of political elites, culminated in a do-nothing parliament. The most common bill approved by the legislature from 2014 to 2018, according to our research, merely authorized aid projects funded by international development banks.

Tunisia’s change-resistant institutions are the real cause of food shortages in the country. The Office of Cereals, an agency dating back to the 19th century, maintains a monopoly on the sale and purchase of both domestic and foreign wheat. This inefficient system disadvantages farmers in favor of low bread prices for urban consumers. Unsurprisingly, Tunisian farmers prefer to grow less wheat, leading to the country’s reliance on wheat imports. Because the Office of Cereals has to purchase foreign wheat on the country’s behalf, its lack of funds—it apparently owes hundreds of millions of dollars to domestic and external farmers, according to our interviews—means that flour has simply disappeared from Tunisian grocery stores.

Out of this morass, President Saied staged a coup in July 2021, ordering a dissolution  of the disappointing parliament. Since then, further autocratic actions, including replacing members of the elections commission and the highest judiciary body, have revealed Saied’s clear desire to build a new dictatorship out of a flatlining democracy. However, Saied prefers grandiose ambitions to build a new electoral system over the kind of deal-making necessary to  patch up the country’s desperate shortfall in revenue. According to our interviews, the IMF will require that the Saied government commit to years of costly reforms, including cutting public sector jobs. In the context of his ongoing feud with the opposition, Saied’s position is too uncertain to make such credible promises. The president has reached out to Abu Dhabi, presumably in an appeal for Gulf funding, but given his own weak position and the Gulf’s retrenchment from adventurous foreign policy, he will likely be forced to rely on the IMF as a lender of last resort.

Based on our recent interviews in the country, it is clear that there is substantial uncertainty over just how bad the financial situation is. Western experts we spoke to said that they saw the crisis as serious, but not yet a full collapse because the country’s international debt payments are not due until next year. However, many of the Tunisians we spoke to warned that the country was on the brink of experiencing widespread disruption of basic government services. 

A former minister told us that the government’s debts are likely understated because they do not include hundreds of millions of USD in arrears owed to domestic contractors and inter-agency contracts. Regardless of which assessment is closer to the truth, everyone we spoke to agreed that a deal for foreign funding is necessary by the end of the year to avert a “Lebanon situation”— complete government fiscal collapse.

Assuming the Gulf stays out and Tunisia must engage with an IMF deal, the international community should focus on low-hanging fruit that could ameliorate the business climate without causing widespread economic dislocation. Tunisia’s growing entrepreneurial class needs modern payment systems, including credit cards that work overseas and apps like Paypal, to do business with European customers in IT services and artificial intelligence. The Central Bank, though, has never agreed to these elementary reforms, arguably because their tight controls over currency exchange give Tunisia’s sclerotic banks stability at the price of economic growth.

Similarly, numerous hurdles exist to business expansion, creating legal jeopardy for entrepreneurs, such as the creator of a popular restaurant who the police recently arrested for lacking a permit. The country’s excruciatingly slow customs authority, which often lets shipments sit in port for months until the appropriate bribes are paid, should be wholly replaced with a new administration capable of modern container turnaround times of a week or  less.

Asking for too much from Tunisia could jeopardize the country’s tottering democracy and result in widespread clashes, even violence, as people fight for their livelihoods. But reforms that target the mechanisms by which the elite reproduce their economic power could  help address long-standing inequities and encourage desperately needed growth.

 

 

Robert Kubinec is an assistant professor of political science at New York University Abu Dhabi. Previously he was a postdoctoral fellow with the Niehaus Center for Globalization and Governance at Princeton University. He is the author of a forthcoming book with Cambridge University Press, Making Democracy Safe for Business: Corporate Politics After the Arab Uprisings.

Hamza Mighri is an economist consultant at the World Bank Group's Poverty and Equity Practice focused on the MENA region, and a Fulbright Scholar alumnus at the Maxwell School of Citizenship and Public Affairs at Syracuse University. 

 

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