This comes after the breakdown of talks between Tunisia and the Fund since October 2022, and after an agreement was reached – after months of negotiations – at expert level, while President Saied later announced his rejection. categorical on the question of the reduction of subsidies proposed by the Fund; Fearing that this could cause major social tensions that would harm civil peace in the country.
Tunisia faces great economic challenges, while it is unclear to what extent it can avoid financial collapse and the ability to commit to repaying foreign debt.
While he relies heavily on the conclusion of an agreement with the IMF to face the current challenges.
Does the “alternative proposal” in preparation represent progress in the negotiations between Tunisia and the Fund? What are the main obstacles to this hoped-for breakthrough?
Critical economic and financial situation
Tunisian economist, Ezzedine Saidan, says in exclusive statements to “Economy Sky News Arabia” that the economic and financial situation in Tunisia is very critical and dangerous. Because Tunisia is now clearly threatened with default on its foreign debt, and it is also threatened by the inability to supply the market with basic materials, which are the prerogative of public institutions.
He added: “Providing resources from abroad has now become a very difficult process, while the financial challenges that we see and study in the framework of the State budget for the year 2023 are very important, and we have not found solutions to these challenges. so far. There are also important questions raised and unanswered, including How will Tunisia finance the 2023 budget, and how will it pay debt charges, especially external debt?
According to Saidan, all these challenges may lead Tunisia and the IMF to new negotiations, explaining that the resumption of negotiations clearly means that the initial agreement that Tunisia concluded with the IMF on October 15 has become void, and that all previous data should be reviewed. Because the country’s economic and financial indicators have changed a lot since October 2022 for the worse.
He points to the new rating of Tunisia by Fitch Agency, at the level of “CCC-” with a negative trend, which means that the situation has deteriorated compared to last year.
A few days ago, Fitch Ratings lowered Tunisia’s rating from CCC+ to CCC- due to delays in negotiations to obtain a new loan from the International Monetary Fund. This downgrading of the country’s credit rating “reflects uncertainty about Tunisia’s ability to raise sufficient funds to meet its significant financial needs”, according to the statement from the foundation. “Our main scenario assumes an agreement between Tunisia and the International Monetary Fund by the end of the year, but it is much further than expected, and the risks are still high,” Fitch said. The government’s financing plan relies on more than $5 billion in external financing, the majority of which would be provided by the IMF, meaning it may not be able to provide it in full this year even if an agreement is reached. reached with the fund in the second half of 2023, according to Fitch.
chances of reaching a new agreement
And on Tunisia’s ability to conclude a new preliminary agreement with the International Monetary Fund, the Tunisian economist explains, in his interview with “Economy Sky News Arabia”, that “it is not guaranteed despite all the efforts that the we see from the European Union and the United States. These efforts are trying to get Tunisia to reach a final agreement with the Fund and to initiate reforms, but will Tunisia accept and satisfy the Fund and other donors?
Saeedan concluded his remarks by saying, “I imagine the negotiations will be difficult and bitter, and the question here is: will the negotiations take place with the same team that reached the agreement last October, which does not led to no result or agreement? or the disbursement of the first tranche of the loan, nor has it succeeded in providing additional resources from outside?”, explaining that “a reconsideration of the whole process is necessary now that the previous agreement has become null and void”.
Tunisia is a country burdened by debts of about 80% of its gross domestic product, and the government, which suffers from a liquidity crisis, concluded, at the end of last year, an agreement at the level of the experts with the International Monetary Fund to secure $1.9 billion in funding for 48 months, but political pressure and the government’s inability to push through necessary austerity measures further disrupt the deal final.
The Tunisian Ministry of Economy had forecast a drop in the economic growth rate in 2023 to 1.8%, and it is also seeking to reduce the budget deficit this year to 5.5% of GDP from 7.7% in 2022, thanks to the implementation of an austerity programme. . While the International Monetary Fund has reduced the growth rate of the Tunisian economy to 1.3%, it is expected to increase to 1.9% next year.
The Tunisian economy recorded a growth of 2.4% in 2022 against 4.3% in 2021, the highest growth rate since 2008.
Rejection of Western dictates
On the other hand, the Tunisian analyst Nizar Jlidi indicated, in statements exclusive to the “Sky News Arabia Economy” site, that “Tunisia is gradually moving towards the signing of an agreement according to what it proposes and not according to the dictates of the International Monetary Fund”. .”
He stressed that his country had succeeded, through its active diplomacy, in advancing another approach, dealing as equals and not accepting diktats, noting that Tunisia “is proceeding with a new equation based on three major constants, which are (yes to equality, no to undermined mediation, and yes to national sovereignty). » . He refers to the position of the Tunisian president, with an elected parliament and state institutions, to take such a strong position.
Tunisian President Kais Saied rejects the reform program, which calls for the restructuring of more than 100 debt-ridden Tunisian state-owned companies and the lifting of government subsidies on some basic materials, as “dictates”.
The expert agreement between Tunisia and the IMF included the restructuring of public enterprises, whose total debts in 2021 amounted to 40% of GDP, the fund said.
Al-Jalidi adds: “According to this official position, the Tunisian proposal will receive a European agreement, because of its importance for Europe, and therefore it is not Tunisia that will accept their conditions… It seems that the equation in thinking with the fund has changed, and this is an opportunity for the rest of the world, like Egypt.” and others to change the way the fund is managed. ”
Donors, increasingly concerned about Tunisia’s stability, have pledged to inject large sums of money if the government reaches an agreement with the International Monetary Fund. And the European Union announced on Sunday that it would grant 900 million euros in conditional loans.
Fitch Ratings expected the budget deficit to rise from 6.9% of GDP last year to 5.8% this year and then to 4.5% next year, supported by a fall in the cost of subsidies with the drop in world prices and the stability of the level. of income. He also expects GDP growth to slow to 1.4% in 2023 from 2.4% in 2022.
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