Tunisia’s Raw Revolutionary Sentiments
Tunisian stocks on the third Arab Spring anniversary ended with a 10 percent MSCI index loss, with heavyweight bank listings particularly battered as the Islamic party-led government disbanded ahead of long-promised full elections in the face of public sector strikes and security scares. The $1.5 billion IMF program, off track for missed subsidy and tax targets, calls for recapitalization and restructuring of the state-owned units with 30 percent of assets literally looted by the previous regime, with Moody’s calculating recovery costs at 5 percent of GDP. A recent 50 basis point rate hike further squeezed liquidity in peril from steady deposit exit, as central bank reserves bolstered by lines from Qatar only cover three months’ imports. The 2013 current account deficit was 8 percent of GDP on weak tourism, light manufacturing and phosphate performance despite the currency’s 10 percent drop against the euro. Economic growth is under 3 percent on inflation double that level and the 2014 budget gap goal of 5 percent of GDP is remote with spending needed to tackle official 15 percent unemployment. A January bid to hike car taxes met with violent protest, and less-developed desert provinces argue that their plight remains ignored by Tunis. The powerful labor union federation continues to agitate for benefit and income increases as it attempts to guide future political direction. The combined pressures spurred additional sovereign ratings agency downgrades from former prime quality, as both the Fund and African Development Bank delayed assistance pending greater policy clarity and discipline. Arab direct and portfolio investors are prodding Gulf countries to offer generous aid as in Egypt, where the stock market and ratings have rallied on initial post-Morsi pledges that restored the end-year reserve position to $17 billion despite $1.5 billion in capital outflows and continued energy import arrears. The pound was off 10 percent against the dollar but has firmed at 7 as the $100,000 at a time limit on cross-border transfers was relaxed. The new constitution referendum is set for late January to be followed by parliamentary and presidential elections as the Muslim Brotherhood’s top members and the ousted President enter military-guided court trials.
The interim administration unveiled two stimulus packages totaling $8.5 billion to boost anemic 2 percent GDP growth despite the double-digit fiscal deficit and public debt near 90 percent of output. Inflation is at a 4-year peak approaching 15 percent as the central bank pauses following a series of rate cuts. The shrinking stock market may still be demoted to the frontier ranks by MSCI even though a recent Reuters survey of dedicated regional fund managers showed half intended to raise exposure. Morocco has already been relegated to that status and the Casablanca exchange was down 7 percent in 2013, but $6 billion in IMF precautionary support and Eurobond access along with a multi-party ruling coalition have thus far positively channeled revolutionary fervor.
