Tunisia’s Jumbled Jasmine Revolt Reset
Tunisian stocks led the MSCI Frontier Index at end-March with a 15 percent jump, as it moved to finalize another IMF program and fresh Eurobond issue despite a “stalled transition” in the view of a Carnegie Endowment project calling for revamped aid and investment partnership. After jobless riots in the capital and rural towns the prime minister responded that the government had “no magic wand” with the state payroll already bloated with 800,000 employees to foster a 5 percent of GDP budget gap. The lack of career prospects pushes youth into cross-border smuggling with Libya and ISIS recruitment in Iraq and Syria, where the country supplies the largest external force. Militants have also attacked tourist sites at home, with revenue accounting for 15 percent of the economy off one-third in 2015. Estimated GDP growth this year is 1.5 percent and February inflation was 3.5 percent. World Bank President Kim visited before the Spring Meetings with a $5 billion 5-year lending proposal for banking and business reform that will also facilitate Libyan refugee absorption. The Fund successor facility will be for almost $3 billion over four years to address current account and fiscal imbalances, and the US and France separately pledged bilateral assistance. Washington doubled its annual package to $135 million, and already backs a venture capital fund and sovereign bonds, with an intensified focus on tracing billions of dollars in hidden assets of the ousted Ben Ali family. The ruling coalition, a combination of Islamic, secular and trade union parties, is at odds over anti-corruption and spending policies, as state company and bank cleanups languish. Privatization has limited political support and recapitalization of government lenders failed to pare the 15 percent bad loan ratio. New tax, investment, bankruptcy and competition laws are stuck in lengthy parliamentary debate, as key phosphate exports suffer from strikes and low global prices. The central bank now maintains the benchmark interest rate above inflation, but continues to drain reserves, covering only four months imports, to defend the currency peg.
The Carnegie paper notes that on its fifth Arab Spring anniversary the “experiment is in jeopardy” with a pattern of promise and disappointment. Official bureaucracy is overweening, infrastructure projects remain blocked, and historic advances in women’s rights may be eroded despite constitutional recognition. At the Deauville G8 summit in Deauville France $25 billion in aid was outlined but less than one-third that sum has materialized with donor budget and recipient capacity constraints. Civil service automation and rationalization is long overdue, and parliament lacks staff and equipment. Better coordination and fast track mechanisms can inject momentum, alongside EU and US free trade agreements. The business and financial communities should further weigh in on the new 5-year economic plan and advocate for customs and foreign exchange law modernization, according to the document. Credit access, especially for small and midsize firms is a paramount issue inviting more private sector banking competition and non-bank stock and bond market development. With a tentative deal between Libyan factions on a unity government, Tunisia can also position as a reconstruction base for next door oil recovery and other operations estimated to cost $10 billion, provided it rebuilds domestic policy concentration and confidence, the survey suggests.
