Tunisia in the IMF Snare: Austerity and Privatization

2022-04-04    |   

 Tunisia in the IMF Snare: Austerity and Privatization
Source: Tunisian presidency Facebook account

A leaked document recently published by the organization I WATCH revealed aspects of the negotiation framework that Najla Bouden’s government proposed to the International Monetary Fund (IMF) and international donor institutions. The new government did not break the convention of secret negotiations with the IMF. However, this secrecy was also part of a new political context distinguished by the inclination of President Kais Saied and his government toward centralizing economic decision-making and marginalizing unions, parties, and civil society organizations. Moreover, the social effects of the declared governmental reforms conflict with a presidential discourse that promises happiness and wellbeing and heralds the end of the era of Tunisia being the “good pupil” of the global financial institutions.

On 1 November 2021, Facebook pages supporting the President’s Office published news that the IMF had invited the Tunisian government to resume negotiations. However, a statement issued by the Central Bank of Tunisia during the same period said that the November 4 consultative meeting between the Tunisian authorities and IMF officials occurred after Bouden made a request to the IMF’s directorate. The aforementioned leaked government document was most probably a framework for the agenda of the meeting, which primarily addressed the “economic reforms” proposed by the government, according to the Central Bank’s statement.

Turning to the IMF was a resumption of a series of old discussions. It was also driven by negative official assessments of the Tunisian economy. In its periodic meeting on October 6, the Central Bank’s board described the public finance situation as “delicate” and called for the budget to be funded via efforts to secure as many external resources as possible, develop a new program for IMF negotiations, and dispel the concerns of financial donor institutions and sovereign rating agencies. These official assessments will help create an atmosphere of negotiation more conducive to the donor institutions’ terms even though the President’s Office has frequently suggested that negotiations will occur on equal footing.


Lifting Subsidies and Reducing the Wage Bill

The leaked “Reforms to Overcome the Crisis” program, which encapsulates the current government’s economic vision, says that the wage bill and subsidy system are the main cause of the public finance crisis. To bring this phenomenon under control, the government proposes freezing wages and recruitments, adopting an early retirement program, and directing public servants toward the private sector during the next three years. It thereby expects the wage bill to fall to approximately 14.5% of the GDP in 2025. Additionally, the government proposes gradually lifting the fuel subsidy until the true prices are reached by 2026, increasing electricity and gas charges through “automatic price adjustment”, and revising the essential goods subsidy from 2023 onward after establishing an online platform for dispersing financial compensation to the social groups concerned. The reforms also aim to institute a new policy on public institutions that involves “improving their governance” and disposing of “nonstrategic” ones.

The reform program proposed for overcoming the crisis did not explain the potential effects of these measures on society and the economy. It was content with general financial remarks and hypotheses. Nevertheless, it employed an economic and financial lexicon that matches the recommendations of international donors, particularly the IMF. The governmental program emphasized major goals such as “external openness”, “cleansing the business climate”, “turning toward the private sector”, “anti-corruption and transparency”, “environmental transition”, and tying the Tunisian economy to the new sphere of economic influence in the world. These keywords captured the IMF’s recommendations to Tunisia last year, which called upon it to increase “initiative and competition in the private sector”, “combat climate change and diversify energy supply”, and advance “anti-corruption, good governance, and transparency”.

The official reform program is also in line with the IMF’s October 2021 report on the economic outlook in the Middle East and Central Asia.[1] The report called on the states of the region, including Tunisia, to “rethink the role of the state, foster a dynamic private sector, and enhance social protection”. It suggested “reexamin[ing] the role and efficiency of existing subsidies” and “revaluat[ing] the ultimate objectives of state-owned enterprises”.

The logic of the IMF-supported government reform is based on one main idea, namely that the Tunisian economic crisis is a spending crisis rather than a resource crisis. Hence, policies are being directed toward restructuring and curtailing public spending, especially social spending, in the name of “rethinking the role of the state”. Meanwhile, the resource crisis is being neglected despite acknowledgment of its gravity. The economy is being coerced toward greater reliance on foreign borrowing even though public debt constitutes approximately 85% of the GDP.


The 2020 Finance Law: Easing in the Structural Adjustment Program

The 2022 Public Finance Law oscillated between retaining its classic features related to the subsidy system and wage bill, and laying the foundation for structural economic adjustments in the coming years.

The report on the 2022 Finance Law by the Ministry of Finance explained that wage spending had climbed 6% relative to 2021.[2] This rise seems logical given the new positions and promotions. There were 18,442 new recruitments distributed across several ministries, including education, justice, and interior. However, the report also mentioned instituting new policies to bring the wage bill under control. These policies include: 

“rationalizing wage increases, reviewing the schedule for implementing the 6 February 2021 agreement between the government and the Tunisian General Labour Union [UGTT], not applying Article 38 of Law no. 38 of 2020 on recruiting people suffering long-term unemployment, rationalizing recruitments and limiting them to priority sectors, adopting a new early retirement program, and extending leave for establishing a business”.

As for subsidy spending, the new budget allocated TND7.26 billion [USD2.46 billion] to the fuel subsidy, TND3.77 billion to the essential goods subsidy (versus TND2.2 billion, and TND600 million to the public transport subsidy (versus TND500 million. At the same time, the report included indications that the subsidy policy will be revised during the coming phase. For example, it mentioned “establishing a system of direct support for entitled social groups”, “establishing set, periodic automatic price adjustments for electricity and gas, excepting vulnerable groups”.

The 2020 Finance Law sought to appear as though it preserves the state’s social role by allocating TND963.8 million to advance low-income groups, which will be dispersed in the form of grants and aid. At the same time, it paves the way for the state to continue retreating from structural intervention aimed at strengthening basic systems such as health, education, and transport. For decades, these systems have been witnessing continuous deterioration in their services, infrastructure, and costs.


The Impending Battle with the UGTT

After July 25, the authority began relying on an economic discourse that oscillates between moralization, incitement, and populist sovereignty without grasping the Tunisian economy’s structural issues. At the same time, it wagered on a technocratic government with a “neutral” administrative face and no political depth. This government of experts, fortified with “technical” language, will make pivotal socioeconomic decisions without considering the murmuring among political and organizational elites and without consulting the trade unions, particularly the UGTT.

Governmental Circular no. 20 of 9 December 2021 instructed departments and administrations not to negotiate with unions without consulting the government’s general secretariat. This decision to curtail negotiations will lead to a sociopolitical impasse, especially as the UGTT is raising major objections to unilateral political conduct. The UGTT sees the newly announced reforms – especially the freeze on wage increases – as a threat to its social base and a strike to its unionist legitimacy. Its latest statement, issued on 4 January 2022, reflects this unionist unease, describing the new policies as unilateral, secretive, exclusionary, and ad hoc. The statement called on the government to: 

“…implement the pledges and commitments, including revising the minimum wage, applying the signed sectoral agreements (particularly those included in the 6 February 2021 agreement), opening negotiations over increasing the wages of public service and sector personnel and promulgating the related orders, and ending all forms of precarious employment, such as day laborers, delegated credits, and the forms of contracting in several sectors”.


This article is an edited translation from Arabic.


[1] “Regional Economic Outlook: Middle East and Central Asia”, IMF, October 2021.

[2] Report on the 2020 state budget, Ministry of Finance, December 2021.

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