Tunisia faces economic collapse as IMF loan stalled

TUNIS—Senior European and U.S. officials are saying that Tunisia urgently needs an agreement with the International Monetary Fund (IMF) to avoid a possible economic collapse. While experts deny the possibility of collapse due to the existence of alternative solutions and are waiting for an imminent agreement with the IMF, others do not rule out its rejection of the Tunisian file.

For his part, US Secretary of State Antony Blinken warned – last Wednesday – of the Tunisian economy heading towards the unknown, linking this to its urgent need to reach an agreement with the IMF to obtain a loan of $ 1.9 billion in installments over 4 years, according to a preliminary agreement that has not been implemented so far.

The US official's statement comes after the European Union's foreign policy chief warned at a meeting of EU foreign ministers in Brussels on Monday that Tunisia is heading towards a collapse that threatens the flow of migrants to the European Union, ruling out its assistance if it does not sign an agreement with the IMF.

But Tunisia is not alone in its negotiations with the International Monetary Fund, as French President Emmanuel Macron and Italian Prime Minister Giorgia Meloni call for the need to support Tunisia, amid the difficult economic and financial conditions it faces and the escalation of irregular migration towards it.

Major exaggeration

On the possibility of Tunisia's economy collapsing if it does not sign an agreement with the IMF, former Trade Minister and expert Mohsen Hassan commented on frequent statements that there is a "major exaggeration" in describing Tunisia's financial situation, acknowledging the difficulty and faltering of the Tunisian situation, but "not to the point of reaching the stage of collapse."

He tells Al Jazeera Net that Tunisia is suffering from the continued repercussions of Corona, inflationary pressures produced by the Ukrainian war, slowing growth, declining exports to Europe, rising prices of agricultural materials due to drought, high fuel prices due to energy deficit, declining production, and high unemployment and poverty.

All these difficulties generate great pressure on the balance of payments and put more pressure on Tunisia's need to borrow, but despite this, the troubled situation is no different from the conditions of several European countries, according to the former trade minister, ruling out the possibility of its collapse even if it does not receive a loan from the International Monetary Fund.

Hassan asserts that donor institutions, including the IMF, "humiliate" countries facing financial difficulties and rely on a policy of "double standards" by granting loans based on political commitments, referring to the IMF's approval of a $15.6 billion loan to Ukraine.

On the other hand, he is waiting for an agreement with the International Monetary Fund in light of the pressure exerted by some European countries - especially France and Italy - to avoid an influx of migrants, stressing also that Tunisia has submitted to the IMF a file that completed the technical conditions required in terms of the economic reform program.

If Tunisia does not receive the loan from the IMF, Hassan admits that the situation will be delicate, in which the state will be forced to resort to more internal borrowing and cutting development projects, and will face difficulty in financing its purchases of basic materials, medicines and fuel, and ensuring that its foreign debt is repaid in currency.

Alternative solutions

Former trade minister and expert Mohsen Hassan said Tunisia's economic resilience is not linked to a mere agreement with the IMF because it has other alternative solutions, including increasing phosphate exports, issuing a currency loan (national subscription) to Tunisians living abroad, developing tourist incomes, or rehabilitating the agricultural sector to achieve food security, among others.

Even in the event of an agreement with the IMF, Hassan stressed that the $1.9 billion loan will be granted in several installments over four years, and will not meet the requirements of the state, but will open the door for Tunisia to borrow externally and conclude bilateral and multilateral agreements with other donor institutions.

Economist Ezzedine Saidane said that Tunisia's economic difficulties do not mean that it is collapsed, considering that reforming economic and financial conditions is still possible if there is political will, but it will be costly because the reform process has slowed down since 2011 due to the excessive focus on politics.

Hard borrowing

Amid the absence of an agreement with the IMF and the lack of consideration of the Tunisia file this month and the decline in its stock of hard currency, Saidan sees – in his interview with Al Jazeera Net – that Tunisia is experiencing stifling financial difficulties, stressing that the downgrade of Tunisia's sovereign rating for the tenth time and its lowest level since 2011 makes it unable to borrow from abroad.

On why the IMF did not agree to lend to Tunisia despite a preliminary agreement on October 15, Saidane said that the IMF is considered a lender of last resort for countries, explaining that there is a credibility problem with the current authority about its ability to actually carry out the necessary reforms in economic and financial terms.

Saidane said that the IMF rejected the Tunisian file due to the government's inability to mobilize the necessary financial resources to finance the 2023 budget and finance the economic reform program, the failure to issue the law on the government of public institutions, and the president's failure to sign the finance law for the year 2023 before last November.

Caution Policy

According to him, the IMF does not finance the economic reform program alone, but rather requires the state to mobilize additional financial resources to cover the expenses of the 2023 budget and finance reform programs to ensure that they can carry them out.

In 2013 and 2016, Tunisia reached a loan agreement with the International Monetary Fund (IMF) in exchange for the pledge of successive governments to implement a reform program, but these reforms were not completed, which led the IMF to punish Tunisia by depriving it of some of the installments of those loans, according to the expert.

"The IMF is trying to make sure that this loan will enable Tunisia to emerge from the crisis, and if this is not guaranteed, what is the use of it?"

Tunisia's failure to receive an IMF loan will negatively affect its ability to obtain foreign loans this year with a total value of about $5 billion.

The IMF loan represents a lifeline for Tunisia to avoid scenarios of defaulting on the supply of basic materials or paying its debts normally, and thus going to the Paris Club to reschedule its debts, according to Saidane, who stresses the need for urgent reforms to face difficult economic and financial conditions.

He explained that the measures to achieve balance in the current year's budget - according to the directions of the current government - are to reduce growth to 1.6%, obtain an agreement with the IMF, increase tax resources, approve a periodic increase in the prices of petroleum products, electricity and gas according to the development of international prices, and reduce subsidy expenses for basic commodities.

These measures are part of what the government called the "National Program for Reforms" in order to contain the financial and economic crisis, but the Tunisian General Labor Union (the largest labor organization) rejects these measures, because the repercussions of reducing government subsidies or missing out on public institutions will be dire for Tunisians and the economy, according to him.