Tunisia: Experts Fear Political Instability is Damaging Economy

by Adel Al-Nouqti

With a massive drop in the value of the dinar and rising inflation and debt-to-GDP ratio, worries over the effect of political instability are increasing

People waving Tunisian flags gather during a protest to demand the ouster of the Islamist-

dominated government outside the Constituent Assembly headquarters in Tunis. (Reuters Photos.)

Tunis, Asharq Al-Awsat—Economic experts fear that the repercussions of Tunisia’s current political crisis will influence the country’s economy, which has been suffering since the former regime of Zine El-Abidine Ben Ali fell in January 2011. 

While the Tunisian opposition describe the current economic situation as “catastrophic,” the ruling coalition says this is an exaggeration based on political, rather than objective, reasoning. It can be said, however, that there is a consensus regarding the critical situation of the Tunisian economy and that the current political crisis may increase the risks. 

Since July 25 this year—the day opposition figure Mohamed Al-Brahmi was assassinated—Tunisians have been living in a state of political crisis. There are incessant demands from the opposition to dissolve the National Constituent Assembly and remove the government of Ali El-Areed in favour of forming a government of national salvation headed by an independent figure. And there are counter-demands that the ruling coalition led by the Islamist Ennahda movement be allowed to function, always expressed in light of the fact that they won the October 2011 elections.

Latest figures indicate a decline in foreign direct investment (FDI) in Tunisia by 1.3 percent in 2013 over the same period in 2012. There is 6 percent inflation and the national debt is 47 to 48 percent of GDP. The value of the Tunisian dinar has been declining rapidly, and has been at its lowest levels ever since July. 

In a statement this week, the Tunisian Association of Economists issued a warning about the “gravity of the current economic situation in Tunisia” and “the extent to which the country is able to repay its debt.” In their own statement, the Assembly of Expert Tunisian Accountants emphasized that “the economic situation requires urgent action in order to restore the country’s fiscal balance,” indicating that the task may require reconsideration of the 2013 budget. 

Perhaps most dangerous of all is the claim from some parties, especially among the opposition, that the Tunisian government will be unable to pay the salaries of employees in the coming period. 

This prompted the finance minister, Elyes Fakhfakh, to discredit the news. He said the rumors were “baseless” and claimed they are meant to disrupt the work of the government and inflict political pressure. 

Moez Al-Obaidi, a university professor, economist, and former member of the board of the Central Bank of Tunisia, told Asharq Al-Awsat: “The economy is in a bad state. It will remain in this state regardless of the solution that will be influenced by the current political crisis.” 

He added that Tunisians “require great time and effort and for things to return to normal, whether the current government resigns and a government of national salvation is formed or whether the current government is reformed to become a government of national unity.”

With regard to the debt, Obaidi said: “It remains within generally acceptable levels and has not exceeded 50 percent of GDP.” In his view, “The problem lies in the weakness of the growth rate and not in the size of the debt. The growth rate must exceed the interest rate of loans—which has risen significantly due to political instability—by 2 percent.”

Obaidi said that the decline in the Tunisian currency is directly linked to the trade deficit and that “the slight increase in foreign currency reserves in Tunisia is due to loans obtained by the country, and not private economic activity or export.” 

“Talk of declining unemployment rates are not convincing, since public positions are being assigned but the labor market is not in a normal situation,” he added. 

In the long run, it seems that there are two main factors impacting the lack of foreign investment in Tunisia: the political crisis and the actions of social movements, particularly the excessive use of weaponry in popular strikes. In Obaidi’s eyes, “The negative repercussions of the current political situation may spill over from 2013 into 2014.”


Adel Al-Nouqti

Source: http://www.aawsat.net/2013/08/article55313955

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