Bloomberg: Food crisis, debt and politics create a volatile mix

Across North Africa, bakeries provide subsidized daily food and public barometers, according to Bloomberg.

So when Tunisian President Kais Saied tried to deal with reports that basic food items, such as flour, had dwindled as Russia’s war in Ukraine deepened his country’s economic crisis, a seemingly well-stocked Tunisian baker used to to shop, was a useful backdrop.

Or so he thought. As the owner of the bakery last month gently insisted that the shortages were real, a non-smiling Said dressed in a gloomy black coat was forced to instead attack the speculators who “starve the people” by raising prices. After accusing political opponents of inciting shortages, the former law professor left with four loaves of bread and an ear full of criticism from those present.

The war in Ukraine is accelerating Tunisia’s recession as energy and commodity prices skyrocket and commodity supplies shrink globally. Inflation is hovering near record highs and the deficit is set to double, with 40% of young people under 25 unemployed, threatening a new exodus of migrants from the Mediterranean to Europe. The crucial thing is that talks with the International Monetary Fund on a rescue package have stalled.

Two weeks after the visit, Saeed dissolved parliament after lawmakers met in defiance of a July 2021 order suspending the assembly, an act dubbed a coup by his opponents, including the Islamist Ennahda party.

Nearly a year after derailing a fragile democracy dating back to the first Arab Spring bombardment and seizing executive power, Saeed appears to be stuck. Critics say he is reluctant or unable to rebuild the political consensus needed to pull the economy out of the quagmire.

Patience is running out. “We just want to live,” said Bahaa, a 28-year-old clothing salesman in the troubled Ettadhamoun district of the capital. He gave only his small name to a country where the suppression of dissent has increased. “If the situation continues, young people will go to the presidential palace with stones to fly.”

In January, the police had used tear gas and water cannons to dissolve hundreds of protesters in the capital that demonstrated on the occasion of the Arab Spring rebellion in the country and demanded by Said to revoke the occupation of power. Since then, economic conditions have deteriorated further. Taxi drivers have protested against rising fuel prices, public sector workers have seen delays in paying their salaries and bread queues have risen as supply has been reduced.

Saied, 64, resisted the problem. He has avoided potential allies within the powerful UGTT union and minority parties. Instead, he promotes his “decentralization” agenda, which seeks to oust divisive political groups he accuses of destroying Tunisia after the 2011 revolution and put power in the hands of local committees.

Numerous attempts to discuss the issues raised in the article with officials from the presidency, the government and the central bank have been fruitless. UGTT officials declined to comment.

Investors are not happy either. They have punished Tunisian bonds, worrying that soaring food and energy costs and the loss of Russian tourists could accelerate the state issuer with cash to bankruptcy. Tunisia’s economy is now less than 90% of its size before the uprising a decade ago, and its public debt-to-GDP ratio has almost doubled to about 88%, with the IMF predicting it will reach 99.7% in 2025.

Higher commodity prices for decades are consuming foreign exchange reserves, which are now enough to cover four-month imports. They are low enough to cause some concern to investors about the viability of Tunisia’s external debt.

Delay in IMF talks

Inside the country, the climate is so bleak that “there is no guarantee that Tunisians will accept the reforms brought about by a new IMF program,” said Youssef Sherif of the Columbia Global Centers research initiative. “The fact that there are talks on its own is a sign that Said wants a new program,” he said. “But if the reforms are rejected, he will blame his government.”

The jump in import costs means the budget deficit could almost double to 20 billion dinars ($ 6.6 billion) this year, surpassing the $ 4 billion the authorities say they will ask the IMF. An agreement of this size already looks ambitious, given Tunisia’s withdrawal quota from the lender, which shows that the government can ask for help under the IMF’s emergency access framework, which is likely to lead to even stricter conditions.

A Western diplomat familiar with the talks between Tunisian officials and the G-7 countries said Saeed seemed to believe he could fix the country on his own, describing him as a person who does not trust others. The diplomat acknowledged that officials were working “with all their might” for a new IMF program, but said he was wary of dealing with painful issues, such as the UGTT’s heavily indebted and inflated state-owned enterprises.

“The UGTT will play a key role in how things turn out for Saied,” said Hichem El-Ajbouni, one of the lawmakers seeking to restore parliamentary powers. Reform of state-owned companies “is necessary but difficult”.

Tunisia rules out debt review in any deal with IMF, investor says

According to a person familiar with the process, the financial damage caused by the war delayed technical talks with the IMF by about a month, as Tunisian officials try to finalize the measures they will pledge to take.

But authorities, who set April as the target date for an agreement, have also not yet given assurances that they can gain a broad internal consensus on the necessary reforms, said the person, who asked not to be named.

There does not appear to be a risk of bankruptcy, as most of Tunisia’s debt is medium to long-term, but he acknowledged that success is not guaranteed. If the negotiations approach the parliamentary elections that Said plans to hold in December – if a new constitution can be passed beforehand – there will be further delays.

This is likely to test Tunisian loyalty. As he hung a poster of the president promising lower prices to buyers, he thought “things were not going well”, especially after further price increases due to the war. “This is the most difficult Ramadan for the Tunisians.”