TUNISIA: Reality check
Tunisia may have won an IMF loan earlier this year, but this comes with conditions that may prove too onerous
The deal between the IMF and Tunisia, reached in June, could have been the start of a new era for the countrys economy. It could provide a cushion against the shocks of a post-revolutionary transition and an incentive to modernize an economy that has long been slowed by cronyism, bureaucracy and opacity. Worth $1.74 billion, the stand-by agreement was the first lending arrangement between the two entities since 1988.
But that was before the July 25 assassination of opposition politician Mohamed Brahmi. Blamed on a religious extremist group, the killing further tarnished Tunisias image abroad and halted progress on the drafting of the countrys constitution as deputies withdrew in protest. The assembly returned to work in mid-September but, some say, the damage was done.
The recent events have worsened somewhat the outlook for the year, as reflected by the fact that the authorities have reduced the growth rate, Giorgia Albertin, the resident senior economist for Tunisia at the IMF, tells Emerging Markets. Now, its a matter of discussing with authorities and further gathering data in order to have a better perspective for the rest of the year.
The Ennahda Islamist party that had ruled the country since the Arab Spring agreed to step down in preparation for elections in the spring. Reforms are crucial, analysts say. Perhaps the area calling for quickest action is the banking sector, which has been crippled by bad loans given out to cronies of ousted president Zine El-Abidine Ben Ali, who kept a firm grip on the countrys financial system. Lenders have been pushing the government to address the issue since just after Tunisias January 2011 revolution.
I remember the first meeting we had after the revolution with the governor of the central bank at the time, Mr Nabli. I said: There will be a tsunami of bad debts; its inevitable; the writings on the wall; what are you going to do about it? says Laurent Gonnet, financial sector specialist at the World Bank for the Mena (Middle East and North Africa) region. Were in the middle of the problem; we havent gotten out of it, he adds.
Attempts at reform are underway. For example, the government, with the assistance of the World Bank and the IMF, is working towards the creation of an asset management company to buy back and rehabilitate some of the non-performing assets in the tourism sector, mostly hotels. However, the countrys public banks remain something of a black box.
While the official number for non-performing loans stands at 13%, a June IMF report placed it higher, at between 17% and 18%, and many analysts think the real figure is even bigger.
The way the accounting is done leads to thinking that the actual figure of bad debts is probably much higher than [the IMFs figure], and I imagine that even the governor of the central bank probably doesnt know the real level, Ezzeddine Saidane, the former general manager of the BIAT, the largest private bank in Tunisia, tells Emerging Markets.
The government has finally begun an audit of the countrys three public banks. But not everyone is confident the audit will give a complete picture of whats going on.
They are going to do the audit but with only eight of the banks subsidiaries included, when these banks have hundreds of them, says Majid Bouden, the former director of the Banque Franco-Tunisienne, itself a de facto subsidiary of the public Société Tunisienne des Banques. How can you audit a group of banks without auditing its subsidiaries? This audit will never reflect the reality of the situation.
Even more difficult to reform in a pre-electoral period will be the countrys public spending policy. Since Tunisias 2011 revolution, successive interim governments have launched waves of hiring and have increased cash transfer programmes. This, combined with a cost of subsidies that has more than tripled, pushed the budget deficit to over 7% and public debt to 45% of gross domestic product.
That debt figure is a significant increase on the pre-revolution level of 37%, and while that number is not dangerous in itself, many analysts are critical that the new money hasnt gone to fuel investment.
The recourse to borrowing hasnt yet hit its limit, but the problem is the use of that borrowing: its been used for current expenditures, says Mohsen Hassen, the former director of the public Banque Nationale de lAgricole and a current professor of finance.
Elyes Fakhfakh, the current minister of finance, tells Emerging Markets that increased spending on salaries was the cost of social peace.
The revolution, one of its objectives was employment. Its the level of unemployment that led in large part to this revolution, and the state should take and did take a large proportion of hiring. And all of that augments the payroll, Fakhfakh says.
But with further disbursement of the IMFs loan contingent upon reforms and negotiations on a $500 million budget support loan from the World Bank stalled since the beginning of the year, it may be time for the government to start making tough changes.