Tunisia still has not repaid a 500-million-dollar loan to Qatar from 2012. And while Qatar has agreed to delay repayment for an additional five years, some analysts see this as a perilous step towards bankruptcy.
According to the Tunisian Ministry of Finance, foreign debts account for 60 percent of the country’s GDP, totalling more than US$ 23 billion, twice the value of Tunisia’s budget.
Tunisia still has not repaid a 500-million-dollar loan to Qatar from 2012. And while Qatar has agreed to delay repayment for an additional five years, some analysts see this as a perilous step towards bankruptcy.
According to the Tunisian Ministry of Finance, foreign debts account for 60 percent of the country’s GDP, totalling more than US$ 23 billion, twice the value of Tunisia’s budget.
Given the increasing indebtedness and declining economic growth, experts expect that the country is likely to slide into a vicious borrowing circle, not for investment or development purposes, but to satisfy consumption and repay foreign debts.
It is very likely, according to many sources that the economic crisis will be further aggravated because Tunisia is required by 2017 (the due date for the 2012 loans) to repay about TND 8 billion (US$ 3.8 billion).
One scenario is that Tunisia may ask lending institutions including IMF, World Bank, African Development Bank (AFDB) and European Investment Bank (EIB)) and other friendly states to reschedule repayment.
Disastrous scenarios
Ezzidin Saidan, an economist, says that Tunisia will face disastrous scenarios in the coming years because of the rising indebtedness and declining economic growth.
Saidan adds that the government will be compelled to ask major lenders to reschedule the debts due to the declining economic growth and downturn of Tunisia’s foreign-exchange reserves, in addition to the depreciation of the Tunisian Dinar against the foreign currencies used in repayment.
This will place Tunisia in an extremely tight situation because the lending institutions are likely to impose very disadvantageous terms and very high interest rates before considering new loans, which will overburden the future generations, according to Saidan.
One example of Tunisia’s succumbing to the lenders’ terms is its failure to get the much-needed first installment of a new IMF credit, because of the government’s failure to implement the IMF requirement to reduce government employees’ salaries.
Saidan believes Tunisia’s indebtedness is likely to worsen due to economic vulnerability and declining growth, which dropped to 1.2 percent in the first half of 2016. “This poor growth is not sufficient to resolve the outstanding problems, like unemployment and economic development,” says Saidan.
Former finance minister Slim Chaker admitted that Tunisia has set a record for indebtedness, and that the state budget for 2017-2018 is due to include a TND 5,800 million (US$ 2,400 million) in debt service.
Factors further augmenting the vulnerability of the Tunisian economy include the lack of investment, disruption of production and the deterioration of agriculture, in addition to the considerable losses in the tourist sector. This situation has negatively affected the country’s hard currency revenues.
Commenting on the government economic policy, Mongi Rahoui, a representative of the opposition leftwing Popular Front in the Parliament said that most Tunisian governments resort to foreign loans to offset their budgets and government employees’ salaries, rather than promoting investment and economic development.
Rahoui added that foreign borrowing “has had a bad impact on the national sovereignty and made the country succumb to external dictates, in addition to inflation, because borrowing goes to consumption rather than for wealth generation.”
Overstated fears
Tunisia’s Central Bank board member Fethi Nouri underestimated the seriousness of the indebtedness problem, saying that the 53 percent level is reasonable and well below the alarming threshold of 60 percent.
Nouri criticized statements by some experts who, he said, misrepresented the facts on the ground. He insisted that Tunisia’s debt ratio remained relatively reasonable compared to other nations where it comes to about 90 percent.
On the other hand, Nouri admitted that financial risks would remain persistent if the debt volume continued to rise and economic growth remained low. This situation is likely to hinder the government ability to repay foreign debt on time, according to Nouri.
Nouri explains that the Tunisian economy is still volatile. He expects that the economic growth level will reach about 1.8 percent by the end of 2016.
This means that Tunisia will face debt repayment problems due to its declining economic growth. This will be seen more clearly next year, where the government will be required to repay foreign lenders between TND 6-7 billion (US$ 3-3.5 billion).
