News / Africa

Tunisia Protests to Test Subsidy Reforms

Street vendors demonstrate against the government, Tunis, March 13, 2013.
Street vendors demonstrate against the government, Tunis, March 13, 2013.
Reuters
Protests and strikes planned in Tunisia over the next few weeks will test the government's ability to repair its shaky finances — and may affect its efforts to secure a $1.78 billion loan from the International Monetary Fund.
 
In contrast to neighboring Egypt, where political unrest has put most economic reforms on hold, Tunisia is pressing ahead with tax rises and cuts to expensive government subsidies that are straining the state budget.
 
Last week authorities raised most fuel prices for the second time in six months, lifting petrol prices at the pump by 6.8 percent. Taxes on alcohol increased this month, and several weeks ago the state-controlled milk price rose.
 
Also this month, the government imposed a levy of 1 percent on salaries above 1,700 dinars ($1,075) per month to help fund remaining subsidies on fuel and food.
 
The steps have met a storm of public criticism. The Tunisian Organization for Consumer Protection, a consumer advocacy group, has called for demonstrations this Friday against the fuel price hike and inflation in general, which could draw thousands of people.
 
Taxi drivers plan a one-day strike on March 18 — their first such mass action in years — which may involve thousands of drivers. Gasoline station owners have called for a three-day strike in April, saying higher fuel prices will encourage the sale of gasoline smuggled from Libya.
 
"After the spread of poverty and unemployment, now the middle class is suffering. We can't support deducting 1 percent of salaries, or the crazy rise of food prices and now fuels," said Salem Ben Naceur, a 35-year-old teacher in Tunis.
 
"We will tell them that the people are very angry and to pay attention to our reaction."
 
Political turmoil
 
The government's determination to go ahead with its economic reforms is striking because it follows some of the worst unrest in Tunisia since the uprising that overthrew president Zine al-Abidine Ben Ali two years ago.
 
The assassination of secular politician Chokri Belaid on Feb. 6 led to three days of sometimes violent street protests and the resignation of Prime Minister Hamadi Jebali. The new prime minister, Ali Larayedh, last week unveiled a coalition cabinet led by the moderate Islamist Ennahda party, saying it would serve only until elections later this year.
 
With such a limited mandate, the government might be expected to back down on the economic reforms, at least partially. But so far it appears determined to see them through, perhaps because it calculates the economic costs of abandoning them would be prohibitive.
 
Late last year the government projected a large budget deficit of 6 percent of gross domestic product in 2013, and the outcome could be worse because of the economic costs of the recent unrest.
 
At the end of last month Moody's Investors Service cut Tunisia's credit rating to junk territory, joining the other two major rating agencies, and the cost of insuring Tunisian debt against a default jumped to a four-year high — exceeding levels seen during the turmoil of the 2011 revolution.
 
The money which the government is saving through its recent steps may go a considerable way to reassuring debt markets that Tunisia can cut its deficit. Finance Minister Elyess Fakhfakh said the fuel price rise would reduce the cost of subsidies in the 2013 budget by 500 million dinars, to 4.2 billion dinars. The price hike for alcohol would bring in nearly 200 million dinars.
 
Economy Minister Ridha Saidi, speaking last week after the appointment of the new cabinet, said the government would take further measures to reduce the budget deficit, such as trying to cut ministries' fuel consumption by 30 percent. But he insisted the fuel price hike would stay.
 
Tunisia's subsidy reform program is needed partly because, at present, subsidies often end up benefiting wealthier people rather than poorer ones, he argued.
 
IMF loan
 
One problem with such arguments is that they come at a time when consumers are frustrated by high inflation. Depreciation of the Tunisian dinar last year helped to boost annual inflation to a 57-month high of 6.0 percent in January 2013, according to official data; the rate fell back only slightly to 5.8 percent in February. Economists say actual inflation, as experienced by many ordinary people, is around 10 percent.
 
Another problem is that the economic reforms have become embroiled with the specter of foreign involvement in Tunisia's affairs. Many Tunisians believe the government hiked fuel prices on the advice of the IMF, as part of an understanding under which the country would receive its $1.78 billion loan.
 
The IMF said in early February that talks were at "an advanced stage" on Tunisia obtaining the precautionary stand-by loan. The money would come in handy; the central bank's foreign reserves fell to 11.38 billion dinars, or the equivalent of 107 days of imports, in late February from 12.58 billion dinars or 119 days at the end of 2012.
 
Saidi insisted that the fuel price hike was not in response to pressure from the IMF: "The increase in fuel was originally programmed in the 2013 budget and was an independent decision, not imposed by any party including the International Monetary Fund."
 
The IMF has not revealed details of its talks with Tunisia.
 
However, it has made no secret of its desire for North African countries in general to strengthen their state finances with subsidy reforms, and many Tunisians see its hand in government policy.
 
"All prices have risen and high fuel prices will have a serious impact on the economy, on the poor and on middle class consumers," Lotfi Khaldi, head of the Tunisian consumer advocacy group, told a news conference last week.
 
"The decision is a response to conditions of the International Monetary Fund."
 
Concern about the public reaction to a deal with the IMF could conceivably cause the government to delay signing an agreement, as has happened in Egypt.
 
Moez Joudi, a private economist who divides his time between Tunis and Paris, said Tunisia needed an IMF deal because it would have trouble borrowing from the markets after downgrades of its credit rating.
 
But he said the government should avoid imprudent steps that would hurt the middle class, who were needed to revitalize the economy. It should look at steps such as cracking down on smuggling and tax evasion, creating a more equitable tax system and making public spending more efficient, he argued.

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