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[Bobby Ghosh] Tunisia’s best hope for economic reform

Eight years after supplying the spark that lit the Arab Spring, Tunisia is again bracing for political upheaval in 2019. Prime Minister Youssef Chahed is openly scrapping with President Beji Caid Essebsi, who has in turn broken his four-year partnership with the powerful Islamist Ennahda party, the single largest party in parliament. As the head of a coalition government, Chahed is under increasing pressure from public-sector unions over salaries, and the sale of state-owned companies. Meanwhile, a new generation of jobless young people is stirring; some, inspired by France’s “yellow vests” protests, seek to create a “red jackets” movement.

None of this bodes well for the Tunisian economy. Chahed needs to build a new national constituency ahead of a likely run for the presidency next year. So he is unlikely to have the stomach for the strong medicine prescribed by the International Monetary Fund in exchange for a staggered $2.9 billion loan. Civil servants, whose salaries make up half of the national budget, and who are a powerful voting bloc, oppose many reforms.

The best hope for any economic discipline may lie with someone far removed from the country’s messy politics: Marouane el-Abassi, the governor of Tunisia’s central bank. Appointed in February, the former World Bank official and economics professor has managed to impose a tight monetary policy. He is also coordinating with other ministries to meet the IMF’s conditions, and is negotiating deals with Algeria and Libya that would allow Tunisia to buy oil in its own currency, easing pressure on its foreign currency reserves. “In a government marked by a lack of economists, and where the economic culture is missing, (Abassi) is sensitizing his colleagues to the gravity of the situation... and convincing them to act energetically,” says Hachemi Alaya, chief economist at the Arab Tunisian Bank.

Abassi has restrained spending by tightening access to credit, and raising the bank’s key interest rate, from 5 percent to 5.75 percent in March, and then to 6.75 percent in June. Since then, he has resisted IMF calls for further rate hikes, and defied dire predictions by holding the inflation rate to 7.5 percent. He has also allowed the dinar to weaken steadily, in line with the IMF’s recommendation. By Tunisian standards, these are significant achievements. “He’s done a very good job of containing things,” says Francis Ghiles, who studies North Africa and the Western Mediterranean at the Barcelona Center for International Affairs. His performance is already attracting comparisons with Abdellatif Jouahri of Morocco, North Africa’s most respected central banker.

Abassi has had several things in his favor. In a year when central bankers from the US to India have come under pressure from populist political masters, Abassi has enjoyed a high degree of independence, thanks to a 2016 law that shields the central bank from the government, and gives it total control over monetary policy. He also benefits from a reputation for personal probity and competence, and a lack of ties to any political party. “(Abassi) has the opportunity to take risks that most politicians wouldn’t take,” says Sarah Yerkes, who researches Tunisia for the Carnegie Endowment for International Peace.

The economy boasts some other bright spots. The IMF prescription has helped reduce the budget deficit, thanks in part to higher (and unpopular) taxes, and gross domestic product growth is expected to be 2.8 percent, up from 2 percent in 2017. Tourism, vital to the economy, seems to have recovered from the shock of the 2015 terrorist attacks.

But 2019 will bring greater challenges. “Between now and the elections, you’re going to see more pressure (on Abassi) from the prime minister,” Yerkes says. The civil servants, who called a nationwide strike in November, are threatening another, and their demands for pay hikes will get progressively more strident. Strikes and an ugly election campaign would dampen the tourism recovery.

Maintaining tight monetary policies in the midst of a rancorous election campaign would be hard enough; Abassi has other pressing problems on hand. The current account deficit is expected to end the year at around 9 percent of GDP; foreign currency reserves, at $4.6 billion, cover less than three months of exports. Servicing Tunisia’s foreign currency debt, at $30 billion, will cost $3 billion in 2019. Unemployment remains stubbornly in excess of 15 percent, much higher than it was immediately before the Arab Spring.

Not all of these problems are the central banker’s to solve, but they will hamper his ability to deal with those that are. So in the middle of what promises to be a tumultuous year for Tunis, keep a close eye on Marouane el-Abassi.

Bobby Ghosh
Bobby Ghosh is a columnist and member of the Bloomberg Opinion editorial board. -- Ed.