Costly squabbles: The solution to Tunisia’s economic problems lies in political consensus

This post was written by Niveen Wahish (ERF Communications Officer)

In three years of transition, the Tunisian economy has suffered tremendously, mainly because of the political situation. This message was at the heart of a policy seminar, organized by the Economic Research Forum (ERF), on “The Performance of the Tunisian economy in light of the ongoing political transformations”.

Moez Labidi (University of Monastir)

Moez Labidi (University of Monastir)

According to Moez Labidi (University of Monastir), Tunisia’s growth rate has dropped to around 2.5-3 per cent in 2013 compared to 5.6 per cent in 2010. In his presentation titled “Tunisia’s Macroeconomics; waiting for political stability and structural reforms,” Labidi listed the number of problems faced by the Tunisian economy during the transition and since the revolution in early 2011. To start out, the pressure on the local currency prompted the Central Bank to use the foreign reserves in order to stabilize the exchange rate. Reserves today are sufficient for only 103 days of imports compared to 2010 when they were sufficient for 147 days of imports. Unemployment is at 15.9 per cent; and this figure doubles among university graduates. Over and above, Labidi highlighted the fact that policy makers were being faced with social challenges, which involved an urgent need for jobs and investment, and the high expectations of Tunisians; while in reality the government had limited resources. The government sought refuge in easy solutions that caused deterioration in fiscal balances. As a matter of example, massive spending on wage increases, public sector hiring and bailing out the businesses after the revolution are factors, among others, that led to a major growth of public expenditures in 2013. On the other hand, poor governance in the democratic transition process resulted in what Labidi called “distrust shock”, which affected negatively the structural reform agenda. He acknowledged that while the transition governments succeeded in avoiding a credit crunch, they failed in creating what he called a “confidence shock”. The latter would have urgently allowed for reforms, thus creating more flexibility for public finances and positive consequences on the structural reform agenda, and accordingly the investment agenda.

In short, Labidi stressed on the need for a long-term vision for Tunisia’s economic problem; so far all the solutions have been short-term.

Check out Labidi’s presentation

Sonia Naccache (University of Tunis)

Sonia Naccache (University of Tunis)

Sonia Naccache (University of Tunis) reiterated a similar view. During her presentation on “Structural reforms in Tunisia: an agenda in waiting”, Nakkash described how the political squabbling affected the decision making process in Tunisia. She lamented that in the three years that followed the uprising, Tunisia has had two transitions: the first was from January 2011 to October 2011; the second began in October 2011 to-date. There have been five governments during the two periods. Yet, none of these have managed to come up with a vision for what needs to be done in Tunisia, according to Sonia. The same trend continues today, with the leading party focusing on power control instead of reforms. Furthermore, none of the other players, be it opposition parties or unions, are capable of presenting a vision either. Most parties are newly created, and lack experience in offering solutions. For their part, unions had always been marginalized in the past, and therefore, did not develop the capacity enabling them to come up with a clear and constructive vision. Sonia sums up the current situation in the fact that it is the political agenda that dictates the status quo.

Check out Naccache’s presentation

With the above-mentioned factors in mind, Antonio Nucifora (World Bank, Tunis Office) stressed that the lack of political consensus is at the heart of the economic problem, and it will continue to prevent change. He pointed out that a similar situation had occurred in Latin America; they squabbled until the economic situation deteriorated drastically. This is when they decided to negotiate, but there was not much to save. In addition to the lack of vision, the lack of trust appears across the political spectrum.

To end on a positive note, Mongi Boughzalah (University of Tunis El Manar) hoped Tunis would move to a successful transition and produce a coherent coalition that would give greater attention to neglected issues such as security and economic recovery.

Mustapha Nabli (Former Governor of Central Bank, Tunisia)

Mustapha Nabli (Former Governor of Central Bank, Tunisia)

Watch our interview with Mustapha Nabli, Former Governor of the Central Bank of Tunisia; sharing with us the key highlights of the policy seminar. The session aimed at providing a better understanding of how the political landscape and coalitions constrain policies and reforms, or open opportunities for new reforms. According to Nabli, this is a major area of research that can be undertaken by ERF.

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