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There is a growing concern about the plight of Tunisia which refuses to fall in line with the idea of availing of the IMF loan sanctioned to tide over its immediate financial crisis
There is a growing concern about the plight of Tunisia which refuses to fall in line with the idea of availing the IMF loan sanctioned to tide over its immediate financial crisis. The bond yield in the Northern African country has risen to 27.9%, a negative indication of its financial strength making borrowing possible only at a higher rate of interest. The continuous downgrades by credit rating agencies are another malady the country is facing.
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Despite these negative developments, the country’s president, Kais Saied, has rejected the IMF bailout on the grounds of growing domestic inequality and social tension. Tunisia’s public debt level remained relatively low in the early part of 2000– its average debt/ GDP ratio was 48% per year by 2002 and decreased to 39% in 2010 thanks to prudent debt management policy with the establishment of domestic government fixed-income instruments, and commitment to fiscal sustainability under its Five-Year Development Plan.
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However, the 2008 global financial crisis, the Arab Spring, and the terrorist attacks combined subsequently widened the trade-dependent country’s fiscal deficit from 0.6% of GDP in 2010 to 6% of GDP in 2017, thus weakening Tunisia’s debt repayment ability. Tunisia’s average debt-to-GDP ratio was 70.1% from 2015 to 2019 – just breaching the IMF debt threshold of 70%-to-GDP under the Debt Sustainability Analysis (DSA) for emerging markets in market-access countries. As of 2022, Tunisia’s public debt was estimated at 90% of its GDP. This was mostly on account of the huge expenditure incurred by the country for addressing the COVID-19 pandemic, which was followed by food grain disruptions caused by the Russia-Ukraine war.
