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Tunisia’s new government faces hard road to rescue package

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TUNIS/LONDON, Oct 13 (Reuters) – Tunisia’s new government stated this week that balancing public funds will likely be a precedence, but it surely and President Kais Saied face a hard road to persuade markets and international donors they’re prepared to hash out a rescue package.

Even earlier than the pandemic Tunisia was struggling to carry its public debt and monetary deficits onto a sustainable trajectory, and has since been hit hard by a lockdown and the collapse in tourism. By the summer time it wanted pressing assist.

Then, talks with the International Monetary Fund (IMF) for a mortgage that would unlock bilateral assist from main donors had been derailed when Saied suspended parliament, sacked the prime minister and took energy in what his opponents known as a coup.

It has taken Saied 11 weeks to appoint a new government underneath Prime Minister Najla Bouden – one important step in direction of restarting IMF talks. But he has not but laid out a plan to restore regular constitutional order as donors demand. learn extra

Donors additionally need Tunisia to set out a sequence of credible financial reforms, probably involving subsidies, the general public sector wage invoice and loss-making state corporations, that might curb the deficit and debt.

“The risk of a sovereign debt restructuring has increased, in our view,” stated Petar Atansov of Gramercy, a widely known distressed debt fund, saying Tunisia’s political issues made it much less probably to ship on reforms wanted for an IMF mortgage.

Market issues are seen in Tunisia’s bond yields – a mirrored image of how a lot the government would have to pay to borrow in worldwide capital markets – which have climbed to practically 16%.

That is greater than double what Pakistan has to pay, although it additionally has a B- credit standing and depends closely on IMF assist, and is way increased than the 9% paid by Ecuador, which has lately defaulted.

“They clearly need to get an IMF programme, rebuild their resources and then tap the market in three years or so,” stated Viktor Szabo at ABRDN in London, which holds Tunisian debt.

REFORMS

Last week Central Bank Governor Marouane Abassi warned that financing the price range internally carried financial dangers together with boosting inflation, decreasing the financial institution’s reserves and weakening the forex.

“When would there be a failure? Nobody has a clear picture of Tunisian finances,” stated a diplomat in Tunis.

Abassi is rising as a central determine in efforts to save the economic system and is making ready proposals to focus on with the IMF, stated the diplomat.

Last week the governor stated Tunisia’s mates stood prepared to assist it. But they might have little assist to supply with out an IMF deal in place.

That would probably require two politically contentious manoeuvres that Tunisia has not but laid out – an inclusive constitutional roadmap and a set of credible financial reforms.

Saied has brushed apart a lot of the 2014 structure and stated he can appoint a committee to amend the doc and put it to a referendum, including he would maintain a dialogue on it with Tunisians.

So far he has proven little inclination to work with Tunisia’s different main political or civil society forces – one thing that would scupper his possibilities of getting donors on board.

Recognising his government to the extent of agreeing mortgage offers with out the inclusive course of they’ve known as for “would be a complex question”, stated the diplomat.

Going it alone would additionally depart Saied with out the broad-based assist he might have from unions or political events whose overtures he has to this point spurned for the type of unpopular reforms that may very well be required for a deal.

His public pronouncements have targeted not on readying Tunisians for a looming monetary disaster and steps which may be wanted to avert it, however on more money he hopes to elevate by tackling corruption.

Successive Tunisian governments have came across the problem of agreeing unpopular reforms after a decade of perceived financial decline. To achieve this now, Saied could have to push apart his apparently unilateral instincts and begin working with others.

Reporting by Angus McDowall and Mark Jones, extra reporting by Tarek Amara; Editing by Alex Richardson

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A demonstrator carries a Tunisian flag as he speaks with police during a protest against Tunisian President Kais Saied's seizure of governing powers, in Tunis, Tunisia, October 10, 2021. REUTERS/Zoubeir Souissi

Tunisia's President Kais Saied speaks during the country's new government swearing-in ceremony, in Tunis, Tunisia October 11, 2021. Tunisian Presidency/Handout via REUTERS

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