Summary:

This week, multiple economic indicators pointed to the challenging state of the Tunisian economy as large-scale European Union (EU) assistance remains contingent upon the finalization of a loan and reform deal with the International Monetary Fund (IMF).

A report from the Association de Lutte contre l’Économie de Rente en Tunisie (ALERT) discussed the rapid rise in profits for Tunisian domestic banks in the post-revolution period, noting that profits from Tunisian banks have risen by nearly 60% in the last decade. ALERT highlighted the potential risks hidden in these profits which have largely come from providing high-interest, long-term loans to the Tunisian state.

According to external rating agencies, the creditworthiness of the Tunisian state continues to fall and sits at the precipice of large-scale default, creating significant risk with the highly intertwined Tunisian financial system. ALERT advocates against a “rentier economy” in Tunisia which is described generally as having small groups of institutions or individuals profiting from controlling access to resources.

Inflation data for June 2023 was also released, including a second month of declining inflation. The inflation rate dropped from 9.6% in May to 9.3% in June, which is attributed to more slowly rising prices.

Remittances also reportedly rose by 5.5% in the first half of 2023 as compared to the first half of 2022. A rise in remittances often correlates with an economic depression in the receiving country as expatriate citizens leverage higher earning potential to support families and social networks in their home countries.

Meanwhile, progress toward an IMF deal has been hard to measure, with few public announcements following a flurry of diplomatic visits and promises of assistance throughout June. Tunisian officials have indicated that a revised set of reforms could be submitted to the IMF for consideration in order to secure a loan deal, however, no official progress on this effort has been announced.

Outlook:  

Tunisia’s economic situation remains precarious, particularly as delays in finalizing loans and reform plans continue.

Without the $1.9 billion loan from the IMF, the 2023 budget has a massive shortfall due to the budget having assumed receipt of the loan in early 2023.

As Tunisia enters the second half of 2023, economic pressure is likely to continue to build along with the political and security challenges related to the irregular migration crisis that has come to a head in early June.

Shortages are likely to continue as the government struggles to purchase the highly subsidized goods that typically fill store shelves which will only build frustration amongst Tunisia’s working class.

Our team is continuing to watch how economic pressures are impacting the broader risk environment as delays in loan negotiations and assistance continue into the summer.

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