For all the praise of Tunisia’s progress relative to other Arab countries that saw popular uprisings in 2011, it faces its own set of challenges. The economy has become as much a priority for policymakers as the security sector. Unemployment remains high, growth remains low, and some food and housing prices have increased, sharply impacting the lives of ordinary Tunisians. Meanwhile, government spending on public wages has increased while spending on development and industry has decreased.
The proposed solution has been a series of economic reforms, some of which have been crafted in coordination with Tunisia’s international partners in return for fiscal support. These reforms include a new law on the independence of Tunisia’s central bank, passed in April. This occurred in parallel to the embedding of a U.S. technical team in the Central Bank of Tunisia (CBT) and close supervision by International Monetary Fund technical teams. It also included a new investment code passed in September and a proposed 2017 budget that offers some austerity measures.
In the best light, these reforms will enhance Tunisia’s attractiveness to private-sector investors, which might increase investment in development projects that could bring capital and jobs to Tunisia. In the worst light, they will break the old economic model without guaranteeing a new alternative, something that could exacerbate existing social inequalities and political tensions.
Public employment rolls have grown since the 2011 uprising, both because the state reinstated employees who were fired for perceived political reasons under the previous regime and to pacify unrest over unemployment, marginalization, and poverty through public-sector hiring. This has contributed to the state’s role as employer of last resort. The burden this places on the state, and specifically the state budget, is clear: public-sector salaries in 2016 were projected to cost roughly TND 13 billion ($5.8 billion) annually, or about 45 percent of the annual budget (another 18 percent of the budget was projected to go to servicing public debt).
However, this role presents more than just a fiscal challenge. A bloated public sector can exacerbate tensions between citizens and the state. Blanket legal protections for state employees make it difficult to fire workers, while worker mobility and the concept of meritocracy are damaged by a rigid state system. When there are limited financial incentives for state employees to serve citizens, it seems logical that this could also hinder the Tunisian state’s capacity to transform itself into one that truly serves its citizens. These factors can make a turn towards a more broadly liberal model with some elements of austerity seem like an appealing policy solution.
But this solution misses the key reason for the state’s role as employer, namely that there are few alternative sources of employment in the private sector, especially for young people in the interior of the country. Seasonal tourism work has suffered and manufacturing jobs have emigrated as a result of security concerns. Industry also faces the additional challenge of sit-ins and labor unrest. While international partnerships with Tunisia through specific cooperation mechanisms looking at security and economics are being sought to resolve these issues, they have thus far been unable to remove a more fundamental blockage to boosting private-sector employment, namely barriers to small and medium enterprises (SMEs).
Those barriers include corruption, lack of access to credit, administrative red tape, unequal police scrutiny, and the intersection of these barriers through the continued employment of the state’s fiscal, legal, and policing tools by big businesses in order to protect themselves from competition. As a result of what amounts to the state’s discrimination against SMEs, a vast proportion of them have turned to the informal sector. While economist Hernando de Soto and the major Tunisian employers’ union UTICA have identified the root of the problem in terms of small businesses lacking access to legal recognition, this argument does not go far enough and does not account for the political causes. De Soto and UTICA’s proposed technical solutions to resolve the deficit of universal “access to legality” ignore existing power imbalances that have shaped the role of the state in a way that reinforces these very imbalances.
Without resolving this issue, it’s difficult to see how a liberal reform agenda aimed at decreasing the state’s role in the economy can succeed. Essentially, the role of the state in providing employment or social benefits is set to decrease, while at the same time there is little movement in parallel to decrease the state’s role in propping up big business and keeping small players out. Whereas statist economic policy in the form of public employment is on the chopping block, statist economic policy via banking policies, the tax regime, the customs regime, and selective policing that benefits established big businesses is left for a later date. This essentially amounts to uneven and unequal “destatification.” It is with this trend in mind that some of the reforms Tunisia has already made could create additional problems.
The new investment code, for example, includes components that ignore or reinforce the problem of a state that can allegedly no longer provide for some of its citizens, but will nevertheless continue to provide for the well-connected. According to an unofficial draft of the as yet unpublished code, Title 3 appears to facilitate capital flows out of Tunisia at a time when the country’s foreign exchange reserves are extremely low—equal to less than four months of imports. This should not necessarily be a problem if the law also facilitates more capital flows into Tunisia, or if there is a law regulating capital flight. However, these are questions left to administrative discretion rather than legal rules, according to an analyst at a non-governmental economic policy institute. Under Title 4, a new High Investment Body will be under the authority of the head of government, which some Tunisians have criticized as being a potential source of conflicts of interest.
But it’s not only Tunisian capital that will profit from this redefinition of the Tunisian state. Multinationals also look set to gain. Title 6 of the investment code guarantees international investor arbitration in settlement disputes. Apart from the well-documented issues with national sovereignty that this represents, Tunisian educational establishments lack well-resourced international corporate law programs, while hiring legal representation abroad in international disputes is costly.
As for the central bank independence law, the new legislation limits the CBT’s role to price and financial stability at a time when Tunisia is experiencing massive youth unemployment—as high as 31 percent, and even higher for those in marginalized areas. In contrast, the U.S. Federal Reserve has macroeconomic performance as part of its mission and “maximum employment” as one of its strategic goals, policies that other central banks also employ. If the CBT is legally constrained in its ability to loan to the Tunisian government while the state is borrowing heavily from abroad, this raises questions about Tunisia’s long-term ability to craft and implement its own economic policy in a way that ensures sustainability and resilience while addressing the specific needs of the country.
In the short term, the current reform program and the proposed 2017 budget risk exacerbating social and political tensions. Tunisia’s major labor union, the UGTT, recently launched a campaign against freezing public-sector wages. UGTT elections for a new secretary general scheduled for early next year are forcing candidates to take strong positions. And the UGTT is playing the role of de facto opposition given that the formal opposition has a low proportion of seats in parliament.
Meanwhile others who are seemingly left out of the current reform program but who suffer from the economic crisis most acutely will continue to present a risk to the overall stability of Tunisia’s political system. Less than a year ago protests spread across the country after a young unemployed man in Kasserine killed himself while protesting against corruption and nepotism that directly affected his ability to get a public-sector job. The reason why the unrest didn’t devolve into a more serious challenge to the political order is that there was a measured security response and the announcement of populist economic measures.
While this kind of short-term policy-making can present its own problems, the threat of renewed unrest is a reminder that if reform is to be effective and broadly welcomed, it must be fair. If there really is a consensus to shift Tunisia away from a statist economy, policymakers—including the country’s creditors—ought to keep in mind that this shift’s negative effects may fall unevenly. At a time when Tunisia’s political system appears fragile, this could have broader consequences.
