Tunisian President Break with Populism and his Intention to Implement Reforms Moez Labidi Interviewed By Imen Gharb Tunisian Press Agency, July 28, 2020 Editor's Note: This opinion editorial article was published on the official website of the Tunisian Press Agency, which indicates that it is pro-president. It's noteworthy that the Speaker of the Tunisian Parliament, Rashid Al-Ghannoushi, described the President sacking of the Prime Minister and the suspension of the Parliament is a coup against the revolution and the constitution.

Tunisians protesting the economic conditions, July 25, 2021	Speaker of the Tunisian Parliament, Rashid El-Ghannoushi, on Twitter: What President Qays Si-'ayyid did is a coup against the revolution and the Constitution. Al-Nahda supporters and the Tunisian people will defend the revolution (July 25, 2021).

 

"Break with populism and dare to implement reforms to avoid scenario of getting stuck in crisis," Moez Labidi.

Tunisian Press Agency, 27/07/2021

An Interview By Imen Gharb-TAP -

The decision of the President of the Republic to suspend the parliament and dismiss Prime Minister, Hichem Mechichi is far from surprising, because history always teaches us that the deterioration of the fundamentals of the economy and the status quo in terms of reforms are often threatening to the democratic edifice, said Tuesday, economist Moez Labidi, in an interview with TAP.  

Labidi calls, however, to seize this opportunity to break with populism, impose the rule of law and dare to implement the reforms, by reviving the economic pragmatism. Any delay will, according to him, further bog down the country in the crisis and precipitate the scenario of a default and civil disobedience.

Immediate impact

According to Labidi, the immediate impact of this decision are those that were felt on Monday, July 26, 2021, the sharp decline in the stock market index and the widening of the spread (risk premium) of Tunisian securities traded on the international market. For example, for the Tunisian loan in euro that matures in 2023, the yield of sovereign securities of Tunisia has increased from 10.2% Friday, July 23, 2021, to 12.63% Monday at the end of the day, an increase in the spread exceeding 240 basis points.

The third immediate consequence is the stoppage of negotiations with the IMF, which are already experiencing a huge delay. This is due to the fact that in order to negotiate, the IMF needs a stable political climate, a functioning government and a functioning parliament.

Short-term consequences

In the short term, Moez Labidi believes that the announcement effect of the formation of a new government, and more specifically the profile of the new Prime Minister and its ability to implement the necessary economic reforms, will weigh in the capital confidence and would be instrumental in reassuring the domestic and foreign economic actors.

In addition, he added, this decision can only delay the process of drafting the supplementary bill of finance and consequently, the signing of the agreement with the IMF and the mobilisation of resources from international lenders. This situation is blocking access to external financing and increasing pressure on local financing, with its attendant crowding-out effects on private investment.

As far as rating agencies are concerned, the risk of a further downgrade (Fitch: from B- to CCC+ / Moody's from B3 to Caa1) cannot be ruled out if political instability persists and if pressure on foreign exchange reserves becomes more of a threat to the sustainability of the debt.

In this context, our interlocutor believes that recourse to the international financial market, even through guarantees, becomes inaccessible. The U.S. guarantees, obtained in the past, were largely justified by support for a fledgling democracy, which would no longer be the case with the latest decisions concentrating all powers in the hands of the President of the Republic.

Labidi also believes that the pressures on the balance of payments will increase, with the negative impact of political instability on foreign direct investment and on the tourism sector already heavily affected by the coronavirus crisis.

In spite of all this, Labidi evokes an important positive point of the last decisions of the President of the Republic which let predict a certain will to impose the rule of law. According to him, if this will is materialized, it could clean up the business climate, by fighting the economy of rent what would generate a competitive business climate favourable to the investment and would allow eliminating the speculation in the circuits of distribution, which will favour a better control of the prices. It would also allow to fight the informal sector and to improve the governance of the administration.

Medium and long term impacts

In the medium and long term, Labidi believes that two scenarios are possible, a "crisis exit scenario" and a "crisis stagnation scenario".

The first scenario is that of rapid normalisation. This scenario is only possible through the formation of a government that shines by its competence and that succeeds in having a favourable response from the ARP, which should resume its activity after a month. This climate of confidence could help trigger a dynamic of reforms, necessary for the country to return to inclusive growth.

The second scenario, that of the crisis getting bogged down, will be caused by the persistence of institutional vagueness and the absence of a roadmap outlining political and economic priorities. This scenario could tip Tunisia into a situation of payment default and civil disobedience that will be orchestrated by "the disappointed of the change", that is to say by those who took to the streets on July 25 to celebrate the change.

The other point that worries our interlocutor is the excess of populism in the discourse and the lack of vision on the political and economic levels, which would push to avoid the unavoidable reforms that have become painful by force of delay, and which would thus feed the unsustainability of the debt.

Good management of social expectations 

For Moez Labidi, the context requires vigilance and courage to :

- Desert the populist discourse that succeeds in mobilising the street and earns points in the polls but precipitates the scenario of a crisis of liquidity and solvency in the medium and long term, because of the inability of this discourse to address the origins of the real evils of the country;
- To select a government team on the basis of competence and far from cronyism;
- Dare to address the youth with a language of truth that would engage them on the path of work, creation and innovation far from pompous slogans;
- To manage social expectations well and to be effective in the face of the collateral damage of the health crisis, prioritizing social support to prevent the "unsustainability of the debt" from becoming "social unsustainability", which leads to civil disobedience. A social deception that will end up undermining the capital of trust generated by the "historic moment of July 25, 2021".

https://www.tap.info.tn/en/Portal-Economy/14238044--break-with  

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