Tunisia – Timid Approach to Reform

In early September, Prime Minister Yousef Chahed carried out a sweeping Cabinet reshuffle that included the replacement of 13 ministers, including the heads of the ministries of Finance, Defense, and Interior. The move followed weeks of wrangling between the two main governing parties, Nidaa Tounes and Ennahda, over the distribution of the political spoils. The reshuffle has temporarily put an end to internal squabbling that impeded the implementation of economic reforms required under the terms of an EFF agreement with the IMF, but the details of the 2018 budget suggest that Chahed remains reluctant to incur the wrath of the powerful UGTT labor federation.

Ennahda’s grudging willingness to consent to additional Cabinet posts for Nidaa Tounes, despite defections in early 2016 that have left the latter with fewer parliamentary seats than its partner, underscores Ennahda’s recognition that its history as a moderate Islamist organization is a handicap in a political climate marred by deadly terrorist attacks carried out by Muslim extremists. Ennahda voted in May 2016 to renounce its Islamist political agenda, and hopes to broaden its base of support by building a reputation as a responsible political force that can be counted on to make the concessions required to ensure stability at the center of political power.

While that bodes well for the maintenance of the current governing alliance in the near term, the prospect of Ennahda and Nidaa Tounes competing directly for the same bloc of voters points to a heightened risk of divisiveness ahead of the presidential and parliamentary elections in 2019. In a recent press interview, President Beji Caid Essebsi stated that he is not convinced that Ennahda has truly forsaken its Islamist roots. Nidaa Tounes is likely to strike the same chord repeatedly as campaigning heats up, to the detriment of government unity.

The government is already showing timidity with regard to implementing the painful and unpopular reforms that will be necessary to rein in the large budget deficit. The 2018 budget includes a public-sector pay hike and makes no provision for civil-service layoffs, despite stated plans to eliminate 20,000 civil-service jobs next year. The new spending plan also maintains the budget for subsidies at $1.4 billion, the same as in 2017, in defiance of the IMF’s demand to reduce the cost of state subsidies for bread, fuel, and other staples. The budget does include an increase in the tax on bank profits from 35% to 40%, and a hike in the real-estate tax from 6% to 19%, proposals that the local business community has warned will create a deterrent to both local and foreign investment.