Tunisia: Dynamics and Challenges of Sovereign Debt
Introduction
Debt sustainability, often invoked to justify austerity policies, must be redefined based on social and economic criteria rather than purely accounting ones. From a critical perspective, debt sustainability should not be understood merely as a state's ability to repay its creditors, but rather as its ability to fulfill its obligations to its population—particularly regarding social and economic rights. In the Tunisian context, this means assessing debt in light of its impact on inclusive growth, public investment, social justice, and economic sovereignty. Debt can only be considered sustainable if its servicing does not undermine the conditions for equitable and sustainable development.
Like other countries in the Global South, Tunisia is caught in the vicious cycle of austerity and debt. In 2023, the country's debt reached a record high, accounting for 83% of GDP, following two major external shocks: the COVID-19 pandemic and the Russian invasion of Ukraine, both of which severely impacted the national economy. Tunisia recorded a negative growth rate of 8.6% in 2020, coinciding with the health crisis, leading to a historic budget deficit of 10% of GDP.
Moreover, the war in Ukraine has significantly strained public finances, making it particularly challenging for the country to finance its budget, especially in foreign currencies. Tunisia subsidizes consumer prices for certain basic food products and energy, with an average annual cost of 4 billion dinars during the 2010-2020 decade. This budget has surged, primarily due to Tunisia's heavy reliance on Ukraine and Russia for importing its cereal needs.
In 2021, more than 44% of the cereals imported by Tunisia came from Ukraine and Russia. Ukraine accounted for a significant share, covering 30.15% of wheat imports, 48.87% of corn, and 22.03% of barley, while Russia dominated the latter category with 40.78%.
The onset of the Russian invasion of Ukraine in 2022 removed both countries from the global cereal market. As major producers, their absence caused a surge in international prices: wheat rose by 3.2%, corn by 4.3%, while barley saw only a slight increase of 0.3%.
Importing over 50% of its food needs, Tunisia saw the cost of price compensation triple in just two years, reaching 12 billion dinars, or 8.3% of GDP (Figure 2).
This pressure on public finances comes at a time when Tunisia must meet significant debt obligations. Debt service reached 14.44 billion dinars in 2022, 20.75 billion in 2023, and 24.97 billion in 2024. The external debt service thus increased from 6 billion dinars in 2022 to 8.7 billion in 2023, and is expected to reach 12.3 billion in 2024.Tunisia is facing record-high repayment deadlines for previously contracted debts.
In these circumstances and more than ever, Tunisia's sovereign debt suffocates the national economy and poses a significant obstacle to addressing social challenges and growing inequalities. In the urgency to finance its budget through borrowing, and faced with the near closure of international financial markets due to the downgrading of Tunisia's sovereign rating by rating agencies, the state first turned to the International Monetary Fund (IMF) for a new program. The results arrived, more than 18 months later, in a staff-level agreement on October 15, 2022.
This four-year program provides $1.9 billion in funding, disbursed in eight tranches, each conditioned on the implementation of the “reforms” defined within its framework. It includes austerity measures targeting public services, such as a freeze on recruitment and salaries in the civil service, the adoption of a framework law that increases job insecurity in this sector, as well as another framework law targeting state-owned enterprises, paving the way for their privatization. In the same vein, the program also calls for the complete elimination of subsidies on the prices of hydrocarbons, food products, and public transportation.
The program was ultimately rejected by Tunisia on April 6, 2023, due to the stringent conditions imposed by the IMF, marking a historic turning point in their relations. A complete shift in the official Tunisian narrative towards the Bretton Woods institution then took place. The Tunisian president concluded his meeting with IMF Managing Director Kristalina Georgieva at the Paris Summit for a New Global Financial Pact, stating, "If there is only one who will refuse the IMF recipes, I will be that one." He reminded her during this exchange that "the IMF's recipes for budgetary support for Tunisia are unacceptable and threaten social peace." Tunisia then seeks to open a new trajectory regarding debt, based on the mobilization of domestic resources and the expansion of social safety nets.
To this end, the study adopts a descriptive approach, relying on a desk review of official documents and reports, complemented by data analysis and trend observation across key indicators of public debt. It also offers a structural reading of Tunisia’s sovereign debt, examining the impact of public policy choices over time and shedding light on current challenges — particularly in light of the aborted negotiations with the IMF and the alternative path charted by Tunis.
