Why the IMF’s standard prescription is a poor fit for Tunisia.
IMF’s response[1] to an article published by The Guardian[2] criticizing the organization’s austerity-based requirements in Tunisia is a clear indication of the theoretical framework and the causal links inspiring its operations.
IMF is not the only international donor promoting supply-side policies in Tunisia as well as in the MENA region. Domestic governments in the area have hardly changed their economic agendas, although 2011 uprisings made clear how social discontent was fueled by dire economic conditions and widespread, long-term unemployment.
However, the IMF’s Extended Fund Facility (EFF), a 4-year programme approved in May 2016 of US $ 2.9 billion, has played a significant role in shaping Tunisia’s macroeconomic policies, which have in turn contributed to impact on Tunisians’ purchasing power and prospects. In early January 2018 – a very eventful month in Tunisia’s history – people took once again to the streets to protest against 2018 Finance Law, which incorporates several IMF’s recommendations on fiscal discipline.
This law includes a number of fiscal measures to cut the budget deficit to 4.9 of the GDP and comply with the requirements of EFF, meant to promote macroeconomic stability and improve the business climate for private investors.
Nevertheless, this law will hardly unleash sustained private investment rates, let alone growth. It introduces a package of increases in indirect taxation (e.g. the VAT rates, purchase taxes on several consumer goods, the cost of fuel and electricity, etc.) and raises the fiscal burden on enterprises and formal public and private employees, with serious and worrying implications on social justice and redistribution.
The importance of facilitating private initiative in an efficient and transparent way through better governance and institutional reforms may sound as a reasonable point for everybody to agree upon. Yet, a serious discussion is needed on what kind of private initiative is to be promoted and in which sectors.
Tunisia is still stuck in a stagnant economic model consolidated over the past decades, characterized by a huge dependency on foreign demand and capital, driven by tourism, export-oriented manufacturing (mostly consisting of mere assembling and/or low-value-added activities, mostly in the textile, mechanical and electronic sectors) and call centers[3]. This model has proven to be extremely polarizing – both socially and geographically -, as it is traditionally based on low wages and a productive structure concentrated along the coastal areas, marginalizing the hinterland and unable to evolve into a model that can prompt productivity gains and long-term growth.
https://www.nakedcapitalism.com/2018/02/protests-in-tunisia-over-imf-promoted-policies-for-good-reason.html
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