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Now in charge, Tunisian president faces looming fiscal crisis

[August 17, 2021] By Tarek Amara and Angus McDowall

TUNIS (Reuters) - At the Sidi Bahri market in Tunis, shoppers were pleased with the president's attacks on corruption and high prices since he seized control of the government last month in moves his foes called a coup.

President Kais Saied has criticised Tunisia's economic policy, urged traders to charge less for food and medicine and accused unnamed businessmen of stealing billions of dollars while police are investigating corruption in state industry.

"The citizen feels reassured and prices have gone down in everything," said Azza Belwaer, a 36-year-old medical equipment vendor buying groceries in Sidi Bahri.

However, three weeks after Saied sacked the prime minister and froze parliament, he has yet to appoint a new government, articulate any broad economic policy or say how he intends to finance the public deficit and debt repayments.

His intervention has paused much-delayed talks with the International Monetary Fund (IMF) for a loan programme that was expected to unlock further economic assistance and avert a crisis in public finances.

Tunisia paid back more than $1 billion in debt this summer from foreign currency reserves, but must find about $5 billion more to finance its projected budget deficit and more loan repayments.

The economy shrank 8.2% last year while a deficit of 11.5% drove public debt to 87% of gross domestic product according to the IMF. Both the powerful labour union and foreign lenders see little choice but to resume the IMF process.

"We support negotiations with the IMF... we have no options," said Mohamed Ali Boughdiri, deputy head of the UGTT union.

"The clock is ticking on the economic challenge," said a Western diplomat, adding the reforms needed to secure an IMF loan would be important in gaining more assistance.

Such reforms - including redirecting subsidies and shrinking one of the world's heaviest public sector wage burdens - are unpopular and would come at a moment when the public mood is highly volatile.

Anger at economic stagnation, aggravated by the pandemic, helped drive apparently widespread popular support for Saied's sudden intervention on July 25.

Successive governments have failed to resolve the problems, often pulled between the demands of foreign lenders and the UGTT.

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A woman walks past the Tunisian General Labour Union (UGTT) building, in Tunis, Tunisia August 16, 2021. REUTERS/Jihed Abidellaoui

GULF CASH

As president, Saied has been formally responsible only for foreign affairs and defence. Before his election he gave few clues as to his economic views though some of his main supporters came from the political left.

One option may be help from Gulf states that saw his intervention as undermining the Muslim Brotherhood movement, which they regard as a main regional foe, and which is close to the biggest party in the now frozen parliament.

Saied has boasted of contacts with "friendly countries" for help and has received envoys from Saudi Arabia and the United Arab Emirates.

Gulf aid could give Saied fiscal wiggle room, "letting political reforms start immediately, followed by economic reform by a stable government after elections," said economist Ezzidine Saidane.

However, if that approach involved steps that compromised Tunisia's democracy, it could alienate Western lenders.

Boughdiri said Saied had an opportunity to take advantage of "broad popular support" to propose urgent change, adding the UGTT backed some reform of state-owned companies and a review of subsidies.

It sees efforts to combat corruption, tax evasion and the informal economy as priorities, he said. Though the IMF has also urged efforts to reduce those, it sees tackling the public wages and subsidies as more pressing.

Whatever he does, Saied will now be held responsible for resolving Tunisia's chronic economic troubles - potentially undermining the political transformation in which he appears most interested.

"In the big picture, these events have unleashed enormous expectations. It's going to be very difficult for him to meet those. He'll need the help of Tunisia's friends and an inclusive approach," said the diplomat.

(Reporting by Angus McDowall and Tarek Amara; Editing by Raissa Kasolowsky)

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