Thursday, 21 August 2014

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Is Tunisia too indebted and should it request a moratorium on its debt?

Is Tunisia too indebted, and if so, should it demand a rescheduling, suspension or even cancellation of some of its debts? The question divides Tunisian analysts and economists and sparks a debate where the arguments of each other chart courses, which despite being very interesting have not yet shaken the beliefs and creeds of public authorities, firmly attached to the payment of Tunisian external debt according to the timetable set, excluding any rescheduling, at least for the current year.

There is nevertheless a very shy propensity not to completely rule out this option, as understood by journalists attending the news conference held Tuesday in connection with the call launched from Tunis to the G8, by a host of internationally renowned economists, in the presence of the Governor of the Central Bank of Tunisia, Mustapha Kamel Ennabli.

In any case, it does not seem to be in the order of things, let alone probabilities for the very short term at least, that Tunisian financial authorities resolve to act to mitigate the burden of external debt, claiming, for instance, a moratorium.

The reason is simple: with a debt of 14.4 billion dollars, Tunisia is in the range of ratio of external debt to GDP of less than 50%. It is in any case well below the thresholds defined by the Treaty of Maastricht, which decrees that the government debt can become untenable once it reaches 60% of the GDP and that the government deficit exceeds 3.0%.

Certainly, we are light years away from the situation faced by many developed emerging and underdeveloped countries because of exorbitant debt.

This is clearly not the view of many groups of economic study panels, strongly demanding the suspension and even cancellation of Tunisian debt on the grounds that it is an odious and illegal debt that was contracted to serve mainly the interests of the ousted president and his relatives to the exclusion of the Tunisian people who have not seen a penny of it. This is particularly the sense of the arguments developed by CADTM (Committee for the Abolition of Third World Debt)

A similar call has been launched by the International Crisis Group to the international community "to reschedule the payment of Tunisian foreign debt and work on an audit of the debt "in order to determine what is the real debt and what is related to embezzlement connected to past practices of the deposed president and his family, in violation of legal norms of debtor and creditor countries.

Others, however, and they likely have no sympathy for the ousted President, argue that debts contracted by Tunisia under the deposed regime helped fund major infrastructure works, in particular and that predatory practices by supporters of the former President and his wife targeted other resources, particularly those in the banking sector.

At the point where things stand, there is certainly no need to consider any steps whatsoever to request a rescheduling of Tunisia’s debt. And the governor of the central bank was clear on that stating that "the repayment of external debt will be made through the use of State budget resources.” Specifically, while Tunisia allocates more than 10% of its export earnings to debt servicing, it will discharge its debts, estimated for the year 2011, to 1,120 million dinars in time. About 820 million dinars should have been paid in April and 300 million dinars will be repaid in September 2011.

Indeed, already, and respecting its commitments to repay its matured public debt, Tunisia had paid early April, the sum of 450 million Euros (nearly 930million dinars), which represents the highest maturity of the year. The second sum of debt fixed for next September, and it involves a Japanese Samurai credit is the equivalent of 253 MTD.

The most categorical statement in this regard, came from the Minister of Finance, Jalloul Ayed, who sententiously said: "We are able to honor our debt this year and in the future, "stressing that he hoped the budget deficit of Tunisia should not exceed 5 % of the GDP in 2011, and that the government needs $ 1.3 billion to meet budget financing of its short term needs.

Tunisia expects a growth of 1 to 1.5% "at best" this year, he said, and it needs $ 4 billion in foreign loans to get back on its feet following the January 14 Revolution. Nevertheless, even if things will not go as desired by the Tunisian monetary and financial authorities and to retain an alternative to rescheduling, the most convenient option would be a conversion of debt into aid for development, which could, in principle, win the support of creditors. But it is still a working hypothesis, because Tunisia has a mattress that should exempt it from considering similar scenarios.


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