Economy

EU throws Tunisia a financial lifeline with $163m grant

March 5, 2024, 11:06 AM

People are seen out shopping in the old city of Tunis, Tunisia, 23 August 2023. Tunisia's Ministry of Tourism and Handicrafts has officially restarted tourism in the country after the challenges caused by COVID-19 in 2020. Up to 10 August 2023, a total of 5.4 million tourists have picked Tunisia for their vacations (Photo by Yassine Mahjoub/NurPhoto)NO USE FRANCE — The EU grant is designed to help stabilise the economy in Tunisia; proposed reforms include a reduction in the public wage bill

EU help to ‘support reforms’
Tunisia faces urgent debt
IMF talks remain in limbo

The European Union has handed Tunisia a €150 million ($163 million) grant to support economic reforms and fiscal stability as the North African country attempts to fend off a financial crisis.

Almost $4 billion in external debts are due for repayment this year, up 40 percent on 2023.

Although Tunisia managed to pay an €850 million ($922 million) eurobond last month, it took parliamentary approval to obtain direct financing from the central bank worth TND6 billion ($1.9 billion) to cover the payment and other urgent foreign debts.

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Tunisia’s foreign reserves stood at TND23.56 billion on Monday, enough to fund 108 days of imports.

The EU grant is intended to “support Tunisia in stabilising its macroeconomic situation and in its efforts to improve the management of public finances and the business climate,” a statement from the European Commission said.

The statement said that the transfer from the EU to the Tunisian public treasury was in the form of a donation.

“The EU stands ready to continue supporting Tunisia with a view to moving towards sustainable and inclusive growth,” said Olivér Várhelyi, the European commissioner for neighbourhood and enlargement.

The donation is part of a “strategic and comprehensive” partnership deal signed by Tunisia and the EU in Tunis last year based on five pillars: macroeconomic stability, economy and trade, green energy transition, people-to-people links, and migration and mobility.

After a meeting between the two in June, the EU said it was prepared to offer Tunisia a €1 billion loan to prop up its economy and tighten border controls on condition that it accepted sweeping reforms laid out by the International Monetary Fund.

These include cuts to food and energy subsidies and a reduction in the public wage bill.

Talks between Tunisia and the IMF have stalled since last October, when a preliminary agreement for a 48-month loan worth almost $2 billion was reached.

Person, Adult — President Kais Saied, right, appointed bank governor, Fethi Nouri, in Febraury

Tunisian president Kais Saied’s government refused to accept the terms of the proposed deal, which remains in limbo.

James Swanston, Middle East and North Africa economist with Capital Economics, said: “President Saied’s unwillingness to sign up to an IMF deal means that a sovereign default still looks more likely than not.”

Saied named a former central bank board member, Fethi Nouri, as the new governor of the central bank on February 15.

On Friday Tunisia increased the price of drinking water by up to 16 percent as a result of the drought that has hit the country for the past five years.