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Tunisia’s anger boils over as Covid batters economy

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Nightly riots by Tunisian youths this week have underscored the depth of the country’s economic crisis as it grapples with rising poverty and widespread unemployment even as it is feted as the Arab world’s only democracy.

Violent protests have swept at least 15 cities and police have clashed with teenage demonstrators, using tear gas and water cannon to disperse stone-throwing youths. Hundreds have been arrested and the army has been deployed to prevent the looting of shops and banks.

“The protests reflect the extremely tense atmosphere in the country,” said Ons Benabdelkarim, senior associate in Tunisia of Expectation State, an international development group.

“These are teenagers protesting and there is despair and a sense of lack of perspective over what their future will look like. It comes on top of the economic stress of the pandemic and the lockdowns which makes the situation flammable.”

The explosion of anger — sparked by footage of police mistreating a shepherd — comes as the country marks the 10th anniversary of the revolution that toppled Zein el-Abidine Ben Ali, the long-serving dictator.

But Tunisians are not in a celebratory mood, as the coronavirus pandemic further scars an economy that has been ailing for the past decade.

The economy contracted last year by around 8 per cent, according to Fitch, the rating agency — its biggest drop since independence in 1956. Economic growth since the revolution has averaged 1.8 per cent — not enough to dent high unemployment levels, especially among the young, where it reached 36.5 per cent in 2020, according to the International Labour Organization.

The Tunisian National Guard stands watch during clashes with demonstrators in a Tunis suburb on Sunday © Fethi Belaid/AFP/Getty

The pandemic has decimated the crucial tourism industry, cut exports to Europe, Tunisia’s main trading partner, and caused thousands of companies to shut down, according to the government and international organisations. Tourism revenues plunged in 2020 by 65 per cent, and a recent survey by the International Finance Corporation showed that 5.4 per cent of Tunisian firms had permanently closed because of the health crisis.

Officials have hinted they will seek a new IMF loan because the country’s external financing needs have shot up. Fitch expects public debt to reach 89 per cent of gross domestic product in 2021 — up from 72.5 per cent in 2019. Increased government spending to mitigate the impact of the virus has driven up the budget deficit to an estimated 10.5 per cent of GDP, from 3.3 per cent the year before, according to Fitch.

But IMF borrowing would hinge on painful reforms that previous governments have not been able to implement.

“The immediate priority is to save lives and livelihoods until the effects from the pandemic wane,” said Chris Geiregat, IMF mission chief for Tunisia. “[But also] restoring sustainability to public finances is something that cannot wait and this needs to start happening this year.”

Areas for reform include the civil service wage bill, which at 17.6 per cent of GDP is “among the highest levels in the world”, energy subsidies and lossmaking state-owned enterprises. “When you have little or no fiscal space you will need to strictly prioritise your spending for health and social protection and that means that something has to give,” he said. 

The high turnover of governments — there have been 10 since the revolution — has made reform difficult. Many have been underpinned by weak coalitions in fragmented parliaments in which no single party holds a majority.

“Meeting IMF conditions will be difficult, given previous flare-ups between unions and the government over public sector salaries,” said James Swanston, Middle East and north Africa economist at Capital Economics, the London-based consultancy.

“Given the global pandemic and the likelihood of increasing consumer prices, the unions might demand pay hikes again and the government might feel it has little option but to succumb to the pressure.”

Protesters block a street during clashes with security forces in a Tunis suburb © Fethi Belaid/AFP/Getty

While coronavirus has exacerbated the crisis, Hichem Mechichi, the prime minister, said in a November speech that the country’s economic woes were only partly caused by the virus.

“Our country has not been able to establish an economic route which enables us to emerge from the economic difficulties we experienced since 2011,” he said, pointing to what he described as “a loss of hope in the future” exemplified by the increasing numbers of Tunisian illegal migrants making the perilous sea journey to Italy. 

The government’s response to protests has attracted criticism. “Poverty, marginalisation and exclusion should be dealt with through fairness and dignity, not smears and criminalisation,” said the Tunisian Forum for Economic and Social Rights, a civil society group

The deteriorating economy has undermined confidence in the political system and the politicians who emerged after the revolution. This has contributed to the meteoric rise in the opinion polls of Abir Moussi, a controversial party leader and former official in Ben Ali’s ruling party. She has been able to tap into a well of nostalgia for a period of perceived economic stability under dictatorship.

“Democracy is not yet under threat but it needs to deliver for people,” said Ms Benabdelkarim.

“They have to see that it can create better lives for them. There is a danger that people will stop believing in this. We are not there yet, but the government can at least start with reforms that are not controversial like cutting bureaucracy to make it easier for foreign investors to come here.”



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Emerging Markets

Bond sell-off roils markets, ex-Petrobras chief hits back, Ghana’s first Covax vaccines

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The yield on the benchmark 10-year Treasury exceeded 1.5 per cent for the first time in a year and the outgoing head of Petrobras warns Brazil’s President Jair Bolsonaro against state controlled fuel prices. Plus, the FT’s Africa editor, David Pilling, discusses the Covax vaccine rollout in low-income countries. 

Wall Street stocks sell off as government bond rout accelerates

https://www.ft.com/content/ea46ee81-89a2-4f23-aeff-2a099c02432c

Ousted Petrobras chief hits back at Bolsonaro 

https://www.ft.com/content/1cd6c9fb-3201-4815-9f4f-61a4f0881856?

Africa will pay more for Russian Covid vaccine than ‘western’ jabs

https://www.ft.com/content/ffe40c7d-c418-4a93-a202-5ee996434de7


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Petrobras/Bolsonaro: bossa boots | Financial Times

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“Brazil is not for beginners.” Composer Tom Jobim’s remark about his homeland stands as a warning to gung-ho foreign investors. Shares in Petrobras have fallen almost a fifth since President Jair Bolsonaro said he would replace the widely respected chief executive of the oil giant.

Firebrand Bolsonaro campaigned on a free-market platform. Now he is reverting to the interventionism of leftist predecessors. It is the latest reminder that a country with huge potential has big political and social problems.

Bolsonaro reacted to fuel protests by pushing for a retired army general to supplant chief executive Roberto Castello Branco, who had refused to lower prices. This is politically advantageous but economically short-sighted.

Fourth-quarter ebitda beat expectations at R$60bn (US$11bn), announced late on Wednesday, a 47 per cent increase on the previous quarter. This partly reflected the reversal of a R$13bn charge for healthcare costs. Investors now have to factor the cost of possible fuel subsidies into forecasts. The last time Petrobras was leaned on, it set the company back about R$60bn (US$24bn at the time). That equates to 40 per cent of forecast ebitda for 2021.

At just over 8 times forward earnings, shares trade at a sharp discount to global peers. Forcing Petrobras to cut fuel prices will make sales of underperforming assets harder to pull off and debt reduction less certain. Bidders may fear the obligation to cap prices will apply to them too.

A booming local stock market, rock bottom interest rates and low levels of foreign debt are giving Bolsonaro scope to spend his way out of the Covid-19 crisis. But the economy remains precarious. Public debt stands at 90 per cent of gross domestic product. The real — at R$5.40 per US dollar — remains near record lows. Brazil’s credit is rated junk by big agencies.

Rising developed market yields will make financings costlier for developing nations such as Brazil. So will high-handed treatment of minority investors. It sends a dire signal when a government with an economic stake of just over a third uses its voting majority to deliver a boardroom coup.

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South Africa’s economy is ‘dangerously overstretched’, officials warn

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South Africa is pushing ahead with plans to shore up its precarious public finances as officials warn the economy is “dangerously overstretched” despite the recent boom in commodity prices.

Finance minister Tito Mboweni hailed “significant improvement” as he delivered the annual budget on Wednesday and said that state debts that will hit 80 per cent of GDP this year will peak below 90 per cent by 2025, lower than initially feared.

But Mboweni warned that President Cyril Ramaphosa’s government was not “swimming in cash” despite a major recent tax windfall. The Treasury now expects to collect almost 100bn rand ($6.8bn) more tax than expected this year after a surge in earnings for miners. This compares with a projected overall tax shortfall of more than 200bn rand. Still, the finance minister made clear that spending cutbacks would be necessary.

“Continuing on the path of fiscal consolidation during the economic fallout was a difficult decision. However, on this, we are resolute,” Mboweni said. “We remain adamant that fiscal prudence is the best way forward. We cannot allow our economy to have feet of clay.”

The pandemic has hit South Africa hardest on the continent, with 1.5m cases recorded despite a tough lockdown. An intense second wave is receding and the first vaccinations of health workers started this month. More than 10bn rand will be allocated to vaccines over the next two years, Mboweni said.

‘We remain adamant that fiscal prudence is the best way forward’ – South African finance minister Tito Mboweni © Sumaya Hisham/Reuters

Even before the pandemic’s economic hit, a decade of stagnant growth, corruption and bailouts for indebted state companies such as the Eskom electricity monopoly rotted away what was once a prudent fiscus compared with its emerging market peers. 

Government spending has grown four per cent a year since 2008, versus 1.5 per cent annual growth in real GDP. The country’s credit rating was cut to junk status last year. Despite this year’s cash boost, the state expects to borrow well over 500bn rand per year over the next few years. The cost to service state debts is set to rise from 232bn rand this year to 338bn rand by 2023, or about 20 cents of every rand in tax.

The fiscal belt-tightening will have implications for South Africa’s spending on health and social services. On Wednesday Mboweni announced below-inflation increases in the social grants that form a safety net for millions of South Africans. “We are actually seeing, for the first time that I can recall, cuts in the social welfare budget,” said Geordin Hill-Lewis, Mboweni’s shadow in the opposition Democratic Alliance.

The finance minister is also facing a battle with union allies of the ruling African National Congress over a plan to cap growth in public sector wages. South Africa lost 1.4m jobs over the past year, according to statistics released this week. The jobless rate — including those discouraged from looking for work — was nearly 43 per cent in the closing months of 2020.

The South African treasury expects the economy to rebound 3.3 per cent this year, after a 7.2 per cent drop last year, and to expand 2.2 per cent and 1.6 per cent next year and in 2023 — growth rates that are widely seen as too low in the long run to sustain healthy public finances.

“The key challenges for South Africa do however persist, clever funding decisions aside,” Razia Khan, chief Middle East and Africa economist for Standard Chartered, said. “Weak structural growth and the Eskom debt overhang must still be addressed.” 



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