During the past 25 years, the Tunisian society has spared no effort to increase its production. Indeed, the GNP has risen by 2.6 times, from $8.5 billion in 1980 to 22.4 billion in 2003.
Nonetheless, a significant share of this wealth has been transferred through debts to influential foreign parties. Tunisia has allocated $28.5 billion to service its debt – an amount that exceeds by eightfold the 1980 real debt value (1).
However, Tunisia’s efforts to reimburse its debt have not alleviated the debt burden. By contrast, multiplied by more than 4.5 times, the latter has risen from 13.5 to 16.5 billion dollars between 1980 and 2003. Similarly, the debt has grown faster than the GNP. Worse still, the balance of the net transfers of medium-to-long-term loans was negative during the same period (2). In other words, the funds Tunisia has disbursed to settle its debts has outstripped the new loans it has received. For this reason, it is said to export capitals.
Accordingly, Tunisia has failed, during the past 25 years, to harness its loan returns to finance its growth. In this respect, the $27 billion it has received as loans were not even sufficient to cover the 28.5-billion-dollar debt servicing ! Hence, foreign debt exhausts wealth instead of financing the local economy’s “structural deficit.” Such a debt mechanism is then said to accumulate deficit without allowing the local economy to take-off.
But since 1996, the situation has remarkably worsened, which reflects the stringent neo-liberal measures taken pursuant to the Partnership Agreement (3). This agreement has slightly revived the local economy, while crushing all forms of social protection. To this end, it has raised the annual growth rate to the GDP ratio to 4% during the first stage of neo-liberal rehabilitation (1987-1995) and to 5% during the current period.
Unfortunately, this boosted growth has not served local development. For debt servicing increased, between 1996 and 2003, to $12 billion. In the meantime, the net transfers on the debt have been insignificant, rather negative to some extent.
On the other hand, the Foreign Direct Investment (FDI) has exceeded $4 billion, more than 25% of which have been earmarked to purchase, through privatization, “chosen” former public companies (cement factories, hotel chains, banks, insurance companies, etc). This, in turn, proves that foreign investments, contrarily to what claims the neo-liberal ideology, drain wealth more than they boost economic growth. Consequently, international companies have reaped profits of more than $3 billion. In comparison, the Tunisian expatriates have transferred, during the same period, some $7 billion, save the funds transferred through informal channels. But contrarily to FDI, such positive remittances do not automatically yield profits, since they are basic for the people’s subsistence locally on the one hand, and fully serve local growth on the other. In this regard, the basic debt percentages are but ample evidence of the catastrophic impact debt can have on Tunisia’s economy. As a matter of fact, the debt servicing to the GNP ratio jumped from 41.6% in 1980 to 61.3% in 1966, then to 74% in 2003. As for the ratio of debt servicing to the imported goods and services, it rose from 96% to 127% then to 139% respectively.
Finally, in an attempt to ease these financial pressures, or in other words, the debt, and upon the instructions of international financial bodies, the Tunisian authorities have intensively borrowed loans considered to be politically more protective and financially less expensive. Once again, the neo-liberal cure apparently compounds the problem.
In this regard, the loans granted by multilateral organizations, especially the World Bank, clearly reflect this trend. Coupled with stringent conditions imposed on the economic policy, such loans are “less generous” with respect to the financial cost. The share of multilateral loans in the public debt has remarkably jumped from 19 to 40% of Tunisia’s total foreign debts (4) during the first stage of rehabilitation. But after 1996, the share of multilateral organizations, the main donor party, has slightly declined in favor of another equally dangerous new “predator,” the financial markets, the share of which mounted from 20% in 1996 to 38% in 2003. In this respect, it is worth mentioning that these private loans are mainly offered by the Japanese local markets then secondarily by the US market. But, needless to say, all these loans have one goal in common : search for a greater financial return in the shortest possible period.
For instance, the interest rates on loans granted by official creditors reached 3.2% in 2002, while the interest rates on private sector loans amounted to 7%.
In addition, the interest rates on private loans can change, which means they are affected by the fluctuating financial speculation in all Stock Exchanges. Hence, Tunisia does not fully control its debt.
As for the short-term loans, they are indeed the safety valve of the waning government budgets. Their share in the overall debt changes according to circumstances. Besides, the sky-high crude oil prices heavily strain the public finances now. Consequently, the authorities resort more to short-term loans, which, in turn, burden debt servicing.
In short, the Tunisian experience clearly proves that debt hinders the Tunisian people’s legitimate aspirations for a better life, which requires, in the first place, meeting their basic needs. In this regard, it is worth mentioning that Tunisia enjoys many characteristics, mainly young and educated population, a controlled demographic growth, an active and varied agriculture, a mild climate, a remarkable geographical location, and in particular, the people’s aspirations for advance and modernization. However, 50 years after its independence, Tunisia has failed to benefit from such varied characteristics. Worse still, the Tunisian youth increasingly turns its back on the country and seeks, with all the available means, to build a future elsewhere.
So, we must urgently put the question of debt forgiveness on the agenda of the social and democratic movement. Such demand is highly legitimate. Besides, it is a condition that must be necessarily respected to meet the people’s huge social needs and to ease the burden hampering development in Tunisia.
Giving a local impetus to debt cancellation is of paramount importance because of the induced social and economic damages.
* Mr. Fathi is a professor at Manouba University, Tunisia.
The figures mentioned in this article are extracted from the Global Development Finance and the World Development Indicators posted on the World Bank site : www.worldbank.org
The “net transfer” on debt is the difference between debt servicing (annual payment – interest with principal for the industrialized countries) and the funds collected as grants and new loans during the same period. This net transfer is positive when the funds a country receives exceed the amounts it earmarks for debt servicing. But it becomes negative if the paid sums outstrip the incoming funds.
On July 17,1995, Tunisia concluded in Brussels the first Euro Med Free Trade Agreement (Partnership Agreement) with the European Union. Few months later, on January 1st, 1996, Tunisia began implementing the said agreement – a step that was only taken by the European party on March 1998.
Tunisia’s major donor parties are the World Bank (with 15% of the total debt), the African Development Bank (14%), and the European Investment Bank (5%).