Tunisia

Tunisia made a choice in 2023 that defied international financial orthodoxy: the president rejected a $1.9 billion IMF loan, deeming the required austerity too politically destabilizing. The consequences have been severe but the alternative—imposed subsidy cuts in a country that had already experienced revolution—might have been worse.

Ancient Carthage, near modern Tunis, was Rome's greatest Mediterranean rival until its destruction in 146 BCE. Subsequent millennia brought Vandal, Byzantine, Arab, Ottoman, and French rule. The French protectorate from 1881 to 1956 developed phosphate mining, olive cultivation, and tourism infrastructure while maintaining colonial extraction.

Independence under Habib Bourguiba brought modernizing authoritarianism: secular education, women's rights advanced beyond any Arab state, and economic development focused on light manufacturing and tourism. Tunisia became the most Westernized country in North Africa—and also the launching point for the Arab Spring when Mohamed Bouazizi's self-immolation in December 2010 sparked the revolution that toppled Ben Ali.

Democratic transition proved economically painful. Tourism collapsed amid regional instability and terrorist attacks. The dinar weakened. Public employment expanded to absorb social pressure. Debt accumulated. By 2023, public debt exceeded 80% of GDP, with debt service consuming 9.1% of GDP. External financing markets were effectively closed.

The IMF offered its standard package: $1.9 billion in exchange for subsidy cuts, public enterprise reform, and fiscal consolidation. President Kais Saied rejected the terms, arguing that removing fuel and food subsidies would trigger social unrest in a population already frustrated by economic stagnation. Tunisia turned instead to domestic bank financing—including central bank facilities that amount to debt monetization.

Two sectors keep the economy functioning. Tourism is on track for 11 million visitors in 2025, potentially a record, generating $7.3 billion and comprising 14% of GDP. European beach seekers have returned despite political uncertainty. Olive oil production rebounded 12% in late 2024 after drought devastation, though US tariff threats create export uncertainty.

Phosphate production—once a pillar of the economy—remains troubled. Labor disputes at the Gafsa mines have repeatedly interrupted output. The sector that financed independence now contributes less than its potential.

By 2026, Tunisia faces a reckoning. Debt service of $9.5 billion is due in 2025-2026. The central bank's €2.3 billion in interest-free financing merely postpones the underlying fiscal imbalance. Either tourism and agriculture generate enough foreign exchange to maintain stability, or the deferred IMF reckoning arrives with less favorable terms. Tunisia gambled that it could weather the crisis on its own; the bet hasn't failed yet, but the margin for error has disappeared.