Tunisia’s $1B Loan Hinges on IMF Support

Despite considerable criticism by rights groups and commentators about the EU signing off huge cash aid deals for Tunisia’s authoritarian leader who continues to threaten the lives of thousands of African migrants with his draconian policies, the EU is ready to hand over more money to Kais Saied.

According to an EU official on July 17th, there is still a possibility for the European Union to provide Tunisia’s struggling economy with a loan of 900 million euros ($1.0 billion). However, discussions regarding this loan will occur in the third quarter and will be contingent on Tunisia reaching an agreement with the International Monetary Fund (IMF).

The negotiations for a $1.9 billion IMF loan have been at a standstill since October of 2023, mainly because President Kais Saied declined the proposed terms, which included subsidy reductions and a decrease in the public wage bill.

However, in the meantime, he just recently agreed to a package of around 1.7bn USD by both the EU and Italy which is aimed at tackling a wide array of measures which are currently part of the crisis in Tunisia.

According to an EU official familiar with the negotiations, the possibility of providing even more macro assistance remains under consideration. However, any such assistance must align with the conditions set forth by the IMF.

Meanwhile, Tunisia has expressed the view that it might not require an IMF agreement, and this will be assessed further in the third quarter.

The situation in Tunisia is precarious, as the country teeters on the brink of a significant debt crisis. Additionally, shortages of essential goods have compounded the challenges. Though a majority of the debt is internal, there are foreign loan repayments due later this year, and credit rating agencies have warned of a potential risk of default.

To aid Tunisia in addressing some of its pressing issues, on July 16th the European Commission’s President, Ursula von der Leyen, announced that the EU would allocate 100 million euros ($112.36 million) as part of a “strategic partnership” aimed at combating human trafficking while also promoting investment and trade in the country.

Notably, during a trip by European leaders to Tunis on June 11th of this year, a scheme was devised to provide over $1 billion in financial aid to Tunisia with the objective of reinstating democratic stability. 

Italian Prime Minister Giorgia Meloni, Dutch Prime Minister Mark Rutte, and European Commission President Ursula von der Leyen convened with Tunisian President Kais Saied to deliberate on the financial assistance aimed at rescuing the nation from the brink of economic collapse and also addressing the Mediterranean immigration crisis.