Tunisia Between Subsidies and Security

With a democratically elected parliament and president, now come Tunisia’s difficult growing pains of balancing newly earned freedoms with security reform and economic transformation. Tunisia’s leadership must guide the country through a difficult path that addresses the primary needs of Tunisians—from curbing violent terrorism to increasing economic opportunity. Yet, the policy solutions to these major concerns may yield conflicting results. How Tunisia addresses each priority will affect the other. Efforts to secure Tunisia’s border and prevent smuggling can increase domestic threats and violence. Similarly, enacting the tough spending cuts and reductions to subsidies may produce an equally dangerous outcome in the form of civil unrest. The decision is not as simple as choosing guns or butter.

Economic concerns in part drove Tunisian revolutionaries to the streets. Rebalancing the economy to address their concerns remains a challenge for the incoming government. Since former President Zine El Abidine Ben Ali fled and a transitional government took over, the Tunisian economy has faltered. Unemployment remains high at more than 15 percent—above the pre-revolution level of 13 percent. The trade deficit increased to 13.6 billion Tunisian dinars or $7.2 billion in 2014 (versus 11.8 billion dinars or $6.2 billion in 2013), which roughly amounts to 8.9 percent of GDP. Due to continued instability and violence, foreign direct investment (FDI) fell to around $1 billion dollars. Despite the decreases in revenues, the government increased spending on subsidies to $4 billion in 2014.

Setting aside the unsettling macroeconomic indicators, the Tunisian government must also cope with the large illicit economy that boomed during the transitional period. While the black market and criminal trade had long existed under Ben Ali, smuggling has greatly increased since the revolution. Food and resource prices have grown so high that bananas cost roughly 30 percent more than in Western states like the United Kingdom. For many Tunisians living near the borders, smuggling goods and fuel provides the only source of income. The World Bank reported in 2013 that illicit trade costs the Tunisian government about $1.2 billion per year and encompasses nearly half of the bilateral trade with Libya. The influx of refugees from Libya adds additional strain on its already subsidy-reliant economy. The UN estimates that Tunisia has taken in over one million Libyan refugees (the Tunisian government reports that nearly 2 million Libyans have fled to Tunisia), making adequate care and accommodations difficult.

The second, but equally important issue for Tunisians, includes protection from extremist groups such as Ansar al-Sharia and al-Qaeda in the Islamic Maghreb (AQIM). Since the revolution, internal security has proven difficult for the Tunisian security apparatus. Tunisia’s porous borders with Libya and Algeria allow the free movement of people, drugs, and weapons. The criminal activity poses a danger not just to Tunisia, but also to the wider region and Europe. The Mount Chaambi region along the Algerian border has seen deadly fighting between extremist Islamists and Tunisian security forces. Tunisia produces the highest number of foreign fighters for the Islamic State (ISIS or ISIL) and al-Qaeda’s Syrian branch, The Nusra Front. More than 3,000 people have left to fight in Syria.

How can Tunisia balance its security and economic priorities?

Tunisia’s President Beji Caid Essebsi emphasized the need for a secure and stable Tunisia in his inaugural address. He envisions a society free from the devastating harm of terrorism. Tunisians can expect the new government to aggressively increase military patrols along the border, beef up intelligence activity to disrupt terror networks, and crackdown on Salafist ideology. However, an overemphasis on security would redirect resources from supporting economic institutions and programs. Assuming secure borders and a halt to illicit activity, many Tunisians dependent on smuggling for their livelihood would lose their only source of income. Without a comparable rise in meaningful employment, disaffected Tunisians may blame the government, making them prime candidates for violence or extremism. Rather than achieving a secure Tunisia, the unintended consequence may create a new wave of domestic threats.

Alternatively, should Tunisian authorities emphasize economic growth—focusing on macroeconomic reforms that include reducing and eventually eliminating government subsidies—may feed into the same criminal activity it tries to curb. To reorient its balances, Tunisia needs to slash government spending. This means an end to highly subsidized goods such as fuel and food. However, an International Monetary Fund study shows that these subsidies help mostly higher income citizens rather than the targeted low-income families. Not only are subsidies costly, but they also provide an ineffective social safety net. Yet, removing subsidies may force Tunisians living in the outer regions to resort to smuggling. Similarly, the government would face the decision of cutting salaries for public employees, whose unions already strike over pay. The removal of subsidies and potential wage cuts puts pressure on vulnerable Tunisian pocketbooks, leading to a reliance on illicit markets for their survival. Unfortunately, smart economic choices will hurt many in the short-term. Tunisians having to adjust to new expectations of government aid could lead to the same frustrations that ousted Ben Ali. If security is not addressed aggressively and the full brunt of economic reforms is not mitigated, Tunisia may experience a spike in violence from disaffected citizens.

The proper use of international assistance would help Tunisia realize the delicate policy balance that gives equal weight to both security and economic issues. Several states already provide aid to bolster the country’s agenda. The United States, which strongly desires a secure and democratic Tunisia, has already committed more than $570 million in assistance since 2011. Tunisia receives security sector help from Spain, Turkey, Qatar, Japan, Belgium, Norway Germany, the United Kingdom, Finland, and France. Yet, few countries coordinate their assistance, muddling its impact. Tunisia’s partners must consolidate international efforts to improve border security and counterterrorism effectiveness with the necessary equipment and technical assistance. The effort must also include reforming the criminal justice system and policing procedures to meet international human and civil rights standards.

Large loans or aid packages from an anti-Islamist Gulf States—like Saudi Arabia or the United Arab Emirates—could alleviate the initial economic pressures resulting from cutting subsidies. President Essebsi’s positive relationship with the UAE could particularly help exact the needed support. The influx of cash would allow the government to ease subsidies out while counterbalancing them with cash handouts to minimize the pain to citizens. It would also allow the uninterrupted payment of employee salaries, thereby avoiding strikes, and afford increased security measures. New employment and job creation programs for border areas would prevent the temptation to resort to the informal economy.

Provided with the proper international support, the Tunisian government would no longer have to decide between security and the economy. Both would be addressed in a manner that is most beneficial to all Tunisians. Security is enhanced, the border is controlled, but rather than eliminating sources of income and removing safety nets, the government can reform its subsidies to best serve those in need and avoid the pitfalls that can come when implementing these policies. With help from the international community, Tunisia could tackle the issues in the best way possible, simultaneously.

Chris Chapman is a research intern at the Atlantic Council’s Rafik Hariri Center for the Middle East focusing on North Africa.

Image: Tunisia's Prime Minister Habib Essid (C) attends the first meeting of the new government at the government palace in Tunis February 9, 2015. REUTERS/Zoubeir Souissi