Tunisia Solvency at Risk as President’s Hate Speech Sparks Rage

Netty Ismail and Souhail Karam
·3 min read
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(Bloomberg) -- Tunisia’s bond market is showing growing concern about default after President Kais Saied’s remarks about Black migrants sparked mob violence and led to worry that an urgent International Monetary Fund bailout could be delayed.

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The North African nation’s bonds have slid deeper into distressed territory and are the biggest losers in emerging markets this month, after Argentina and Bolivia. The cost to insure its debt against default has also risen among the most worldwide, to 1,250 basis points on Friday.

The attacks against Black migrants in Tunisia have led to condemnation from the African Union, which in a statement called on members to refrain from “racialized hate speech.” Rights groups including Amnesty International and Human Rights Watch have also published criticism of Saied, while both the World Bank and IMF — which is in the process of evaluating a $1.9 billion loan to help the nation avert default — have voiced concern.

“IMF board approval now looks less likely unless Saied backs down on his rhetoric,” said Mark Bohlund, senior credit research analyst at REDD Intelligence in London.

Tunisia has been mired in economic malaise worsened by the pandemic and the fallout from Russia’s invasion of Ukraine. Political strife after Saied assumed broader powers in July 2021 has amplified worries about default, and repeated tussles between the government and the nation’s powerful labor unions have cast doubt on how effectively authorities could comply with IMF-backed reforms.

In a speech on Feb. 21, the president said “hordes of irregular migrants from Sub-Saharan Africa” had come to Tunisia, bringing crime and violence as part of a criminal plan to change the nation’s demographics and turn it into “just another African country that doesn’t belong to the Arab and Islamic nations anymore.”

Mob Violence

The remarks helped stoke a surge in racist violence, with mobs taking to the streets and attacking Black migrants. Human Rights Watch says Tunisian police had been targeting Black African foreigners based on their appearance since early February, leading to the indiscriminate arrests of at least 850 people, including refugees and asylum seekers.

On Wednesday at a meeting with Guinea-Bissau’s visiting president, Umaro Mokhtar Sissoco Embalo, Saied dismissed criticism, saying he has African friends from law school and that some of his family members are married to Africans. Embalo later said that North Africa needed “better geography teachers,” a dig at his reference to “Africans,” despite Tunisians being from the African continent themselves.

The risk premium on Tunisian debt — which has been trading at distressed levels since September 2021 — widened 663 basis points from mid-February to 2,834 basis points over Treasuries as of Friday, according to a JPMorgan Chase & Co. measure.

‘Quite Stressed’

Any delays to IMF funding will deepen the nation’s urgent economic crisis, analysts say.

“The most pressing issue is the hard currency shortages, which will not get better unless the IMF disburses a tranche in the first half and that disbursement is followed by loans from bilateral partners,” said François Conradie, lead political economist at Oxford Economics Africa. “Even if those loans materialize, the picture will be quite stressed.”

The nation’s $1 billion bond due 2025 fell to 62.34 cents on the dollar on Monday, from around 68 at the end of February and almost 77 cents in early December. The yield climbed to nearly 35%. Tunisia has a 22.4 billion-yen ($168 million) bond due in August and a 500 million-euro ($534 million) debt maturing in October.

Viktor Szabo, an investment director at abrdn in London, said the latest turmoil is unlikely to stop the IMF board from approving financing as Tunisia remains “strategically important for the West,” especially the European Union. The EU co-operates with Tunisia on programs to reduce migration across the Mediterranean.

“Tunisia has no alternative now to having an IMF program in place,” he said. “Without an IMF program I don’t think Tunisia can avoid a messy restructuring. They are in a very difficult economic situation.”

--With assistance from Kerim Karakaya.

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