Tunisian PM says economic reforms will be paced to avoid unrest

Tunisia's Prime Minister Mehdi Jomaa speaks during a news conference after his return from his visit to the United States at the Tunis-Carthage International Airport in Tunis April 6, 2014. REUTERS/Zoubeir Souissi (Reuters)

By John Irish PARIS (Reuters) - Tunisia will not need to access financial markets to manage its budget deficit this year, its prime minister said on Tuesday, while ruling out harsh public spending cuts that could stoke popular unrest. Three years after an uprising that inspired the "Arab Spring" revolutions, Tunisia has a new constitution and aims to hold elections this year. But the caretaker government, led by Prime Minister Mehdi Jomaa, has said painful sacrifices will be needed to revive an economy hit by the turbulence that followed the toppling of Zine El-Abidine Ben Ali and the financial crisis in Europe. "We don't want demonstrations," Mehdi Jomaa told Reuters in an interview during a trip to Paris to lobby investors. "We will have a national economic dialogue because that's how we succeeded in the political process. Everyone has to be made aware that reforms are needed, but we won't push too hard." Jomaa's challenge is how to cut government costs without triggering the kind of discontent that toppled Ben Ali, whose overthrow was caused partly by grievances over unemployment and high prices that are still very real for many Tunisians. He also has to manage a delicate political balance between secularists and Islamists as well as a security threat from al Qaeda-linked militants. FIRST WAVE Jomaa, a former aerospace executive, last month announced external borrowing needs for this year would be $8 billion - nearly double the initial estimate. He said there was a $2 billion budget deficit gap, but that talks with "friendly" countries and financial institutions were well under way to fill it. "We have to work harder to make up the gap on the budget, but I don't think we will need to access the financial markets especially given our (low) credit rating," he said. Just last year, an attempt to increase a vehicle tax showed how sensitive austerity policies can be. The announcement triggered rioting that forced a policy U-turn. While Jomaa said he would look at managing wage costs, he ruled out any job cuts or wage reductions this year. He said a first wave of reforms would not include price hikes for fuel or bread and there would only be a "streamlining" of subsidies which ballooned over the last three years. "We have to continue to support the poor and middle classes to improve their spending power, but need to target those that can pay more. We don't need to be helping everybody." One of the first measures would be to differentiate the prices paid for gas and electricity by using meters, he said. NO ELECTION DELAY Jomaa's technocrat government took office three months ago after an accord between the two main political poles - the Islamist Ennahda party and its secular opponents - that ended a political standoff and opened the door for elections. Despite some suggestions elections could be delayed, Jomaa said he saw no reason to postpone the vote to 2015. Parliament began debating an election law this month, the final step before setting a ballot date. "Perhaps the Independent Election Commission (ISIE) has fallen a little behind, but everything is being done to organize these elections in the best conditions this year. I don't see why they should be pushed back," he said. Despite his popularity, he ruled out running for the presidency himself. With few hydrocarbon reserves, unlike its rich neighbors Algeria and Libya, Tunisia relies heavily on foreign tourism. Jomaa said he had lobbied France - where the largest number of tourists come from - to lift its warning against travelling to Tunisia, something the United States did weeks ago. Since Tunisia's uprising, security forces have been battling Islamist militants and recently launched a military offensive against them in the mountains bordering Algeria. Jomaa said Tunisia now had the upper hand on one militant group, Ansar al Sharia. "We have managed to break the back of the armed wing of this terrorist group. We have to remain vigilant, but Tunisia today is much more secure. The urgency is more towards our border." The main threat, he said, was from militants entering from southern Libya where al Qaeda affiliates have regrouped since being ousted from Mali last year. (Editing by Robin Pomeroy)