IMF Special Report: Tunisia’s Slow Road to Recovery

Tunisia has been slowly recovering since its political and economic implosion, according to central banker Mustapha Nabli. But he has stinging criticisms of the G-8’s lack of assistance.


Mustapha Nabli manned no barricades in January when his fellow Tunisians rose up to drive out longtime ruler Zine Ben Ali and catalyze the broader Arab Spring. He watched the revolution from Washington, where he was employed as the World Bank’s chief economist for the Middle East and North Africa.

But Nabli soon got a call from Tunisia’s new interim government to fly home and take over the leadership of the national bank. The subsequent eight months have been challenging.

Tunisia’s economy, driven by tourism and light manufacturing, was in decent health when angry citizens took to the streets. GDP growth for 2010 was 3.7 percent. That reversed to a 2 percent contraction in the first half of this year as holidaymakers headed elsewhere and domestic investors took a wait-and-see attitude toward the evolving political order, Nabli says. Tunisia is set to hold a constitutional convention next month that officials hope will lay the groundwork for elections about a year from now. Meanwhile, 85-year-old statesman Beji Caid el Sebsi oversees a caretaker government.

Luckily for Nabli and his colleagues, the Ben Ali regime ran sober macroeconomic policies that left its successors room for fiscal and monetary stimulus. Government debt was a spare 42 percent of GDP when Ben Ali fled the country, and currency reserves were at a comfortable $9 billion, or 145 days of imports.

Nabli has leveraged that strength through a policy “similar to quantitative easing,” he tells Institutional Investor during an interview on the sidelines of the annual International Monetary Fund/World Bank meeting in Washington. The government issued bonds that were bought by local banks, which presented them to the Central Bank of Tunisia as collateral for lending. This strategy simultaneously pumped money into the reeling economy and eased the liquidity concerns of banks suffering from rising lender defaults and declining deposits, Nabli says. The program cost about $2.8 billion, or 5 percent of GDP.

The mild-mannered Nabli put his insider’s knowledge of international financial institutions to good use. Originally an economics professor, he served from 1990 to 1995 as Tunisia’s Economic Development minister. He says he resigned because he could see the government was moving in the wrong direction; two years later he launched a career at the World Bank. His former colleagues there awarded Tunisia $500 million in soft credit this year, an amount matched by the African Development Bank. France, the former colonial power in Tunisia, and the European Union kicked in an additional $400 million.


Nabli says he is satisfied with the level of support from multlateral donors but disappointed in the bilateral assistance offered, or, rather, not offered, by the Group of Eight leading world economies. “The G-8 have made lots of promises but sent no material support yet,” he complains.

Nonetheless, Tunisia’s central banker sees the country’s darkest days behind it. He predicts the economy will rebound to a zero growth rate for the whole of 2011. He and the government have enough confidence in the country’s financial strength that they have not approached the IMF for a structured multiyear bailout, the usual course for developing economies on the ropes.

The major lesson of the Tunisian uprising, Nabli warns, is that an economy and society can be rotting beneath positive statistics. Tunisian GDP grew at an average of 5 percent annually for decades, he says, but the country still imploded, driven by a lack of jobs to match rising education levels and perceived injustice linked to official corruption. “Corruption is another form of economic exclusion,” the central banker says. “People felt that available opportunities were handed out based on who had access to whom.”