US, Tunisia sign $500m loan guarantee

WASHINGTON — The United States and Tunisia signed this week a $500 million loan guarantee agreement that will help Tunisia raise money at affordable rates from commercial capital markets.

The US Treasury said the guarantee is aimed at helping the country rebuild its economy in the wake of the 2011 popular uprising that overthrew dictator Zine Al Abidine Ben Ali.

"The loan guarantee agreement is designed to support Tunisia as it pursues important reforms that will provide the foundation for economic growth and prosperity," the Treasury said.

It was the second US loan guarantee for the North African country. In 2012, Washington offered a guarantee of up to $485 million, which helped the country access capital markets for the first time since 2007.

Separately, the Tunisian government is expected in the coming few days to raise subsidised petrol prices by 6.3 per cent in the coming days and also decrease subsidies for bread, sugar and other basic materials to trim its worsening budget deficit.

Subsidies are a sensitive political issue in Tunisia where bitter anger over rampant unemployment, economic deprivation and social injustice exploded into a mass revolt in 2011 that triggered the Arab Spring uprisings in other countries.

"We will raise the price of sugar. There will be a slight increase in the price of bread," Trade Minister Najla Harouch told reporters on the sidelines of an economic conference.

Harouch did not give any details or date for increases.

Finance Minister Hakim Ben Hamouda told local radio last month that the government would raise the price of petrol to 1.670 dinars ($1.03) a litre from 1.570. The last increase was in March 2013.

Prime Minister Mehdi Jomaa's government is tackling the Tunisia's budget deficit by seeking international aid and looking at subsidy cuts to reduce high public spending.

But Jomaa is wary of balancing fiscal needs against the risk that austerity measures may spark popular protests among Tunisians already worried about high costs.

"We will not cancel subsidies. There are proposals for a slight raise in prices," the trade minister said.

Dialogue

An economic dialogue between the government and opposition parties is scheduled to start soon, in large part to address the issue of how best to reduce subsidies.

But the Popular Front, a coalition of nine secular parties have said they will boycott the conference because key decisions have already been made and that the dialogue is the government's way of pushing through painful decisions.

Tunisia's planned subsidy reforms and public spending cuts should help reduce the budget deficit by 1.5 billion dinars or $927 million in 2014, Jomaa indicated recently.

Jomaa, whose caretaker administration is governing until elections later this year, told reporters the budget financing needs were 3.5 billion dinars ($2.16 billion) through the end of this year.

The government has said growth should reach 3 per cent this year, on the basis of tourism figures, forecasts for the wheat harvest and phosphate production, and that the budget deficit will be 7.5 to 8 per cent of the gross domestic product.