African countries do face very high interest rates on the international bond market when they look to raise capital from debt financing. And when we say African countries, we do not only mean sub-Saharan African countries. We also include northern African countries.
And these high interest rates imposed upon African countries by the International Monetary Fund (IMF), which is the primary international lender for developing countries, are becoming unbearable to the point that some of these countries have decided to reject loans offered to them. This has been the case with Tunisia.
With a sky-high bond yield of 27.9%, Tunisia is facing the highest borrowing cost in Africa. Given the continuous downgrade of Tunisia’s credit ratings that hinders access to cheap loans, the country initially resorted to reaching an agreement on a $1.9 billion bailout loan from the International Monetary Fund (IMF) last October.
However, Tunisia has subsequently reversed its decision and rejected the $1.9 billion bailout loan from the IMF. The decision was made by President Kais Saied, who has been criticized for his increasingly authoritarian rule.
The IMF loan was conditional on Tunisia implementing a series of austerity measures, including cuts to public spending and subsidies. Saied argued that these measures would hurt the poor and vulnerable, and he vowed to find other ways to solve Tunisia's economic problems. While the specific conditions of the IMF loan to Tunisia have not been made public, they include the following measures:
(1) Austerity measures. The IMF would likely require Tunisia to implement a series of austerity measures, including cuts to public spending and subsidies. These measures would be designed to reduce the country's budget deficit and debt.
(2) Reforms to the energy sector. The IMF would likely require Tunisia to reform its energy sector, which is heavily subsidized. This would involve raising the price of fuel and electricity, which would help to reduce the government's spending on energy subsidies.
(3) Tax reforms. The IMF would likely require Tunisia to implement tax reforms, such as increasing the tax rate on the wealthy and closing tax loopholes. This would help to increase government revenue.
And (4) structural reforms. The IMF would likely require Tunisia to implement structural reforms, such as improving the efficiency of the public sector and reducing corruption. These reforms would help to improve the country's long-term economic outlook.
The IMF has warned that Tunisia's economy is in a precarious situation, and that it could default on its debts if it does not get help. However, Saied has said that he is confident that Tunisia can overcome its economic challenges without the IMF's help.
There are a number of arguments against the IMF. Some people argue that the IMF's loans come with too many strings attached, and that they often lead to austerity measures that hurt the poor and vulnerable. Others argue that the IMF's lending practices are neocolonial, and that they keep developing countries in debt.
It remains to be seen what will happen next in Tunisia. If the country does not get help from the IMF, it could face a severe economic crisis. However, if it does accept the IMF's loan, it will have to implement a series of austerity measures that could be unpopular with the public.