Tunisia is under pressure to speed up economic reforms, especially after two deadly attacks this year on its tourism industry, but the government is struggling with internal splits and resistance from trade unions and political opponents.
Since its 2011 revolution, the North African state has completed a transition to democracy, an achievement for which a quartet of organisations won the Nobel Peace Prize last week, but international lenders want more economic reforms to curb high public spending.
Against those demands, the government must manage the frustrations of ordinary Tunisians, mindful that it was poverty and lack of economic opportunity that prompted a young street vendor to burn himself to death and set in motion the uprising that ousted veteran autocrat Zine El Abidine Ben Ali.
How it resolves these tensions will determine whether the country that launched the Arab Spring can also take the lead in delivering stability and prosperity for its people.
The country is at a critical moment as it prepares to start negotiations with the IMF over a new credit programme
Tunisia has taken some modest reform steps: last month it injected €387 million into state-owned banks Société Tunisienne de Banque and Banque de l’Habitat, which International Monetary Fund chief Christine Lagarde said would help the lenders out of a difficult financial situation.
Not for the first time though, the government was forced to respond to social pressures.
After negotiations with the powerful labor union UGTT, it raised the wages of 800,000 public sector employees for the second time this year. Officials say this will cost the treasury about €1.05 billion.
Prime Minister Habib Essid said these steps were essential to calm tensions and stop strikes, and to raise the confidence of foreign investors. “We know very well reforms come at an expensive price, but we need social peace in the coming period to push ahead with urgent changes due the critical economic situation,” Mr Essid told Reuters.
The country is at a critical moment as it prepares to start negotiations with the IMF over a new credit programme likely to be worth at least €1.5 billion, according to the head of the central bank.
Madame Lagarde urged Tunisia to accelerate both banking sector reform and cuts in state spending, saying public sector pay accounted for about 13.5 per cent of GDP. The government’s budget deficit stood at 5.8 per cent of Gross Domestic Product last year.
The recent wage hike was not the first sign that the government is struggling to balance lenders' demands.