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Tunis - 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.
Tunisia has taken some modest reform steps: last month it injected $440m 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 labour 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 $1.2bn.
Prime Minister Habib Essid said that 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," 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 $1.7bn, according to the head of the central bank.
Lagarde urged Tunisia to accelerate both banking sector reform and cuts in state spending, saying public sector pay accounted for about 13.5% of GDP, one of the highest rates in the world. The government's budget deficit stood at 5.8% of Gross Domestic Product last year.
Difficult balance
The recent wage hike was not the first sign that the government is struggling to balance lenders' demands with the realities of delivering unpalatable reforms on the ground.
Earlier this year, it gave in to the pay demands of striking teachers. In February it froze a border tax on travellers crossing to and from Libya after protests during which a young man was shot dead by police.
Essid's government, a coalition between the secular Nidaa Tounes party and the Islamist Ennahda, must also contend with internal tensions and opposition demands, especially in the run-up to municipal elections in 2016.
"The absence of any real reforms at the economic level illustrates the lack of courage among the political parties," said Abdelhamid Jellasi, an Ennahda official.
"They know the need for urgent reforms but they cannot take any decision in that direction."
Boosting the economy is all the more important given the battering the tourism sector has taken from two Islamist attacks that killed 61 people this year, one in the capital and one at a beach resort. Tourism makes up 7% of GDP, but the bloodshed has prompted some foreign tour companies and cruise operators to pull out.
Now Essid's government says fiscal reforms will be implemented in 2016 and that it will not raise wages in the public sector until 2018.
Rampant corruption
An increase in the retirement age from 60 to 62 years is among measures that may be announced in the coming months to help cut a $1bn deficit in the social security fund.
"We are close to reaching an agreement with the labour union UGTT to approve a bill to raise the retirement age by two extra years as part of a plan of urgent reforms," Social Affairs Minister Ammar Younbayi said.
But the coalition government is struggling to maintain cohesion, especially after a junior minister resigned last week, complaining of rampant corruption. Even some senior officials in Nidaa Tounes ranks have strongly criticised Essid's government.
Government sources say he may reshuffle the cabinet as soon as next month to inject new blood. But there is concern that a lack of political stability could disrupt reforms.
Tensions in government have risen since President Beiji Caid Essebsi proposed a law that would clear businesses accused of corruption under Ben Ali if they hand back their ill-gotten gains to benefit the economy. That has angered critics who say corrupt officials should be prosecuted.
"We don't need to push reforms in an atmosphere of confrontation," Essid said calling for a consensus among unions, political parties and government. "We need to have a good climate to attract foreign investment."
