Country Report Tunisia January 2013

Country Report Tunisia January 2013

Outlook for 2013-17

• The establishment of a permanent government after elections in mid-2013 will be no guarantee of stability if the economic situation does not improve.
• The government that emerges from the next elections is likely to be another coalition led by Hizb al-Nahda, which has been in power since October 2011. Secular parties in the coalition would temper Islamist-leaning policies.
• The downside of another coalition government is that establishing the clear policy lines wanted by local business and foreign investors will be more difficult, given differing ideologies.
• The government is expected to pursue an expansionary fiscal policy in 2013-14. The budget deficit will average 4.4% of GDP in 2013-17, but will trend lower as the forecast period progresses as the economic situation improves.
• Real GDP growth is forecast to be weaker than previously forecast in 2013-14, owing to worsening domestic unrest and a deteriorating trade profile. Growth will be stronger from 2015 onwards, averaging close to 5% in 2015-17.
• Inflation will subside during 2013-15, aided by an easing in global commodity prices, but upward price pressures stemming from higher oil prices are likely to reverse this decline in 2016-17.
• We expect the current account to remain in deficit in 2013-17 as a persistent trade deficit is only partly offset by an improving non-merchandise position in the latter half of the forecast period.

Review

• The growing propensity of some political groups to resort to violence in pursuit of their aims is of significant concern.
• A general strike, which would have been the first since 1984, was narrowly avoided after negotiations. It would have caused further damage to an already fragile economy; and would almost certainly have led to further political violence.
• The government has set the 2013 budget at TD26.8bn (US$17.1bn), a rise of 4.9% on the 2012 budget, but given relatively high inflation, about the same in real terms. A fiscal deficit of 5.9% of GDP is expected by the government.
• The government has launched a US$300m bond with a yield of only 1.19%. These terms were possible only because interest payments after year five are guaranteed by the Japan Bank for International Co-operation (JBIC).
• The economy grew by 3% in the first nine months of 2012. Agricultural production was buoyant in the third quarter, following good rainfall earlier in the year, and transport and tourism services performed well.

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