Country Report Tunisia July 2008

Outlook for 2008-09

• The campaign to re-elect the president, Zine el-Abidine Ben Ali, in the 2009 election is gathering pace, but he is unlikely to face any serious competition.
• Despite recent protests over unemployment and rising food prices, we expect the government to be able to maintain social stability, although it will prove challenging, particularly given the constraints on fiscal outlays.
• Given increased social tensions and high commodity prices, the government will be wary of taking measures that could lead to unrest, particularly raising prices for subsidised goods or reforming the subsidy system.
• The continued strength of oil and foodstuffs prices in 2008-09 will place a burden on Tunisia's subsidy system, and the fiscal deficit looks set to widen in 2008 and remain high in 2009.
• With food and oil costs rising sharply and the dinar weakening against the euro—the currency which most of Tunisia's imports are denominated—inflation is now expected to average 5.5% in 2008, easing to 4.1% in 2009.
• Although export earnings will continue to grow at a robust pace, import costs will also expand rapidly, and the current-account deficit is expected to widen to 2.8% of GDP in 2008 and to narrow only slightly to 2.6% of GDP in 2009.

Monthly review

• The government has said that programmes to improve social and economic conditions in the underdeveloped interior and south will be stepped up after unrest in June, but also made it clear that protest will not be tolerated.
• The government has denied claims by Amnesty International, an international human rights organisation, that it tortures prisoners.
• The development and international co-operation minister, Mohammed Nouri Jouini, has forecast that the fiscal deficit will rise to between 3.1% and 3.5% of GDP in 2008 because of the soaring cost of food and fuel subsidies.
• A recent IMF mission to Tunisia praised the authorities' economic management, but also highlighted concerns over the impact of high global commodity prices on Tunisian inflation and fiscal performance.
• Since the start of 2008 the state has received less than TD160m (US$134m) from privatisations, and the prospects for the rest of the year are not encouraging.
• Tunisia's important tourism sector continues to expand, but the relatively modest growth in tourism revenue and the dependence on relatively low-spending visitors remain a concern.
• The current-account deficit widened in the first quarter of 2008.

Source: Country Report