Country Report Tunisia September 2008

Outlook for 2008-09

• The campaign to re-elect the president, Zine el-Abidine Ben Ali, in the 2009 election is gathering pace following the widely expected announcement that he will stand, 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.
• Given the weak outlook for Tunisia's main trading partners in the EU, real GDP growth is expected to slow to 5.1% in 2008 and to 4.6% in 2009.
• With oil prices falling sharply and the dinar strengthening against the euro—the currency in which most of Tunisia's imports are denominated—we have lowered our forecast for inflation in 2008-09 slightly.
• 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 2.9% of GDP in 2008 and stay close to that level in 2009.

Monthly review

• The ruling Rassemblement constitutionnel democritique has introduced measures to inject younger blood into its membership amid preparations for the 2009 elections. Mr Ben Ali has also undertaken a minor cabinet reshuffle.
• Mr Ben Ali has intervened in stalled private-sector pay negotiations as government concerns over the impact of inflation on the cost of living and social stability have mounted.
• The governor of the central bank, Taoufik Baccar, has called for economic reforms to continue, including rationalising energy consumption, strengthening the banking sector and promoting private investment.
• Real GDP growth slowed slightly in the first quarter of 2008, but remained healthy at 5.8% year on year, although more recent indicators point to a further gradual slowdown, despite strong investment growth.
• The current-account deficit widened sharply in the first half of 2008, to reach TD995m (US$822m), some 43% higher than in the same period of 2007, reflecting a sharp widening of the trade deficit.
• FDI, excluding privatisation receipts, grew by 43% to TD1.1bn in the first half of 2008, compared with the same period of 2007. Several new projects, including an Airbus production facility, have also been announced.

Source: Country Report