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Tunisia Country Risk Report Q4 2016

  • August 2016
  • -
  • Business Monitor International
  • -
  • 35 pages

Core Views

Tunisia's new unity government, which will be formed in August,will benefit from a large parliamentary majority and support fromthe country's main labour unions. Nonetheless, it will still confrontdaunting socio-economic and political challenges. Popular pressuresand opposition from vested interests will continue to slow the paceof reform, particularly in the run-up to local elections scheduled forthe end of the year.All three growth drivers of the Tunisian economy – consumption,investment and exports – will remain mired with problems, includingthe lingering effects of last year's terrorist attacks on the tourismsector, the unresolved weaknesses of the banking system, and lowpublic investment. We project only a tepid recovery this year, withreal growth of 1.7% compared to an estimated 0.8% for 2015.Budgetary inflexibility, weak economic growth, and growing socialunrest will limit the ability of the government to narrow the fiscal deficit.While job creation will gradually pick up over the coming years,progress in reducing Tunisia's large unemployment rate will remainslow. The government will struggle to deal with increases in theworking age population as well as growing female participation inthe workforce.

Table Of Contents

Tunisia Country Risk Report Q4 2016
Executive Summary.. 5
Core Views...5
Chapter 1: Economic Outlook.. 7
SWOT Analysis... 7
BMI Economic Risk Index.. 7
Economic Growth Outlook 8
Slower Recovery Amid Faltering Investment And Exports.8
Tunisia's economic recovery will be a protracted process. Risks of social unrest and ongoing weakness in key sector s will weigh on
investor sentiment, affecting fixed capital formation and exports. As a result, we have downgraded our real growth forecast to 1.7% in
2016 and 2.6% in 2017, from 2.4% and 3.3% previously.
GDP By Expenditure Outlook 9
TABLE: GDP GROWTH FORECASTS..9
TABLE: GOVERNMENT CONSUMPTION FORECASTS.9
TABLE: PRIVATE CONSUMPTION FORECASTS9
TABLE: FIXED INVESTMENT FORECASTS.. 10
TABLE: NET EXPORTS FORECASTS 10
Monetary Policy 11
Rates On Hold Until 2017..11
The Central Bank of Tunisia will keep interest rates on hold throughout the rest of 2016 and in the first half of 2017. Higher inflationary
pressures amid recovering energy prices and an uptick in credit growth do not point towards further rate cuts. Monetary tightening will
be gradual as the economy continues to struggle.
Monetary Policy Framework 12
TABLE: MONETARY POLICY FORECASTS.. 12
External Trade And Investment Outlook 13
Reliant On External Donors Amid Tepid Foreign Investment...13
External assistance will play an essential role in financing Tunisia's large current account deficits over the next five years, as the energy
bill picks up with the recovery in oil prices and as the tourism sector continues to suffer from weak security perceptions. Despite the
government's investment promotion efforts, foreign investment will take time to recover, forcing Tunisia to rely on external donors.
Outlook On External Position.. 15
Aid Mitigating The Impact Of Stagnating FDI And Reserves15
Tunisia will remain a net debtor to the rest of the world amid elevated current account deficits. As political stability improves, foreign
direct investment will pick up, reducing Tunisia's reliance on external assistance.
TABLE: CAPITAL and FINANCIAL ACCOUNT BALANCE. 15
TABLE: BREAKDOWN OF IMPORTS IN 2015... 15
TABLE: BREAKDOWN OF EXPORTS IN 2015... 16
TABLE: CURRENT ACCOUNT BALANCE FORECASTS... 16
Chapter 2: 10-Year Forecast... 19
The Tunisian Economy To 2025.. 19
Human Capital To Support Long-Term Growth..19
The Tunisian economy will bounce back over the coming decade. Tunisia's relatively favourable business environment, along with
high human capital development, will result in an uptick of foreign investment once stability is restored, which will help drive private
consumption growth.
TABLE: LONG-TERM MACROECONOMIC FORECASTS. 19
TABLE: MENA - SELECTED BUSINESS ENVIRONMENT FACTORS .20
Chapter 3: Political Outlook... 23
SWOT Analysis. 23
BMI Political Risk Index... 23
Domestic Politics. 24
Positive Democratic Trajectory; Turbulent Times Still Ahead..24
The formation of a new unity government in Tunisia, expected in August, will give a new momentum to structural reforms, given the
support of the country's trade unions. Combined with Ennahda' s renewed commitment to democratic institutions, it supports our positive
outlook for Tunisian democracy, although various challenges still need to be addressed.
TABLE: POLITICAL OVERVIEW. 24
Long-Term Political Outlook... 26
Political Transition To Be Successful.26
We are optimistic regarding Tunisia's ability to evolve into a stable dem ocracy, and th e political transition will be the most successful
among the countries that experienced the Arab Spring. An untested institutional framework, job creation and radical Islamist militancy
will be the major challenges to stability over the coming decade.
Chapter 4: Operational Risk... 29
SWOT Analysis. 29
Operational Risk Index 29
Chapter 5: BMI Global Macro Outlook... 31
Global Macro Outlook.. 31
Brexit To Hit Global Growth.31
TABLE: GLOBAL ASSUMPTIONS.. 31
TABLE: DEVELOPED STATES, REAL GDP GROWTH, % 32
TABLE: EMERGING MARKETS, REAL GDP GROWTH, %... 33
TABLE: MACROECONOMIC DATA and FORECASTS.. 35

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