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Tunisia Country Risk Report Q1 2016

Tunisia Country Risk Report Q1 2016

Core Views

Tunisia will experience only a tepid economic recovery over 2016, with real growth of 2.4% compared to our estimate of 0.9% for 2015.

Security concerns and weak domestic confidence will continue to hamper tourism flows and investment. Faster growth is conditional on improvements in the regional security environment and the passage of structural economic reforms, both of which will take time to materialise.

The March and June 2015 terrorist attacks on Tunisia's Bardo Museum and coastal city of Sousse highlight the country's acute vulnerability to radical Islamist groups across the Middle East and the Sahel.

Tourism and investment confidence will both be hit, presenting new headwinds to economic activity. However, we expect the national unity government formed at the start of 2015 – which brings together secularists and moderate Islamists – to survive the crisis.

Fiscal consolidation will proceed at a measured pace in Tunisia over the coming years, as the government's commitment to reform stumbles against popular pressure to raise salaries and limit privatisation and tax hikes. We see the budget deficit narrowing from 4.9% of GDP in 2014 to 3.6% by 2019.

The fragile state of Tunisia's banking sector will remain a drag on the economy over the coming years, despite the passage of a recapitalisation plan in August 2015. Moreover, the issue will continue to be politically controversial, and the need for any further bailouts would undermine popular support for the government.

While job creation will gradually pick up over the coming years, progress in reducing Tunisia's large unemployment rate will remain slow. The government will struggle to deal with increases in the working age population as well as growing female participation in the labour force.


Executive Summary
Core Views
Key Risks
Chapter 1: Political Outlook
SWOT Analysis
BMI Political Risk Index
Domestic Politics
After Nobel Peace Prize, Problems Remain
The award of the 2015 Nobel Peace Prize to Tunisia's National Dialogue Quartet reflects the country's positive evolution since the Arab
Spring, and we are confident towards its ability to evolve into a stable democracy by the end of the decade. Nevertheless, Tunisia will
continue to confront significant socio-economic and political challenges, which could yet derail the progress accomplished until now.
TABLE: POLITICAL OVERVIEW
TABLE: TIMELINE OF EVENTS SINCE THE ARAB SPRING
Long-Term Political Outlook
Political Transition To Be Successful
We are optimistic regarding Tunisia's ability to evolve into a stable democracy, and believe that the 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 2: Economic Outlook
SWOT Analysis
BMI Economic Risk Index
Economic Growth Outlook
Tepid Recovery Over 2016
Tunisia will experience only a tepid recovery over 2016, with real growth of 2.4% compared to our estimate of 0.9% for 2015. Security
concerns and weak domestic confidence will continue to hamper tourism flows and investment. Faster growth is conditional on
improvements in the regional security environment and the passage of structural economic reforms, both of which will take time to
materialise.
TABLE: ECONOMIC ACTIVITY
TABLE: REAL GDP GROWTH IN MAIN TRADING PARTNERS
GDP By Expenditure Outlook
TABLE: COMPONENTS OF GDP (% OF TOTAL)
TABLE: GOVERNMENT CONSUMPTION
TABLE: PRIVATE CONSUMPTION
TABLE: FIXED INVESTMENT
TABLE: NET EXPORTS
Banking Sector Update
Resolution To Public Banks' Woes Is Still Far Away
The fragile state of Tunisia's banking sector will remain a drag on the economy over the coming years, despite the passage of a
recapitalisation plan in August 2015. Moreover, the issue will continue to be politically controversial, and the need for any further bailouts
would undermine popular support for the government.
TABLE: FINANCIAL SOUNDNESS INDICATORS, MARCH 2015
External Trade And Investment Outlook
Remaining Reliant On Foreign Aid
Despite the boost provided by lower global energy prices, Tunisia's current account deficit will narrow only slowly over the coming years:
we forecast a shortfall of 7.0% of GDP in 2016. With an uptick in foreign investment unlikely to materialise rapidly, Tunisia will remain
reliant on international financing and donor assistance to offset pressures on its balance of payments.
TABLE: CURRENT ACCOUNT
Chapter 3: 10-Year Forecast
The Tunisian Economy To 2024
Human Capital To Support Growth
The Tunisian economy will bounce back over the coming decade, and will be an outperformer in North Africa. Tunisia's relatively favourable business environment, along with high human capital development, will attract significant levels of foreign investment, which will help drive private consumption growth.
TABLE: LONG-TERM MACROECONOMIC FORECAST
TABLE: MENA - SELECTED BUSINESS ENVIRONMENT FACTORS
Chapter 4: Operational Risk
SWOT Analysis
Operational Risk Index
Chapter 5:BMI Global Macro Outlook
Global Outlook
Exit The Dragon
TABLE: GLOBAL ASSUMPTIONS
TABLE: DEVELOPED STATES, REAL GDP GROWTH, %
TABLE: BMI VERSUS BLOOMBERG CONSENSUS REAL GDP GROWTH FORECASTS, %
TABLE: EMERGING MARKETS, REAL GDP GROWTH, %

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