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Tunisia Country Risk Report Q2 2016

Tunisia Country Risk Report Q2 2016

Core Views

The Tunisian coalition government is unlikely to unravel as a resultof the breakdown of Nidaa Tounes – the main political party – but willcontinue to face daunting socio-economic and political challengesover 2016. Popular pressure and opposition from vested interestswill continue to slow the pace of reform, particularly in the run-up tolocal elections scheduled for the 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 to 2.4% realgrowth this year, from estimated growth of 0.7% for 2015.

Budgetary inflexibility, weak economic growth and growing socialunrest will limit the ability of the government of Prime Minister HabibEssid to narrow the fiscal deficit.

The fragile state of Tunisia's banking sector will remain a dragon the economy over the coming years despite the passage of arecapitalisation plan in August 2015. The issue will continue to bepolitically controversial, and the need for any further bailouts wouldundermine 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 remainslow. The government will struggle to deal with increases in theworking age population as well as growing female participation inthe workforce.


Executive Summary
Core Views
Chapter 1: Economic Outlook
SWOT Analysis
BMI Economic Risk Index
Economic Growth Outlook
Continued Weakness In All Growth Engines
All three growth drivers of the Tunisian economy – consumption, investment and exports – will remain mired with problems, including
the lingering effects of last year's terrorist attacks on the tourism sector, the unresolved weaknesses of the banking system and low
public investment. We project only a tepid recovery this year, forecasting real growth of 2.4%, from an estimated 0.7% in 2015.
GDP By Expenditure Outlook
TABLE: COMPONENTS OF GDP (% OF TOTAL)
TABLE: GOVERNMENT CONSUMPTION FORECASTS
TABLE: PRIVATE CONSUMPTION FORECASTS
TABLE: FIXED INVESTMENT FORECASTS
TABLE: NET EXPORTS FORECASTS
Fiscal Policy And Public Debt Outlook
Fiscal Reforms Constrained By Political Realities
Budgetary inflexibility, weak economic growth and growing social unrest will limit the ability of the government of Prime Minister Habib
Essid to narrow the fiscal deficit.
Structural Fiscal Position
TABLE: MAIN REVENUE AND EXPENDITURE CATEGORIES (2014)
Monetary Policy
Dovish Shift For 2016
Tunisia's interest rate trajectory will be dovish over 2016. We forecast an interest rate cut of at least 25 basis points over 2016, given
weakening inflationary pressure and the continued weakness of economic conditions and credit growth.
Monetary Policy Framework
Chapter 2: 10-Year Forecast
The Tunisian Economy To 2025
Human Capital To Support Long-Term 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 to drive private consumption growth.
TABLE: LONG-TERM MACROECONOMIC FORECASTS
TABLE: MENA – SELECT BUSINESS ENVIRONMENT FACTORS
Chapter 3: Political Outlook
SWOT Analysis
BMI Political Risk Index
Domestic Politics
Turbulent 2016 For Essid Government
The Tunisian coalition government is unlikely to unravel as a result of the breakdown of Nidaa Tounes – the main political party – but will
continue to confront daunting socio-economic and political challenges over 2016. Popular pressure and opposition from vested interests
will continue to slow the pace of reform, particularly in the run-up to local elections scheduled for the end of the year.
TABLE: POLITICAL OVERVIEW
Long-Term Political Outlook
Political Transition To Be Successful
We are optimistic regarding Tunisia's ability to evolve into a stable democracy, and 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 4: Operational Risk
SWOT Analysis
Operational Risk Index
Chapter 5: BMI Global Macro Outlook
Global Macro Outlook
Downside Risks Gather Momentum
TABLE: GLOBAL ASSUMPTIONS
TABLE: DEVELOPED STATES, REAL GDP GROWTH, %
TABLE: BMI VERSUS BLOOMBERG CONSENSUS REAL GDP GROWTH FORECASTS, %
TABLE: EMERGING MARKETS, REAL GDP GROWTH, %
TABLE: MACROECONOMIC DATA & FORECASTS

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