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Tunisia Country Risk Report Q4 2018

Tunisia Country Risk Report Q4 2018

Mounting tensions between Prime Minister Youssef Chahed and President Beji Caid Essebsi and growing coalition party calls for a vote of confidence severely raise the risks of a government collapse in Tunisia. While this is too close to call, we believe that repercussions for policymaking would be negative in the near term.

We only expect a modest acceleration of growth in 2018, as the recovery of the tourism and agricultural sectors boosts private consumption and exports, and as structural reforms yield results in terms of fixed investment.

Growth is unlikely to return to pre-2011 levels in the near term, as social instability weighs on investor perceptions and as high inflation dents households' purchasing power.

The government's budget deficits will see some small reductions over the coming years as the government moves forwards with consolidation measures. However, the pace of consolidation will remain hampered by risks of social unrest.

The Central Bank of Tunisia will remain on a tightening path in 2018, in order to contain the depreciation of the dinar and elevated inflationary pressures.

The dinar will continue to depreciate over the next two years, owing to large external imbalances, elevated inflation and struggling foreign investment.

Tunisia's current account position will benefit from recovering exports, due to both domestic and external conditions, and from the improved performance of the tourism sector. That said, the rally in oil prices will put upward pressure on imports, limiting the improvements in the current account position.Major Forecast Changes

We now forecast a budget deficit of 5.3% of GDP in 2018 and 4.9% in 2019, up from 5.0% and 4.7% previously. The revision is largely due to a higher-than-expected deficit in 2017.

We now forecast inflation to average 7.2% in 2018 and 6.5% in 2019, up from 5.8% and 4.8% previously.

We have also revised up our interest rate forecasts for 2018 and 2019, following the aggressive tightening seen in H118. We now expect the Central Bank of Tunisia's policy rate to end 2018 at 7.25% and 2019 at 8.00%.

Key Risks



Popular pressures and opposition from vested interests will continue to slow the pace of reform. An elevated terrorist threat, amid porous borders with Libya, regional instability and domestic socio-economic grievances, will continue to pose strong security threats, and will be a major challenge for the government. Nevertheless, we remain optimistic towards the country's transition to a relatively stable democracy.

Domestic political instability will continue to weigh on business sentiment, limiting the recovery in fixed investment. Faster growth is conditional on improve-ments in the regional security environment and the positive implementation of structural economic reforms, both of which will take time to materialise. A more market-oriented public policy framework and the recapitalisation of the banking system will be key to attracting foreign direct investment and boosting domestic credit growth.


Executive Summary
Core Views
Major Forecast Changes
Key Risks
Country Risk Summary
Economic Risk Index
Political Risk Index
SWOT
Economic - SWOT Analysis
Political - SWOT Analysis
Economic Outlook
Economic Growth Outlook
Gradual Economic Recovery On Track In Tunisia
GDP By Expenditure Outlook
TABLE: GDP GROWTH FORECASTS
TABLE: GOVERNMENT CONSUMPTION FORECASTS
TABLE: PRIVATE CONSUMPTION FORECASTS
TABLE: FIXED INVESTMENT FORECASTS
TABLE: NET EXPORTS FORECASTS
Outlook On External Position
TABLE: CAPITAL AND FINANCIAL ACCOUNT BALANCE
TABLE: BREAKDOWN OF IMPORTS IN 2016
TABLE: BREAKDOWN OF EXPORTS IN 2016
TABLE: CURRENT ACCOUNT BALANCE FORECASTS
Monetary Policy
No End In Sight To Price Pressures In Tunisia
Monetary Policy Framework
TABLE: MONETARY POLICY FORECASTS
Fiscal Policy And Public Debt Outlook
Fiscal Consolidation To Gradually Move Ahead In Tunisia
Structural Fiscal Position
TABLE: FISCAL AND PUBLIC DEBT FORECASTS
Tunisia Country Risk Q4 2018Contents10-Year Forecast
The Tunisian Economy To 2027
Structural Reform Drive Positive; Political Risk Still Looming
TABLE: LONG-TERM MACROECONOMIC FORECASTS
Political Outlook
Domestic Politics
Political Crisis Looming In Tunisia While Risks Of Unrest Stay Elevated
TABLE: POLITICAL OVERVIEW
Long-Term Political Outlook
Outlook Brightening, But Challenges Remain
Global Macro Outlook
Fewer Negative Surprises, But Trade Risks Rising
TABLE: GLOBAL MACROECONOMIC FORECASTS
TABLE: DEVELOPED STATES – REAL GDP GROWTH, % y-o-y
TABLE: EMERGING MARKETS – REAL GDP GROWTH, % y-o-y
Index Tables
TABLE: TUNISIA – MACROECONOMIC DATA & FORECASTS

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