Tunisia: Outlook for 2013-17

The country (Tunisia) is located in Northern Africa and bordering the Mediterranean Sea, between Algeria and Libya.
The country has borders with Algeria for 965 km and Libya for 459 km.
Then land in Tunisia is a lot of mountains in north, hot and dry central plain; semiarid south merges into the Sahara.
Tunisian land covers an area of 163 610 km².The climate is temperate in north with mild and rainy winters and hot with dry summers with the desert in south.

Overview
The establishment of a permanent government after elections in mid-2013 will be no guarantee of stability if the economic situation does not improve. The government that emerges from the next elections is likely to be another coalition led by Hizb al-Nahda. Secular parties in the coalition would temper the post-election government's Islamist-tending policies. The downside of another coalition government is that establishing the clear policy lines wanted by local business and foreign investors will be more difficult. The government is expected to pursue an expansionary fiscal policy in 2013 14. The budget deficit will average 5.3% of GDP in 2013-17, but will trend lower as the forecast period progresses. We forecast that real GDP growth will be weaker than previously forecast in 2013-14 owing to worsening domestic unrest and a deteriorating trade profile. Growth will be stronger from 2015 onwards, averaging close to 5% in 2015-17. Inflation will subside during 2013-15, aided by an easing in global commodity prices, but upward price pressure stemming from higher oil prices are likely to reverse this decline in 2016-17. We expect the current account to remain in deficit in 2013-17, as a persistent trade deficit is only partly offset by an improving non-merchandise position in the latter half of the forecast period
Political outlook
After months of internal negotiations the three parties making up the coalition government have agreed that a parliamentary election and the first round of the presidential election will both be held on June 23rd 2013.

A new government was formed in December 2011. The cabinet is dominated by Hizb al-Nahda, which has taken 13 of the 29 minister and deputy ministerships, including amount the major portfolios with the exception of national defence and finance.
Economic policy outlook
The government is continuing with its policy of negotiating loan guarantees with its international partners.
Economic forecast
The trade deficit widened by 49% year on year in the first nine months of 2012, putting further pressure on the external balances. Export growth was mostly held back by sluggish demand in the EU, a key market for Tunisia.

Inflation estimate for 2012 to 5.5% as the Tunisian dinar is estimate to decline against a strengthening US dollar and will lead to higher than expected inflation in 2012. Estimate for Tunisia remains highly uncertain given the continuation of domestic strikes, which have caused disruptions in output. In addition, the possibility of a break-up of the euro zone has increased. Such a break-up would be detrimental to the Tunisian economy as Tunisia relies heavily on the EU for trade, tourism and remittances.

Outlook for 2013-17
The establishment of a permanent government after elections in mid-2013 will be no guarantee of stability if the economic situation does not improve.
The government that emerges from the next elections is likely to be another coalition led by Hizb al-Nahda. Secular parties in the coalition would temper the post-election government's Islamist-tending policies.
The downside of another coalition government is that establishing the clear policy lines wanted by local business and foreign investors will be more difficult.
The government is expected to pursue an expansionary fiscal policy in 2013-14. The budget deficit will average 5.3% of GDP in 2013-17, but will trend lower as the forecast period progresses.
We forecast that real GDP growth will be weaker than previously forecast in 2013-14, owing to worsening domestic unrest and a deteriorating trade profile. Growth will be stronger from 2015 onwards, averaging close to 5% in 2015-17.
Inflation will subside during 2013-15, aided by an easing in global commodity prices, but upward price pressures stemming from higher oil prices are likely to reverse this decline in 2016-17.
We expect the current account to remain in deficit in 2013-17, as a persistent trade deficit is only partly offset by an improving non-merchandise position in the latter half of the forecast period.
Review
After months of internal negotiations the three parties making up the coalition government have agreed that parliamentary elections and the first round of the presidential election will both be held on June 23rd 2013.
Dissatisfaction is on the increase, with the coalition members losing support. However, placating everyone is almost impossible.
The central bank governor has given a cautious assessment of the health of the economy. The generally gloomy prospects were underlined by the decision of Moody's rating agency to maintain its negative outlook.
The trade deficit widened by 49% year on year in the first nine months of 2012, putting further pressure on the external balances. Export growth was mostly held back by sluggish demand in the EU, a key market for Tunisia.
Tunisia has secured a guarantee from the Japanese government for a 50bn (US$600m) sovereign bond to be launched on the Japanese market before the end of 2012. This will help Tunisia to cover its growing current-account deficit.