Coface Group
Tunisia

Tunisia

Population 11 million
GDP per capita 4,422 US$
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Synthesis

MAJOR MACRO ECONOMIC INDICATORS

  2013 2014 2015(f) 2016(f)
GDP growth (%) 2.3 2.3 0.5 1.5
Inflation (yearly average) (%) 5.8 4.9 5.0 4.0
Budget balance (% GDP) -6.0 -3.7 -5.7 -4.0
Current account balance (% GDP) -8.3 -8.9 -8.4 -7.0
Public debt (% GDP) 44.3 50.0 54.0 56.3

 

(e) Estimate  (f) Forecast

STRENGTHS

  • Natural resources (gas, phosphates), agricultural, tourism
  • Diversification of the economy underway and reasonably skilled labour
  • Proximity to the European market and Association Agreement with the EU

WEAKNESSES

  • Social and geographic inequalities
  • High youth, unemployment
  • Economic importance of agriculture
  • Tourist sector facing political-security issues  and increasing competition

RISK ASSESSMENT

Slight recovery in 2016

Despite a favourable international environment, Tunisia's economy has suffered from the repercussions of the three attacks, which hit the country in 2015. The worsening security environment has affected household and business confidence, just at a time when activity should have benefitted from low energy prices and the tentative recovery in Europe.  The tourism sector, which was badly hit by the two attacks (Bardo museum in March 2015 and Sousse in June 2015), will have difficulty in recovering from their consequences. In September 2015, the number of overnight stays was down by more than 60% and the number of visitors by 50% compared with the figures recorded in 2014. Given the importance of tourism in the economy (7% of GDP and 15% of the economically active population), the negative outlook for the sector makes a strong recovery of activity in 2016 unlikely. Furthermore, since the start of 2015 Tunisia has been facing an increasing number of industrial strikes, leading to breakdowns in production.  Added value in some industrial branches (manufacturing as well as chemicals) is declining. The recovery of demand in Europe, which is still Tunisia's main trading partner, points to better prospects for the industrial sector in 2016. However, it will still be conditional on a calmer social climate on the back of renewed dialogue between the unions, business and the public authorities. The five-year Strategic Plan 2016-2020 presented in September 2015 is expected to be implemented in 2016. It sets out a group of measures aimed at enhancing Tunisia's attractiveness and boosting investment, which fell back in 2015. It could be a while before the effects of the plan are felt. On the demand side, the start of works on the road infrastructure project, jointly financed by the African Development Bank (AfDB), the Agence française de développement (AFD) and the World Bank will support activity. Household consumption could turn out to be more dynamic in 2016 following a cut in consumption tax on specific goods (which is in addition to VAT) and an increase in civil service salaries. This fiscal stimulus drive will, however, be dampened by the rise in VAT and higher unemployment. Inflationary pressures are likely to ease in 2016, allowing the central bank to continue with its accommodative monetary policy begun in October 2015.

 

Stabilisation of twin deficits

Despite the consolidation of the public accounts established with IMF support under the Stand-By Arrangement agreed in 2013, the deficit observed in 2015 widened due to the process of recapitalising state-owned banks, the cost of which amounts to 1.6% of GDP. Despite the adverse economic situation, the public deficit is expected to reduce slightly in 2016. The increase in civil service salaries and customs exemptions for imported inputs planned as part of the tax reforms will be offset by VAT reform. The authorities should be able to borrow in order to finance some of the public debt, particularly from Islamic banks.

The low commodity prices have had very little impact on the external accounts. Although the energy balance was in surplus, the fall in exports and the drop in tourism income led to a sizeable current account deficit. In 2016, tourism income will struggle to recover, although Tunisia could benefit from the slight growth upturn in Europe, to which it directs 70% of exports.  

The recapitalisation of the state-owned banks has helped limit the risk of bankruptcy which was weighing on the most fragile of these banks. However, they are still very exposed to the risk of default in the tourism sector. The ratio of non-performing loans in the sector has reached 25% of the claims held by the banks and could rise in 2016.

 

Political transition completed but growing terrorist threat

The Nobel Peace Prize given to the Tunisian national dialogue quartet in October 2015 was the final step in the country's political transition. The 2014 parliamentary elections enabled the formation of a coalition government which included representatives from the majority Nidaa Tounes Party and the Ennahda opposition party. However, the country still faces many challenges.

The various attacks on Tunisian soil in March, May and November 2015 underline the growing security risk. Tunisia remains subject to the Jihadist threat on its territory and these pressures are likely to grow as the situation in Libya deteriorates.

Meanwhile, although there is political consensus on the government's broad goals, the majority Nidaa Tounes Party is weakened by internal struggles, which could lead to a possible dissolution. The country is moreover gripped by widespread social unrest which could increase as a result of the economic slowdown.

 

Last update: January 2016

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