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Tunisia urged by IMF to reduce unemployment and to strengthen resiliency to external shocks

Despite the challenging international context, Tunisia’s economy performed well in 2009, according to preliminary conclusions of IMF mission that visited Tunisia in June. Although exports were adversely affected by the global crisis, real GDP growth exceeded 3 percent in 2009 and the financial soundness indicators continued to improve. Leveraging the benefits of the reform program and sound macroeconomic policies implemented in recent years, the authorities were able to mitigate the impact of the crisis with judicious accompanying measures.

 Macroeconomic policies continue to be well tailored. Tunisia’s good economic performance can also be attributed to the implementation of appropriate monetary and fiscal policies, as well as to the maintenance of a flexible exchange rate policy, which helped keep the real exchange rate in line with the fundamentals. Furthermore, as the financial sector was not affected by the global financial crisis, the financing of the economy continued without disruption.

 In the short term, the main thrust for the Tunisian economy is to continue to pursue flexible monetary and fiscal policies to support the country’s nascent economic recovery in an uncertain and volatile international environment. In spite of the global economic recovery, significant downside risks remain, particularly among Tunisia’s main trading partners. In this context, developments in the international environment need to be closely monitored in order to be able to respond quickly should potential risks materialize.

Meanwhile, Tunisia’s main objective over the medium term is to reduce unemployment and to strengthen the resiliency of the economy to external shocks, including by diversifying the export markets. The unemployment rate, already relatively high, increased slightly in 2009 as a result of the economic slowdown. Joblessness is particularly high among young graduates and represents the most pressing challenge for the authorities. Efforts will need to be made on export markets diversification to boost the growth potential of the economy and bring down unemployment over the medium term.

 To achieve these objectives, Tunisia intends to pursue a strategy aimed at strengthening its competiveness by supporting the emergence of new sources of growth and maintaining sound macroeconomic policies. In response to weak growth prospects in Tunisia’s traditional export markets, in particular the European Union, the authorities intend to develop a geographic and product diversification strategy to bolster access to new markets. In that context, the President’s program for 2010-14 provides for major structural reforms in the economic and financial sectors, including social security and labor market reforms, strengthening and developing the financial sector and liberalizing the services sector.

Real GDP growth accelerated since mid-2009. After falling to 1.8 percent (year-on-year) in the first quarter of 2009, real growth gradually picked up and reached 4.5 percent (year-on-year) in the first quarter of 2010, driven by the upturn in demand for manufacturing sector exports, especially mechanical and electrical goods and textiles. However, this increase was partially offset by the slowdown in the energy and agricultural sectors. Domestic demand was sustained by persistently buoyant consumption fuelled by the steady rise in per capita income.

 Inflation rose from an average of 3.7 percent in 2009 to 5.0 percent in May 2010 (year-on-year) as a result of rising food prices. The increase was contained by the combined effects of an appropriate monetary policy and moderate price increases in other sectors such as housing, transport, and services.

 The current account deficit, which had narrowed in 2009, widened again considerably in early 2010 following deterioration in the trade balance. The improvement in the current account in 2009 was mainly the result of falling commodity prices and imports of capital goods as well as the good performance of transfers and services. In the first quarter of 2010, the current account deficit rose, pushed up by the deteriorating trade balance and stagnating tourism revenues and transfers from Tunisian workers abroad. The substantial increase in exports, fuelled by the recovery in external demand, was largely outstripped by the rise in imports, reflecting renewed growth in the re-export sector and large capital goods imports, likely owing to buoyant investments. Although FDI was up 5 percent in the first four months of the year, compared to the same period in 2009, external reserves have been declining since end-2009. However, they remain at a solid level at around 9 billion US dollars at end-May 2010, according to IMF.

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