Tunisia Weathers Crisis Well, But Unemployment Persists

Structural reforms, prudent policies lessen impact of global crisis

High dependence on Europe brings uncertainty to short-term outlook

Key medium-term challenges are to boost employment, strengthen financial sector

In its annual health check of Tunisia’s economy, the IMF said that growth is expected to reach 3.8 percent in 2010, after slowing to 3 percent in 2009 as the global downturn took its toll. But unemployment has begun to rise, after having fallen to 12.4 percent in 2007, and at 13.3 percent, remains relatively high, particularly among the educated youth.

“Tunisia’s growth could increase gradually and reach an average of about 5 percent over 2010-14, provided that policies and reforms planned by the authorities aimed at enhancing Tunisia’s competitiveness, developing new markets, and supporting new sources of growth in sectors with high added value bear fruit,” the IMF report said.

Slowdown in Europe poses risk

Over the past two decades, the North African nation has undertaken wide-ranging structural reforms aimed at enhancing its business environment and improving the competitiveness of its economy. These reforms, accompanied by prudent macroeconomic management, have reduced the Tunisian economy’s vulnerability to shocks—including the global financial crisis—and provided more options for the authorities to respond to them.

But with growth in Tunisia’s main trading partners projected at a mere 1.2 percent in 2010 and 1.5 percent in 2011, the country’s economic recovery remains on fragile footing. Moreover, downside risks to prospects for recovery in Europe—by far Tunisia’s largest partner in terms of exports, tourism receipts, workers’ remittances, and foreign direct investment—have risen significantly in recent months, posing risks to the country’s short-term outlook, the IMF assessment found.

Thanks to prudent macroeconomic management, Tunisia still has some leeway to deal with such potential external risks, particularly on the fiscal policy front. But the authorities will need to remain vigilant in the face of potential inflationary pressures, a recent deterioration of the current account balance, and declining external reserves.

Medium-term challenges

To achieve Tunisia’s medium-term objectives of boosting employment-generating growth and lowering unemployment, the authorities are developing an export promotion strategy that seeks to diversify target markets and products. To that end, they have signed a...