Tunisian Economy and the Challenges

of Democratic Transition

The Road to Democracy :the Arab Region, Latin America and Eastern

EuropeBeirut Friday, 18th May 2012

Moez LABIDIUniversity of Monastir - Tunisia

2 - Tunisian economy and the « revolution choc »

4 - Preliminary assessment of the Tunisian economic

situation

2

3 - The challenges of democratic transition in Tunisia

1 - Revolution outbreak main reasons

5 - Conclusion

2

3

1 - Revolution outbreak main reasons

3

Technological

Widespread of high tech Political

Goverment corruption

Human rights violation

Economical

Unemployment high levels

Regional inequalities

4

Technological

Political

Goverment corruption

Human rights violation

Economical

Unemployment high levels

Regional inequalities

Dignity - Justice - Freedom

Revolution

5

2 - Tunisian economy and the « revolution choc »

6

1 - Revolution outbreak main reasons

6

Political

Security

Libye Growth-2,2 %2011 Europe

Fiscal revenuesUnemployment

unemployment Fiscal revenues

EconomyInvDomestic : Wait & See

attitude

Banks : Non-performing loans

Inv Foreign : outflow

7

Fiscal relief

Fiscal policy Expansionary spending policy

Wages increase

Political uncertaintyDownturn in fiscal revenuesIncreasing social demands

Increase in budget deficit

Massive public sector hiring

Bailout of busnisses

8

Monetary Policy : ultra-expansionary 12,5 %

2 %

4,5 %

3,5 %

Interest rate Reserves requirements

3500 Mns TND

Liquidity injection

Political uncertaintyinsecurity

Weak governance in the banking sector

Distortion in Monetry policy Transmission mecanisms 9

2 - Tunisian economy and the « revolution choc »

10

3 - The challenges of democratic transition in Tunisia

1 - Revolution outbreak main reasons

10

An urgent need for jobs

and investment

Govermental

limited resources

Current economic situation

Tunisians’

expectations

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Social challenge

gap

Clearer political and

economical vision

Seek refuge in

easy solution

Defects in

fiscal balances

New

perspectivesgap

12

Pressure on bank liquidity

Liquidité

ShortageCentral bank

intervention

Allocation of long-

term resources

Boosting investment

Purchasing power decrease

Negative real interest rate

Low Saving rate

Economy

funding Businesses bailout

Currency reserves decrease

Financing

needs

Regional development funding projects

foreign investment fallCurrent account deficit

External debt

International financial

market

Multilateral / Bilateral

External financing

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2 - Tunisian economy and the « revolution choc »

4 - Preliminary assessment of the Tunisian economic

situation

14

3 - The challenges of democratic transition in Tunisia

1 - Revolution outbreak main reasons

14

Budget deficit

6,6 %GDP

2012

* Initial economic recovery in Q1 201 :

Tourism (+32,8 % ); FDI(+28,3%)

*Assemption : difficult to achieve

* European debt crises

PublicDebt

45,9 %GDP

2012

* Sustainable level

* Acceptable debt terms(Interest rate/maturity/ Currencies ) * High current account deficit

*Exchage rate depreciation

Satisfactory indicators Vulnerabilities

Inflation Q1 2012

5,4 % * Core inflationary stability * Sharp food price increase

* Exchange rate depreciation

* « Second-round effects »

rating BBB -* Acceptable ranking compared with regional competitors

* Current account deficit (2,3 %) *Budget deficit : 6,6 % (2012)

* Lowest « Investment grate »

2 - Tunisian economy and the « revolution choc »

4 - Preliminary assessment of the Tunisian economic

situation

16

3 - The challenges of democratic transition in Tunisia

1 - Revolution outbreak main reasons

5 - Conclusion

16

Economic transition

Political transition

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New development model Revolution requirements

Is the current islamist goverment able to change the developmental model ?

Stick to radical speech

Shrink its popularity

Keeping the old development model

Answering populists demands

Modernise its political speech

Enlarge its popularity

Switch to a new development model

Starting with essential reforms

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Thank You