Outlook for 2011-15

• The political situation in Tunisia is likely to remain volatile if the third interim government does not implement measures to create jobs and increase wages. There is a high risk that civil unrest will continue.
• The interim government plans to hold an election for a national constituent assembly on July 24th. The assembly will be responsible for rewriting the constitution and organising parliamentary and presidential elections.
• The third interim government has been formed, with all members of the former ruling party, the Rassemblement constitutionnel démocratique, being removed.
• Islamist parties will try to secure a position in Tunisian politics and government but will be competing against a plethora of new political parties, which have recently been licensed, as well as existing parties.
• We expect the interim government to increase subsidies on food items and to raise social security payments in the immediate future. Revenue will also decline and the budget deficit will swell to 9.4% of GDP in 2011.
• We estimate that real GDP growth in 2010 was 3.4%. We have further reduced our 2011 growth forecast to 2% in light of ongoing violence and political uncertainty. Growth in 2011-15 is forecast to average 3.4%.
• The protests will have a negative impact on tourism revenue and trade, causing the current-account deficit to balloon in 2011 to 8.6% of GDP. The current account will remain in deficit over the forecast period, averaging 6.4%.

Monthly review

• Mohammed Ghannouchi, the prime minister of the second interim government, has resigned, closely followed by five other ministers.
• The third interim government has been put in place under a new prime minister, Beji Caid Essebsi, a foreign minister under Habib Bourguiba. The new government is made up of technocrats with no links to the old regime.
• The external balances and foreign reserves have come under pressure as growth has slowed down, owing to civil disturbances in the domestic market, weak growth in the EU and political unrest in the region.
• International organisations such as the IMF and the World Bank have pledged financial aid to support Tunisia's transition to a democratic system.
• Fitch Ratings has downgraded Tunisia's rating for the second time since the start of the year, to BBB- (from BBB), owing to political uncertainty.
• Economic output has been negatively affected by the civil disturbances that have continued with few breaks since mid-December 2010.