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.

Tunisia faces a period of instability following the ousting of the president, Zine el-Abidine Ben Ali, in mid-January as a result of a popular uprising. It is unclear whether the third interim government, which was put in place on March 7th, will be able to stem the protests. In an attempt to appease the protesters, the Ministry of the Interior dissolved the former ruling party, the Rassemblement constitutionnel démocratique (RCD), on March 9th. The interim government has drawn up a "road map to democracy", which should go a long way towards containing the protests. One great virtue of the road map is that it avoids a rush to early elections for a new parliament and president elections at a later, as yet unspecified, date. One great virtue of the road map is that it avoids a rush to early elections for a new parliament and president, thereby giving time for a fuller debate on reform of the constitution and providing political parties, most of which are new, with the space to organise themselves and make themselves known to the public. Steps have been taken to release the state and the economy from the grip of the RCD. Many members of Mr Ben Ali's extended family are under arrest and their assets have been sequestered. Former RCD members no longer form part of the government and are being removed steadily from the highest echelons of the civil service, state organisations and state-owned industries. However, most of the RCD members who occupy middle and lower levels of management remain in their posts, although they often face insubordination and recrimination from their non-RCD colleagues.

Much progress has also been made in opening up the democratic process, with 12 parties, including Hizb al-Nahda, an Islamist party, having been legalised since the beginning of the year. It is still not clear whether Islamist parties will be allowed to take part in the elections and, if they are, how well they will perform. The leader of Hizb al-Nahda, Rachid Ghannouchi, who has returned from exile in London, has been at pains to portray his party as moderate and committed to non-violence, democracy and women's rights. How to accommodate the popular appeal of Islamism is a problem that has beset regimes across North Africa for some time. In Tunisia, Islamists were conspicuous by their absence during the uprising, a factor that may have played a part in its success, as it deprived Mr Ben Ali of the opportunity to demonise the opposition by accusing it of being a front for al-Qaida-supporting extremists.

The army will continue to play a pivotal role in the Tunisian crisis. So far at least, it seems content to hold the ring for the politicians and to act, in the words of the head of the army, General Rachid Ben Ammar, as "the guarantor of the country, the people and the revolution". The army is likely to maintain this stance unless the security situation deteriorates markedly or the efforts to build a new political consensus collapse.

Elections for parliament and the presidency have been pushed back. The interim government has announced an election will be held on July 24th for a national constituent assembly, which will rewrite the constitution and prepare for parliamentary and presidential elections at a later, and as yet unspecified, date. No less than 20 political parties are now in discussions over how to proceed with organising elections. Likely candidates for the presidency include leaders of the main opposition parties, exiled leaders from parties that were banned by Mr Ben Ali and independents. In previous elections, opposition parties were not free to campaign to a degree that would threaten the RCD. (In fact, in large cities such as the capital, Tunis, Sfax and Sousse, opposition parties were banned from campaigning.) The current parliament has not been dissolved but is, in reality, powerless since the speaker of parliament, Foued Mebazaa, has the power to rule by decree. The government will need to change the constitution, which contains tailor-made amendments by Mr Ben Ali that made it virtually impossible for a non-RCD member to stand for president. Candidates had either to obtain the endorsement of 30 members of parliament (most members of which were from the RCD) or to have served for two years as leader of a legally recognised party by election day. This automatically disqualified leaders such as Ahmed Najib Chebbi of the Parti démocratique progressiste, who is likely to be one of the leading candidates in the forthcoming presidential election.

Tunisia's main Western allies, the EU, especially France, and the US, were slow to support the uprising against Mr Ben Ali. As a result, relations between France and Tunisia have been strained since the outbreak of the violence. However, the West has welcomed the transition to democracy, with the British, French and German governments lifting their warnings against travel to Tunisia. The Economist Intelligence Unit expects a substantial amount of international aid to flow into Tunisia, with the World Bank, the IMF, the African Development Bank, the EU and Arab funds all promising aid to support Tunisia in its shift to a democratic system. In addition, the EU has said that it will finalise negotiations on Tunisia's "advanced status" application by July. The US and the EU regarded Mr Ben Ali as an important ally in the "war on terror" and will work closely with the new government to restore stability in the country, partly out of fear that prolonged instability would provide an opportunity for al-Qaida to establish an operating base there.

The new Tunisian government is likely to seek support from fellow Arab states in the form of aid and investment. However, the circumstances of Mr Ben Ali's overthrow could lead to some lingering tensions with some Arab states, in particular Saudi Arabia, which provided a refuge for the former president.

The interim government will seek to ensure that there is as little disruption to business as possible. The challenge will be to ensure that economic growth is high enough to meet the demands of protesters for more jobs and higher standards of living, which will only be achieved through the market-oriented policies initiated by the old regime. However, the government will have to work hard to restore confidence in these policies by ensuring that growth is more evenly distributed. In light of the disruption to the economy, growth targets will need to be revised. Nevertheless, the government will press ahead with its development plan, increasing the emphasis on reducing unemployment, particularly among graduates. In the interim period, it will increase economic benefits and subsidies on basic food items to lessen the financial burden on the unemployed. Tourism and foreign direct investment (FDI) will remain the main areas of economic policy.

Mr Ben Ali's family, especially members of the Trabelsi family of his second wife, Leila, and his son-in-law, Mohammed Sakher el-Materi, had become increasingly rapacious, taking commanding stakes in virtually every business sector. The new government will face some tricky political and legal choices as it grapples with this commercial and financial legacy. In some cases this could entail nationalising stakes held by members of the Ben Ali and Trabelsi clans, and offering them to the public or to strategic investors at a later date; in others it may involve revoking contracts or licences and retendering the relevant projects.

The interim government will have no choice but to increase spending in 2011 to meet the rising expectations of the Tunisian public. This is likely to lead to more spending on social sectors and welfare and will put pressure on the internal and external financial balances and foreign reserves, which could deteriorate rapidly in the coming months if economic activity does not return quickly to normality. Fiscal policy will remain expansionary for the remainder of the forecast period, as the government increases development expenditure in the interior regions. Fiscal consolidation will be difficult to implement in 2011 as sources of revenue will be reduced owing to the disruption in business activities as a result of the protests. Evidence of this lies in the fact that on March 9th the trade and tourism minister, Mehdi Houas, moved to help the tourism sector by offering to reschedule taxes and interest payments for hoteliers in difficulty. In addition, rising commodity prices this year will only make it harder for the government to implement spending cuts. However, from 2012 onwards the government will attempt to expand the tax base-by reducing exemptions and improving tax collection. We estimate that the budget deficit reached 5% of GDP in 2010 and forecast that it will increase substantially, to 9.4% of GDP, in 2011. The deficit is forecast to average 5.8% in 2011-15. We forecast that government revenue will decline in 2011, but from 2012 onwards it will rise strongly, in line with stronger domestic demand and measures to widen and deepen tax collection. The increase in revenue will be accounted for mainly by higher receipts from corporation tax and value-added tax (VAT).

We expect Banque centrale de Tunisie (BCT, the central bank) to implement measures to ensure sufficient liquidity in the banking system, but it will also keep a close eye on inflation. The central bank has already reduced reserve requirements from 7.5% to 5%. From 2012 onwards, it will maintain a relatively tight monetary policy, with the aim of ensuring that expansion in broad money (M2) stays manageable and inflation remains largely under control, although-given the easing of monetary policy in most major economies-there is scope for a looser policy. In the short term, the central bank will focus on maintaining economic growth, particularly growth in exports, in light of the continuing unrest in the domestic market as well as the unrest in Libya (which will affect remittances). The BCT decided to leave its key interest rate unchanged in December.

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We have revised down, for the third consecutive month, our growth forecast for 2011 to 2% from 2.4%, owing to severe disruptions in output as a result of the civil disturbances in Tunisia. Our downward revision is based on the assumption that, encouraged by the outcome of the protests, which led to the fall of the Tunisian president, workers will continue to strike to demand better working conditions and the removal of more members of the old regime from within their companies. We estimate that real GDP grew by 3.4% in 2010, reflecting stronger EU demand for Tunisian products. However, import growth outpaced export growth as Tunisia imported large amounts of cereal to supplement weak agricultural output, owing to a shortage of rainfall. We forecast that growth will rebound strongly from 2012 onwards, averaging 3.7% in 2012-15, on the assumption that political and social stability is restored.

The new government will maintain high spending growth to stimulate the economy but will be constrained by limited revenue. It will seek to boost investment. Capital spending will increase, especially in the interior, the south and the west of the country, over the forecast period, as the government strives to even out development across the country. Provided that stability is restored, domestic private investment will expand more rapidly, now that Mr Ben Ali is no longer in command. FDI will also remain an important driver of growth.

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We estimate that annual average inflation rose in 2010 owing to higher oil and non-oil commodity prices and a fall in agricultural output, which increased the cost of wheat imports. Oil prices are forecast to remain high in 2011, averaging US$90/barrel (although prices may rise further over fears of contagion of unrest to oil-exporting countries). Inflation is expected to rise further to an average of 4.9% in 2011 as the prices of basic food items and of oil increase. A relatively tight monetary policy will ensure that inflation remains manageable during the forecast period, at an average of 4.2%. Average inflation fell to 3.2% year on year in February. The explanation for this surprisingly low figure is that upward pressure on prices from supply-chain bottlenecks (arising from work stoppages) and from higher global commodity prices has been offset by reduced domestic demand.

We forecast that the Tunisian dinar will weaken slightly against the US dollar in 2011, as protests disrupt exports and FDI, putting pressure on the currency. We expect the interim government to follow through on plans to liberalise the dinar, but we now believe that full liberalisation will occur only after the forecast period. Initially, the Tunisian dinar will remain pegged to a basket of currencies, of which the euro accounts for around two-thirds. The EU has said that it aims to finalise negotiations on Tunisia's advanced status application by July, which will grant it preferential trade terms. Full currency convertibility will require major reforms to the banking sector. In the interim period, the BCT will take a more flexible approach to exchange-rate management, reducing its interventions in the foreign-exchange market. We expect the dinar to weaken against the dollar but to strengthen against the euro in 2011, after which it will appreciate for the remainder of the forecast period. The average rate of the dinar is forecast to appreciate to TD1.81:EUR1 in 2011 and to reach TD1.63:EUR1 in 2015. We expect a depreciation against the dollar, to TD1.45:US$1 in 2011, after which the dinar will strengthen to TD1.39:US$1 in 2015.

We have substantially revised up our forecast for the current-account deficit in 2011, to 8.6% of GDP, as we expect the current political uncertainty in Tunisia to have a negative impact on economic output, tourism revenue and foreign investment. Foreign trade has, so far, been resilient. Revised trade figures show that exports in January were only 1.2% lower in local-currency terms than in the same month of 2010, and imports 0.5% lower. However, these figures reflect goods already manufactured and in the export pipeline; export data for February and March will reflect production losses more clearly. The current account will remain in deficit over the forecast period, with the shortfall averaging 6.4% of GDP in 2011-15. We expect exports to fall by 10.8% in 2011 but to rise over the remainder of the forecast period. From 2013 onwards, Tunisian exports will grow strongly on the back of increased demand from the EU as growth in the euro zone improves. Strong domestic demand and economic development will result in an increase in imports, which will outpace that of exports, but imports will exceed 2008 levels only in 2013. The rise in imports will follow on from a shift in the export structure from low value-added sectors to high-tech sectors, which will rely on raw or semi-processed imports. The risk to these forecasts stems from an escalation in unrest in Tunisia.

The income deficit will increase significantly in 2011 as the second downgrade by Fitch, a credit-rating agency, will increase the cost of borrowing. The income deficit is forecast to remain broadly stable thereafter, at an average of around US$2.3bn. Companies will increase the repatriation of profits from 2012 onwards. The trade and income account deficits will be partly offset by a surplus in services. However, we forecast a decline in the surplus in 2011, owing to a fall in tourism receipts. We forecast that the services surplus will widen considerably from 2012 onwards as income from tourism, transport and outsourcing services grow. Remittances into the country will decline quite substantially in 2011 owing to the civil war in Libya, from which an estimated 70,000 Tunisian workers have fled.

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Three months after the start of civil unrest and the flight of the former president, Zine el-Abidine Ben Ali, the political situation in Tunisia remains in flux. By early March the transition from dictatorship to democracy seemed to be making progress, but was far from assured--a prolonged period of instability or even a military takeover seemed to be possible, if less likely, outcomes. Public opposition to members of the former regime led to the fall of two interim governments. The third caretaker government, appointed on March 7th, met with wider approval.

The second caretaker government, formed by Mohammed Ghannouchi on January 27th, failed to satisfy protesters because it still contained members of the former regime including Mr Ghannouchi himself. The government was denounced as illegitimate by the Council for the Protection of the Revolution, a group made up of opposition political parties, civil society groups and trade unions, which claimed the right to take over the government and organise elections. Protesters staged a sit-in outside Mr Ghannouchi's office in Tunis, the capital, and assembled a 100,000-strong demonstration, dubbed the "day of rage", on February 26th. Violence erupted between demonstrators and the police and five people were killed. Mr Ghannouchi resigned the following day.

The interim president, Foued Mebazaa, replaced Mr Ghannouchi with Beji Caid Essebsi, 84, a foreign minister under Mr Ben Ali's predecessor, Habib Bourguiba. The new prime minister announced a new government made up largely of technocrats with no links to the old regime and denounced Mr Ben Ali's presidency as a "dark period as a result of the unhealthy practices of a criminal gang". He said that the government wanted to make a definitive break with the former regime, restore the prestige of the state, re-establish order and security and pull the economy back "from the abyss". The forthcoming elections, he said, would for the first time in Tunisia's history be wholly credible and transparent. The 1959 constitution would be suspended and all institutions stemming from it dissolved, allowing the country to make a new start. All those from the previous regime guilty of crimes would be brought to justice, starting with Mr Ben Ali, who, he said, had committed "high treason" (although he added that not all members of the former ruling party were corrupt or subject to reproach). Opposition parties, including the newly legalised Islamist party, Hizb al-Nahda, welcomed the new caretaker cabinet. Whether it will satisfy protesters on the streets remains to be seen, especially if, as seems likely, it fails to produce quick results in terms of jobs and wages.

In one of its first acts Mr Essebsi's government abolished the state security administration, which ran the political police who were responsible for many of the human rights abuses of the previous regime. It also laid out what it called a "road map to democracy". The proposal is that a commission (the Commission for the Achievement of the Objectives of the Revolution and the Democratic Transition), established on March 2nd and made up of national figures, politicians, representatives of national associations and members of civil society groups, will prepare for elections on July 24th to a national constituent assembly. This assembly would rewrite the constitution (almost certainly to reduce the powers of the president and increase those of parliament and the prime minister) and prepare for parliamentary and presidential elections to be held at a later, so far unspecified, date. This road map appeared to enjoy broad support from political parties and civil society groups (including the Council for the Protection of the Revolution) as well as the backing of the army, which has, so far at least, seemed content to hold the ring for the politicians and to act, in the words of the head of the army, General Rachid Ben Ammar, as "the guarantor of the country, the people and the revolution". One great virtue of the road map is that it avoids a rush to early elections for a new parliament and president, gives time for a fuller debate on reform of the constitution and provides political parties, most of which are new, the space to organise themselves and make themselves known to the public. As part of the proposal, Mr Mebazaa will stay on as interim president until July 24th, even though this exceeds the 60-day limit for an interim president in the constitution (although this no longer has any credibility).

A combination of prolonged civil and political unrest at home, civil war in Libya (an important source of workers' remittances and a market for Tunisian goods), continued sluggish growth in the EU and rising world commodity prices seem likely to cut growth sharply in 2011. This will put pressure on internal and external financial balances and foreign reserves, which could deteriorate rapidly in the coming months if economic activity does not return quickly to its normal level. Generally speaking, the Tunisian economy has been prudently managed and could cope with a temporary period of slowdown. Careful macroeconomic management has produced low to moderate fiscal deficits, manageable inflation rates, a falling external debt now equivalent to 50.3% of GDP and comfortable foreign reserves equivalent (in February) to 139 days of imports. However, rising expectations among the Tunisian public will generate irresistible pressure to spend more on social sectors and welfare. Such spending should be manageable if the economy recovers quickly; however, if the economic downturn is prolonged, the public finances, the balance-of-payments position and foreign reserves will weaken.

The budget deficit seems certain to rise sharply in the short term as tax revenue falls and social spending rises to meet popular expectations. The government has been besieged with calls to compensate firms damaged by rioting; to provide benefits to those who have lost work; to establish job-creation schemes; to invest in the deprived regions where the uprising began; and to raise public-sector wages. According to the governor of the Banque centrale de Tunisie (BCT, the central bank), Mustapha Kamel Nabli: "The great challenges we face today are social pressures. With the opening of the political system there is a lot of pressure to try to catch up in matters of wages and employment." Ultimately, more jobs and higher living standards can only result from faster growth, which in turn can only come about through the continuation of the market-oriented policies of the old regime. However, the government also faces the challenge of restoring public confidence in market reforms, such as privatisation, by showing that they can benefit everyone, and not just a few. Mr Nabli said: "Market reforms contributed to corruption ... but it's not going to be easy to go back on them, so we have to build trust [in them]." Nevertheless, a slowing of privatisation can be expected until the government has a more transparent, competitive bidding system.

The BCT said that banking liquidity had decreased in 2011, which had required the central bank to inject TD1.79bn (US$1.23bn) into the money markets in January and February. The BCT has also reduced the banks' reserve requirement from 7.5% to 5%, which will release some TD250m (US$170m) for them to lend to local businesses.

Visiting Washington at the end of February, Mr Nabli said that Tunisia was in talks with the World Bank, the IMF, the African Development Bank, the EU and Arab funds over future funding options. He said that Tunisia did not need immediate funds, as its international reserves and fiscal position were adequate, for now, to support the economy, but that Tunisia might need financing from its international aid partners in the coming months. He said: "The major risk I see is if in three or four months, the production doesn't come back ... then we may face external pressures and ... fiscal pressures as well." Tunisia will host an international conference at the end of March or in early April to debate its economic plans.

Several of Tunisia's international aid partners have said that they are ready to help. The Arab League has agreed to provide urgent economic assistance through providing funds to the BCT. The African Development Bank has said that it is ready to provide US$500m-1bn in loans to support the budget and help the country address unemployment, regional inequalities and infrastructure development. The EU has provided EUR17m (US$21m) in immediate emergency aid and would provide a further EUR258m by 2013 to "help deliver and underpin ... the democratic transition and support economic and social development". The EU has also said that it aims to complete negotiations before July to award Tunisia "advanced status" in its relations with the EU, which would offer more favourable trade terms. The European Investment Bank (EIB) said that it would provide an extra EUR870m to help to create jobs and improve living standards, especially in the underprivileged interior. Some EUR260m of the total would support the creation of small and medium-sized enterprises (SMEs); EUR140m would fund a new chemical plant at Mdhila; EUR160m would be spent on roadbuilding, especially in the interior; and EUR310m on infrastructure improvements in deprived rural areas. In addition, the EIB said that it would accelerate disbursement of EUR1bn already allocated in 2009 and 2010 for public projects in sanitation, energy and roadbuilding.

Uncertainties about political stability and future economic policy caused Fitch Ratings, a credit-rating agency, to downgrade Tunisia's sovereign rating for the second time since the start of the year. At the start of March Fitch downgraded the rating from BBB to BBB- with a negative outlook. Fitch said that if the elections scheduled for later this year produced a stable government with a strong mandate to implement responsible fiscal and economic policies and gain investors' confidence, the outlook could be upgraded to "stable". If they did not, the rating could be reduced further, probably to "junk" status. It is not clear if other credit-rating agencies will follow Fitch and reduce their own ratings. In January Moody's Investors Service downgraded Tunisia's sovereign rating from Baa2 to Baa3 with a negative outlook.

Although official data are not yet available, it is clear from anecdotal evidence that economic output has been damaged by the civil disturbances that have continued with few breaks since mid-December 2010. Production has also been hit by a wave of strikes and absenteeism and the removal from key posts in state industries of senior officials linked to the former regime. By early March many workers had still not returned to a normal pattern of activity, leading to appeals from the interim president for them to do so, to ensure that international market share was not lost. The Tunisian authorities suggested in February that growth in 2011 would fall to 2-3%, which the IMF said was a "very reasonable forecast". The Economist Intelligence Unit has revised down its 2011 growth forecast, to 2%, although there will be a relatively strong rebound in 2012 and 2013 if political and social stability is restored. Much depends upon the duration of political uncertainty and the likelihood of further popular unrest, which would disrupt economic output further and deter tourists and investors.

Some pillars of the economy have functioned relatively well during the crisis. Mr Nabli said on February 16th that the banks had continued to function and to respect their engagements, despite the arson and looting of 105 branches across the country and the vandalism of 280 ATMs. He said that the BCT had continued to provide the banks with liquidity and that the money market was functioning normally. Foreign reserves fell from TD13bn (US$8.96bn) at end-December 2010 to TD12.2bn on February 16th. However, the Tunisian currency had preserved its value.

Nevertheless, strikes and absenteeism will have damaged output in industry, although by how much is not yet clear. Retail distribution, especially in the cities, has been affected by rioting and looting. Tourism has been in decline since January 14th when many tour operators, beginning with Thomas Cook, ceased operations in Tunisia. Tourism receipts to end-February were TD190m (US$130m), almost 40% lower than at the same point in 2010. However, the French, German and British governments have now lifted their warnings against travel to Tunisia and the tour operators, including Thomas Cook, are returning. Many tour operators were offering cut-price deals to encourage tourists to return. British bookings for the summer were reported to be only 2-3% lower than in the same period of 2010, suggesting that the sector could rebound relatively quickly given political and civil stability, although it seems likely to contract for the year as a whole. On March 9th the trade and tourism minister, Mehdi Houas, moved to help the sector by offering to reschedule taxes and interest payments for hoteliers in difficulty. Remittances from Tunisians working abroad were TD274m in the year to end-February, just 8% lower than in the same period of 2010. However, remittances for the remainder of the year are likely to be badly affected by the civil war in Libya, from which an estimated 70,000 Tunisian workers have fled.

Revised trade figures show that in January exports were only 1.2% lower than in January 2010 and imports 0.5% lower. However, January exports mostly represent goods already manufactured and in the export pipeline; February and March export figures will reflect production losses more clearly.

Developments in the financial sector

The stockmarket, the Bourse de Tunis, has reacted to the political and economic uncertainty by beginning what may well be a long downward slide, reflecting weak investor confidence. The bourse has lost 12% of its value (as of March 9th) since the beginning of the year. It shut down in the first week of March, because of volatility in the market and the need to protect investors' interests, opening again on March 7th.

It seems almost certain that some foreign investors will be deterred by the political uncertainty in Tunisia. However, other investors have been determined to show their faith in Tunisia's long-term future. Promochimica Tunisia, an Italian-Tunisian-Libyan joint-venture pharmaceuticals firm, has announced that it is going ahead with the TD39m (US$27m) refit of its factory in Beja in the north-west. The high-tech factory will produce drug components for domestic use and for export to the region. The Italian embassy in Tunis, the Tunisian capital, said that 15 Italian enterprises out of 704 had been affected by looting and vandalism during the disturbances, but that Italian investors had not been discouraged. Eni, an Italian energy group, said in mid-February that it was planning to invest US$500m in exploration in Tunisia over the next three years. France Telecom, which owns 49% of Orange Tunisie, a mobile-phone operator, said that it wanted to pursue its investments in Tunisia.

The governor of Banque centrale de Tunisie (BCT, the central bank), Mustapha Kamel Nabli, said that an audit had shown that firms and individuals close to the former president, Zine el-Abidine Ben Ali, had taken about TD2.5bn (US$1.7bn) in loans from the public and private banks, equivalent to some 5% of all bank loans. Some 182 firms belonging to 23 groups were involved. However, four firms-a cement producer, Ciments de Carthage, two mobile-phone operators, Orange Tunisie and Tunisiana, and a sugar producer, Tunisie Sucre-accounted for TD1.3bn of the total. The activities of these 182 firms are under surveillance to ensure that no further funds are lost. Mr Nabli said that 71% of the total loans were secured and judged to be low risk. However, TD430m were unsecured and carried significant risks. He expressed concern over the potential impact of these loans upon the banks concerned, while at the same time expressing confidence in the capacity of these banks to manage the risk. The BCT also announced on February 21st that currency worth TD41m had been recovered from Mr Ben Ali's home. Some TD23m was in Tunisian dinars and TD19m in foreign currencies. Jewellery and other valuable goods worth some TD175m were also recovered according to some reports, which have not been confirmed by the government.

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Please see graphic below

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Please see graphic below

Land area

162,155 sq km

Population

10.4m (July 2009, Institut national de la statistique); 10.33m (mid-2007 IMF estimate)

Main towns

Population in '000s, excluding suburbs (2004 census)

Tunis (capital): 728

Sfax: 271

Sousse: 173

Kairouan: 118

Gabès: 116

Bizerte: 114

Climate

Mediterranean on the northern and north-eastern coasts, semi-arid inland and in the south

Weather in Tunis

Hottest month, August, 21-33°C (average daily minimum and maximum); coldest month, January, 6-14°C; driest month, July, 3 mm average rainfall; wettest month, January, 563 mm average rainfall

Languages

Arabic and French

Measures

Metric system. The quintal (100 kg) is used to measure crop weights

Currency

The Tunisian dinar (TD) is made up of 1,000 millimes

Time

1 hour ahead of GMT

Public holidays

New Year's Day (January 1st 2011); Mouled, or Prophet's Birthday (February 15th); Independence Day (March 20th); Youth Day (March 21st); Martyrs' Day (April 9th); Labour Day (May 1st); Republic Day (July 25th); Women's Day (August 13th); Eid al-Fitr, or end of Ramadan (August 30th); New Era Day (November 7th); Eid al-Adha, or Feast of the Sacrifice (November 6th); Hijara, or Islamic New Year (November 26th)

Note. The information on this page has been modified and is subject to further change as the new transitional government is put in place

Official name

Republic of Tunisia

Legal system

Based on the constitution of 1959

Legislature

The 214 members of the Chamber of Deputies are elected by universal suffrage for a five-year term; 53 of them are elected by proportional representation from those parties that fail to win seats under the first-past-the-post system; only officially recognised parties can contest elections; a 2002 constitutional amendment led to the establishment of an upper house in August 2005, the 126-member Chamber of Counsellors

National elections

Next election due in 2011 (presidential and parliamentary); amendments made to the constitution by the former president, Zine el-Abidine Ben Ali, will need to be removed to allow for fair representation of non-Rassemblement constitutionnel démocratique (RCD) members

Head of state

Mr Ben Ali stepped down on January 14th 2011, amid widespread protests. New presidential election is due to be held in 2011. Information on the length of the term and the maximum number of terms in office has yet to be released

Executive

Council of Ministers, presided over by the head of state, who is also head of the executive; if the Council does not receive the support of the Chamber of Deputies, the latter may be dissolved by the president, after which elections for a new assembly would be held. The most recent cabinet reshuffle took place in January 2010

Main political parties

Mouvement des démocrates socialistes (MDS); Parti de l'unité populaire (PUP); Parti démocratique progressiste (PDP), formerly the Rassemblement socialiste progressiste (RSP); Harakat Ettajdid (HE); Parti social libéral; Union démocratique unioniste (UDU); Forum démocratique pour le travail et les libertés (FDTL); Hizb al-Nahda

The government

Prime minister: Beji Caid Essebsi

Key ministers

Administrative development: Vacant

Agriculture & environment: Mokhtar Jelil

Culture: Ezzedine Bach Chaouech

Education: Tayeb Baccouch

Finance: Jelloul Ayed

Foreign affairs: Vacant

Health: Habiba Zehi

Higher education & scientific research: Rifaat Chaabouni

Industry & technology: Abdellaziz Rassaa

Interior: Farhat Rajhi

Justice: Lazhar Karoui Chebbi

National defence: Abdelkarim Zebidi

Planning & international cooperation: Abdelhamid Triki

Religious affairs: Laroussi Mizouri

Regional & local development: Abderrazak Zouari

Social affairs: Mohammed Naceur

Trade & tourism: Mehdi Houas

Transport & public works: Yassin Ibrahim

Women: Lilia Abidi

Central bank governor

Mustapha Kamel Nabli