The interim government has announced an emergency plan aimed at reviving the economy, but the creation of jobs and incentives to increase investment will require the government to increase spending (in addition to social and welfare expenditure). This is likely to put more pressure on the internal and external financial balances and foreign reserves, which could be depleted rapidly in the coming months if economic activity does not quickly return to normal levels. 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. Corporation tax will be the main source of income as revenue from privatisations will dry up-foreign investors will be reluctant to invest in companies until the ownership structure becomes clearer. Tunisia may tap the international bond market, but borrowing will come at a much higher cost as risk premiums for the region have increased. 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 9.5% of GDP, in 2011. The deficit is expected 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).