We have revised down our current-account deficit forecast for 2011 to 10.3% of GDP (from 14.2% of GDP previously) following strong export growth in the first four months of 2011. Exports grew by 11.1% in local-currency terms compared with the same period of 2010. Demand from the EU for Tunisian products appears to be strong in spite of the debt crisis in the eurozone. We expect export earnings to rise by 7% in 2011, a much lower rate than in 2010. From 2013 onwards, Tunisian exports will grow strongly on the back of increased demand from the EU as growth in the euro zone improves. However, we expect political uncertainty in Tunisia to have a negative impact on economic output and tourism revenue, despite robust export growth. The current account will remain in deficit in 2012, but will record small surpluses in 2014-15. Strong domestic demand and economic development will result in an increase in import costs. 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 widen in 2011 as Tunisia's cost of borrowing has increased since the unrest began. 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 deficits will be partly offset by a surplus in services. However, we forecast a decline in the services surplus in 2011, owing to a fall in tourism receipts and higher services imports. We forecast that the services surplus will widen considerably from 2012 onwards as income from tourism, transport and outsourcing services grows. Remittances into the country will decline quite substantially in 2011 owing to the civil war in Libya and will not recover fully until 2013. Part of the shortfall will be financed by an increase in concessional funds from the World Bank and other international agencies. FDI is also forecast to grow strongly from 2012 onwards and will go some way in financing the current-account deficit.