Economic Analysis - Large C/A Deficits Putting Pressure On Dinar - NOV 2017

BMI View: Tunisia's current account position will improve over the coming years due to an uptick in exports and a sharp recovery in the tourism sector, although these improvements will be mitigated by rising energy imports. Sizeable current account deficits will be easily financed through aid flows and, to a lesser extent debt, but will put pressure on the dinar's peg to a basket of currenc ies .

Tunisia's current account position will benefit from an uptick in exports and from a sharp recovery in the tourism sector in 2017 and 2018. While these improvements will be constrained by higher energy imports, amid rising international prices, lower-for-longer oil prices will be a boon for Tunisia's current account. As such, we have revised down our forecasts for the current account deficit to 8.4% of GDP in 2017 and 7.9% of GDP in 2018, from 8.7% and 8.3% previously. As the government continues to struggle to attract foreign investors to the country, we believe that the sizeable current account deficits will be mostly financed through international aid.

An improving macroeconomic backdrop in the eurozone, combined with the stabilisation of domestic conditions, will benefit Tunisian exporters over the coming years. Social instability has negatively affected the country's production capacities over the past few years, and deterred investors from using Tunisia as an exporting base. As the scale of production disruptions continues to decline, we expect manufacturing exports to resume, as illustrated by robust growth in electronics and textiles - which accounted for respectively 27.8% and 21.8% of total exports in 2016 - in the first half of 2017. We also expect agricultural exports - largely driven by the performance of the olive oil category - to recover, benefiting from base effects after a weak 2016 harvest. Meanwhile, Tunisian exporters will also benefit from more favourable external conditions in the eurozone ( see 'Quick View: Q1 GDP Paints Bright Picture', June 8 2017), which receives more than 70% of Tunisian exports.

Improvements Ahead, But C/A Deficits Will Remain Sizeable
Tunisia - Current Account Position, EURbn
e/f = BMI estimate/forecast. Source: CBT, BMI

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