VZCZCXRO1470
RR RUEHTRO
DE RUEHTU #0539/01 2121643
ZNR UUUUU ZZH
R 311643Z JUL 09
FM AMEMBASSY TUNIS
TO RUEHC/SECSTATE WASHDC 6631
INFO RUCNMGH/MAGHREB COLLECTIVE
RUEATRS/DEPT OF TREASURY WASHINGTON DC
RUCPDOC/USDOC WASHDC

UNCLAS SECTION 01 OF 02 TUNIS 000539 
 
SENSITIVE 
SIPDIS 
 
STATE FOR EEB AND NEA/MAG (HAYES) 
STATE PASS USTR (BURKHEAD) AND USAID (MCCLOUD) 
USDOC FOR ITA/MAC/ONE (MASON), ADVOCACY CTR (TABINE), AND 
CLDP 
(TEJTEL AND MCMANUS) 
CASABLANCA FOR FCS (ORTIZ) 
CAIRO FOR FINANCIAL ATTACHE 
LONDON AND PARIS FOR NEA WATCHER 
 
E.O. 12958: N/A 
TAGS: ECON EINV EFIN ETRD TS
SUBJECT: IMF POSITIVE ON TUNISIA'S ECONOMY DESPITE THE 
CRISIS 
 
REF: TUNIS 450 
 
¶1. (SBU) Summary:  In a statement released in late June, 
following recent Article IV consultations, the 
International Monetary Fund stated that Tunisia is "well 
positioned" to weather the economic crisis, thanks to 
prudent macroeconomic policies, strong foreign direct 
investment (FDI), steady tourism, and constant inflow of 
remittances.  The IMF estimated Tunisia's 2009 GDP growth 
at 3 percent, with the caveat that this "target" will 
only be possible "if recovery measures rapidly impact 
demand."  This is a downward revision of the IMF's 
estimate in May of 3.3 percent GDP growth in 2009. 
Looking beyond the crisis, the IMF predicts that 
Tunisia's economic openness and reforms in the banking 
sector will help ensure long-term growth, as long as the 
GOT takes steps after the crisis to rein in spending, 
tighten monetary policy, and continue improving the 
business climate.  The optimism of the IMF's assessment 
may not stand the test of time, as much depends on 
tourism receipts and job recovery in key sectors.  End 
Summary. 
 
------------------------- 
GDP growth estimates down 
------------------------- 
 
¶2. (SBU) After years of GDP growth averaging five 
percent, including 6.5 percent in 2007 and 4.6 percent in 
2008, Tunisia's 2009 growth rate has often been estimated 
in the three to four percent range, particularly by GOT 
representatives seeking to present a rosy economic 
picture.  IMF estimates as recent as May were relatively 
positive at 3.3 percent, but the Fund's latest assessment 
presents 3 percent as a "target" that "could be achieved" 
if the GOT's fiscal stimulus efforts produce the intended 
result of stimulating domestic demand.  However, even 
this 3 percent growth projection could be overly 
optimistic (an African Development Bank official recently 
told us that the GOT and IMF figures are "political"). 
We note that figures published by the Economist 
Intelligence Unit estimate 0.6 percent growth in 2009, 
rising to 2.3 percent in 2010.  We do not know the basis 
for their figures. 
 
-------------------------------- 
Mixed performance in key sectors 
-------------------------------- 
 
¶4. (U) In the first half of 2009, traditional export 
sectors such as the mechanical and electrical industries, 
textiles, and mining saw mixed performance.  The Tunisian 
Industry Promotion Agency reported a 17 percent decrease 
in investment in the building materials industry compared 
to the same period in 2008, a 24 percent drop in 
chemicals, and a 30 percent drop in textiles.  Food 
processing investment increased by 12 percent and 
electric and mechanical increased by 23 percent. 
 
¶5. (U) Service sectors such as information and 
communication technology (ICT) and financial services 
saw strong growth.  Tunisian banks and the local stock 
market, insulated from the shocks of the financial 
crisis, have performed well.  Hewlett-Packard, for 
example, is planning to open a customer service call 
center in Tunisia that will employ 800 Tunisians with 
technology and language skills.  Recent press reports 
indicate that the Tunis stock exchange registered 25 
percent returns in the first half of 2009, among the 
top performers among stock exchanges in the MENA region. 
Agriculture is expected to do well after abundant 
spring rains. 
 
¶6. (U) Performance in several key sectors appears to be 
shifting month by month, and the final balance sheet by 
year's end is uncertain.  For example, while mechanical 
and electrical industries saw major job losses earlier in 
the year, European and Japanese firms are opening new 
production facilities to take advantage of lower costs 
vis-a-vis Eastern Europe.  Textile manufacturing, which 
 
TUNIS 00000539  002 OF 002 
 
 
also saw losses earlier in the year, is beginning to 
recover, thanks to its ability to rapidly adjust 
production to fill niche market demand.  Tourism receipts 
for the first half of the year have been stagnant, but 
authorities are counting on a strong summer season to 
boost revenues and hard currency receipts.  The IMF has 
indicated that this year's tourism income will be a 
critical component of Tunisia's overall economic 
performance. 
 
¶7. (SBU) Other key sources of income and foreign exchange 
are remittances from Tunisians abroad (mostly in Europe) 
and FDI.  While Tunisian Central Bank data in March 
showed that remittances were up by 8.5 percent over the 
previous year, the economic contraction in Europe presents 
a risk to this source of income.  Central Bank numbers do 
not take into account the depreciation of the Tunisian 
Dinar, which depreciated by 2.6 percent against the Euro 
from May 2008 to May 2009.  Privately, some GOT officials 
have admitted that remittances are actually on the decline. 
On FDI, the Tunisian Foreign Investment Promotion Agency 
announced that the first six months of 2009 saw a 28 
percent drop of actual FDI flows from the previous year. 
Despite these numbers, the GOT remains bullish on 
Tunisia's competitiveness as a low-cost destination with 
a skilled workforce and stable investment climate 
(Reftel). 
 
--------------------------------------------- ------------ 
GOT reforms helping Tunisia through the crisis and beyond 
--------------------------------------------- ------------ 
 
¶8. (U) The IMF's Article IV consultations found that GOT 
macroeconomic policies have helped cushion the blow of 
the financial crisis and set the stage for further growth 
once the crisis is over.  The IMF describes the GOT's 
recovery plan, which seeks to boost government 
expenditures to make up for lagging exports, as an 
appropriate response that will only cause a mild 
expansion in the GOT's budget deficit.  The IMF is 
estimating that the GOT deficit will rise to 3.8 percent 
of GDP, just above the GOT target of 3 percent of GDP. 
It appears that even with the decline in trade and 
supplementary GOT expenditures, Tunisia's foreign reserve 
holdings are sufficient to maintain the GOT's strategy of 
maintaining export competitiveness via a steady 
depreciation of the dinar. 
 
¶9. (U) Tunisia's ongoing banking reforms, which seek to 
reduce the sector's heavy load of non-performing loans, 
has continued despite the crisis and should, according to 
the IMF, continue to make progress in the coming year. 
Tunisia is also improving its business climate by 
simplifying customs procedures and investing in trade 
infrastructure.  These reforms, plus Tunisia's policy of 
opening to the global economy, are likely to create long 
term growth after the crisis passes.  The key to this, 
according to the new IMF analysis, will be scaling back 
public spending and tightening monetary policy after the 
crisis to prevent inflation. 
 
-------------------------- 
Comment: measured optimism 
-------------------------- 
 
¶10. (SBU) Pro-government commentators refer to the 
international economic crisis as an opportunity, or claim 
that Tunisia has not been affected at all.  They point to 
new investments taking advantage of Tunisia's low-cost, 
high-skill labor force, and suggest, as one optimistic 
businessman recently put it, that "there is no crisis here 
in Tunisia."  But clearly, government expenditures to 
subsidize employment and stimulate domestic demand belie 
these assertions.  By the end of the year, after the 
tourism receipts and employment figures are counted, the 
GOT may find reason to curb its optimism.  As for future 
growth after the crisis, Tunisia will certainly need to 
strengthen and deepen its current efforts to reform the 
banking sector and improve the business climate. 
DESJARDINS