OREANDA-NEWS. April 01, 2015. A commentary by Masood Ahmed, Director, Middle East and Central Asia Department, International Monetary Fund

Having completed the political transition and weathered the international economic crisis, Tunisia is well placed to now complete the economic transformation that is required to ensure that growth is sustainable, broad-based, and benefits all of its citizens. But not without challenges or setbacks, as illustrated by the horrific attack at the Bardo Museum in Tunis, this past week.

Tunisia, the birthplace of the Arab Spring, has strived to become a model for stability and democratization. Over the past four years, I have had the privilege to visit Tunisia every few months as it worked its way through a difficult period of economic and political transition, and witnessed its transformation. During my most recent visit three weeks ago, I met with President Ca?d-Essebsi, Prime Minister Essid and his economic team as well as parliamentarians and representatives from the trade unions and the business community. Our discussions again reinforced for me two essential themes that will guide Tunisia’s economic future: first, the undeniable strengths that come from its educated population, talented entrepreneurs and traditional open economy; and second, the need for important reforms to unleash this potential, create better jobs and shared prosperity.

In a period marked by a difficult international environment, spillovers from regional conflicts, and a challenging domestic situation marked by social unrest and security concerns, Tunisia has managed to maintain economic stability. Indeed, since 2012 the economy registered positive growth rates at about 2.5 percent, inflation was contained at 5 percent, and foreign exchange reserves stayed above the critical 3-month threshold. This is not a small achievement, but these growth rates are not high enough to help reduce the unemployment rate and meet the aspirations for the Tunisian people.

So, what kind of reforms are needed to improve the lives of the Tunisians? It is those reforms that will move the economy away from the current state-centered development model to one that will unleash the private sector. Investors – both Tunisian and international – who have been waiting in the wings need encouragement to move forward, and increased public investment must support this specially in the interior zones that have traditionally been forgotten.. The fall in oil prices provides some additional space for government spending which can be used for priority social and infrastructure upgrading.

Promoting private investment also requires action in the areas of better governance, a more transparent government, a supportive investment climate, a sound banking system, and strong safety nets to protect vulnerable segments of the population. The Tunisian government has already initiated important steps in all of these areas and a number of laws to improve the business climate are now being considered by the new parliament. Similarly, proposals are being reviewed to restructure and strengthen some public banks so that they too can contribute effectively to private sector development. Encouraging as these steps are, it is also clear that additional efforts will be needed in the coming few years, some of which may require difficult decisions.

The tragedy of the attack at the Bardo Museum reminds us that Tunisia is still vulnerable to the unexpected and sometimes heartbreaking events that we are witnessing in the MENA region, despite being looked upon hopefully as a model to be emulated. It comes at a time when Tunisia is emerging from a difficult political transition and taking important steps in reforming its economy. The road ahead will not be without bumps and there are risks that stem from both external development as well as the difficulty of building the necessary consensus on major reforms within Tunisia’s own body politic. However, Tunisia’s inherent strengths as well as the national determination to reach for a better future bode well for its success in this endeavor. The IMF, for its part, will continue to be ready to support Tunisia as it moves forward on its historic economic transformation.