Finance and Competitiveness in Developing Countries

By José María Fanelli; Rohinton Medhora | Go to book overview
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Trade, finance and competitivenessin Tunisia1

Mustapha K. Nabli, Mejda Bahlous, Mohamed Bechri, Marouane El Abbassi, Riadh El Ferktaji and Bechir Talbi

1.Growth and current account sustainability: an overview

Tunisia's total GDP growth of 5.1 per cent per year during 1965-97 was significantly higher than the average of 3.9 per cent for low- and middle-income countries (World Bank 1999, table 1.4). Its performance in terms of average annual GNP per capita growth of 2.7 per cent per year ranked seventh among non-industrial and non-East Asian countries (World Bank 1998, figure 1.4a). In this chapter, we focus on the experience since the early 1970s, when a major switch and reversal in policy occurred towards a more open and liberal economy. We analyze the factors explaining this experience of a sustained relatively high growth (5.1 per cent per year also during 1972-97) and a large current account deficit averaging 6 per cent of GDP (Table 8.1).

GDP growth fluctuated widely, however, with major swings in the current account balance (Figure 8.1). Agricultural production fluctuations, due to variability in rainfall and terms of trade changes, account for a major part of GDP growth fluctuations, with their effect declining with increased diversification of the economy. Different patterns in growth and the current account are discernable over the periods 1972-80, 1981-6, 1987-9 and 1990-7 (Table 8.1). After a surge in the 1970s, growth declined and the current account deficit increased. A major episode was the balance-of-payments crisis in 1985-6 which followed a period of large current account deficit (8.4 per cent of GDP during 1981-6), a significant decline in terms of trade because of the sharp decline in oil prices and poor productivity growth.

Tunisia mobilized significant external finance for its development. The growth performance and 'creditworthiness' of the country helped sustain this high level of capital inflows. Medium- and long-term gross debt inflows, mainly from official sources, averaged about 8 per cent of GDP and were quite stable (Table 8.1). It was only in the mid-1980s, and more recently in the mid-1990s, that private debt flows were significant. Equity flows, mainly foreign direct investment, were also an important source of external finance. Short-term and portfolio flows were tightly controlled and were not of any importance in external finance, and Tunisia did not experience significant effects from the volatility of private capital inflows.


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