Tunisia\'s fragile recovery tied to security, Europe

Tunisia is enjoying an economic recovery after last year\'s recession but its fragile growth remains tied to security in the cradle of the Arab Spring and developments in Europe, the central bank chief told AFP. \"Investors will be encouraged when they see that security has been reinforced and that the social and political climate is stable,\" Mustapha Kamel Nabli said in an interview. Tunisia hopes to achieve 3.5 per cent annual growth and is expected to meet that goal, Nabli said, adding that growth for the first quarter of 2012 was up 4.8 per cent on a year earlier. \"Efforts must focus on guaranteeing security, reducing social conflicts and clarifying the political agenda,\" Nabli added. Nabli\'s dismissal last month by President Moncef Marzouki, since suspended, reflects this lack of clarity. No explanation was given for the decision, which was made in agreement with Prime Minister Hamadi Jebali but has yet to be validated by the constituent assembly, Tunisia\'s interim parliament. Nabli spoke as the long-banned ruling Islamist party Ennhada was preparing to open on Thursday its first congress at home in decades, challenged with coming up with strategies to deal with the country\'s political and religious tensions. For the economist, this episode shows that \"democracy is at work\" but he regrets the lack of clarity that it reflects and the signals it may send to foreign observers. And this is not the only case held up by political impasse. The nature of Tunisia\'s future political system has yet to be determined, with the constituent assembly, which is tasked with drafting a new constitution ahead of elections in March 2013, failing to reach a compromise on the issue. Confidence in Tunisia\'s ruling coalition, dominated by Islamists, will play a key role in the decision by Moody\'s on whether or not to downgrade the country\'s sovereign credit rating, as Standard and Poor\'s did in May. The country\'s debt, which is expected to reach 45 per cent of GDP in 2012, remains \"within acceptable limits,\" said Nabli \"The main thing is to make sure that this does not slip.\" Tunisia is also feeling the weight of the crisis in Europe, its main trading partner. \"The economic situation in Europe has begun to seriously affect us. Since March we have started to feel on the export of manufactured products,\" he said. He pointed, in particular, to a drop of five or six per cent in the export of leather and textiles, and weak growth in exports from the mechanical industry, of three to to four per cent. The country suffered a recession of 1.8 per cent in 2011, and boosting economic recovery is a key factor in restoring political stability, with unemployment, of around 19 per cent now, being a driving factor behind last year\'s uprising. Two of Tunisia\'s most important economic sectors virtually ground to a halt in the wake of the revolution, namely tourism and the production of phosphates, of which Tunisia is the world\'s fifth-largest producer. Finally, the country must undertake wide-ranging reforms of its banking system and tackle the corruption that it inherited from the former regime, the central bank governor said. This includes outstanding bank debts that the regime\'s allies never repaid, and which are \"quite a heavy weight on the banking system,\" amounting to 13.5 per cent of their portfolios, according to Nabli. But he insisted the relatives of the deposed president no longer influence the economy, as they once did, adding that \"300 to 400 companies belonging to the clan were confiscated.\" \"Of course we can\'t say that corruption has disappeared in Tunisia. That will take time. But it is an area in which a lot of effort is being made.\" From ahramonline