Tunisia was at the forefront of the Arab Spring, and in many ways, it is at the forefront of the transition and recovery process. The small North African state looks better prepared for democracy, and less vulnerable economically, than the other post-revolution states in the Middle East and North Africa (Mena).
The post-revolution transition was never going to be easy for Tunisia, particularly in the context of a slowdown in its biggest trade partner, the euro zone, and heavy exposure to high oil prices. On top of this, far from resolving Tunisia's economic problems, the revolution has, in many cases, exacerbated them. The economy contracted by 2 per cent last year and the already high unemployment rate - surely a key driver of the protests in the first place - increased from 13 per cent to 18 per cent. Tourist numbers dropped 33 per cent over the same period and as of February this year were still down 11 per cent on 2010 levels.
The freer political environment has led to a sharp rise in industrial action and higher wage demands. Last month alone, there were 15 daily sit-ins, 10 general strikes and eight road blockages, said the ministry of defence. In addition, protests from hardline Islamist groups have further undermined perceptions of stability. This weaker security environment has clearly weighed on activity and increased costs for businesses.
In spite of these numerous challenges, we see three key reasons for optimism after our visit to Tunisia. They all stand in stark contrast to Egypt, which overthrew its own president a month after Tunisia's revolution. Tunisia is moving forward constructively with its political transition; has a clear and credible plan for financing its budget deficit; and it retains a comfortable external position, with minimal risks to its currency and balance of payments.
Tunisia's transition looks very different from Egypt's. In the latter, power was transferred from Hosni Mubarak to a military council, which, as of the time of writing, continued to hold legislative power. Tunisia, in contrast, appointed an interim head of state a day after the resignation of Zine El Abidine Ben Ali. That leader, Fouad Mebazaa, then called elections for a new constituent assembly, charged with rewriting the constitution. The elections were held last October.
The new parliament, led by the Islamist Ennahda, which took 37 per cent of the vote, leaving its secular rivals far behind, then approved a temporary "mini-constitution", under which it elected Moncef Marzouki as Mr Mebazaa's successor on December 12. On December 21, Mr Marzouki approved the new cabinet, giving the prime ministership and 13 other cabinet seats to the formerly banned Ennahda. By the end of its year of revolution, then, Tunisia had a democratically elected president, government and parliament.
The transition is not yet complete. The next stages are completion and inauguration of the new constitution, slated for October, then new elections scheduled to take place next March, according to the government. On the former task, progress appears to have been made. The committee drafting the new document has agreed on one contentious issue: the new constitution will stipulate that the state's religion is Islam and national language is Arabic (as was the case in the previous constitution), but not that Sharia is a source of the national legislation. This is a key matter Egypt has yet to resolve.
Tunisia also has economic strengths. Like Egypt and most of the Mena region, pressure on government spending in Tunisia rose sharply last year, in response to political risk. As of this year, these pressures had not dissipated. Yet Tunisia's deficit is smaller than Egypt's - the government is projecting 6.6 per cent of GDP, compared with Egypt's 11 per cent shortfall - and looks more affordable.
Tunisia's plan includes financing from, among other sources, a private debt placement with Qatar, bond issues backed by the United States and the World Bank, and multilateral concessional loans. Although the IMF seems ready and willing to extend assistance, Tunisia appears to be choosing to take more expensive funding, perhaps to avoid perceptions that it is in crisis.
As well as this relatively solid fiscal position, Tunisia's external account also looks more stable than those of some of its neighbours. Certainly, the position has deteriorated since the revolution, with tourism revenue dropping sharply and the current-account deficit widening from 0.4 per cent of GDP in 2010 to 3.7 per cent. However, a relatively closed capital account - restricting portfolio inflows, and hence, when the crisis came, outflows - put Tunisia in a much less vulnerable position than the more open Egyptian market. Against this backdrop, the currency looks stable at current levels, albeit with further managed downside possible.
These three positives are indicators of relative strength: Tunisia still faces huge challenges in a difficult global environment. Yet despite this, we still expect the country to outperform Mena's other post-revolution states.
Liz Martins is a senior economist covering the Middle East and North Africa for HSBC