Tunisia’s Islamist to Step Down as Crisis Narrowly Averted

Bottom Line: Tunisia's ruling Ennahda party has agreed to hand over power to an independent transitional technocratic leadership after three weeks of talks with the secular opposition, in a crisis-breaking deal brokered by the influential UGTT trade union group.

Analysis: The UGTT has been instrumental in brokering this deal, and we suggest very closely following this leadership over the coming months because within it, we will find some of the most important future power brokers in Tunisia. UGTT is pushing for the two sides to set a date for new elections by the end of the three weeks of talks.

Tunisia's foreign exchange reserves have rebounded to a safer level of about 103 days' worth of imports (11.291 billion dinars), up from June figures of about 94 days of imports. Inflation fell for two straight months (according to July and August figures), leveling off 6% at the end of August (down from 6.5% in March). Tunisian Central Bank officials predict inflation will be down to about 5.6% by the end of this year, and 4% by the end of 2014, with economic growth predicted to be about 4% next year. GDP is predicted to expand between 3% and 3.6% for 2013.   

Recommendation: As we mentioned earlier, we did not see any alternative for Ennahda but to step down in the face of mounting opposition. We continue to believe that the ruling party will compromise in order to avoid the economic disaster that would transpire if elections are not held in the first quarter of 2014. Investors should remain confident in Tunisia and looking ahead to the next year.