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Letter of introduction to the 39th Annual Report of the Central Bank of Tunisia on Tunisia's economic, monetary and financial activity in 1997 presented to His Excellency the President of the Republic of Tunisia

Moharned El Béji Harnda Governor of the Central Bank of Tunisia Your Excellency the President of the Republic,

It is my honour to present you with the thirty-ninth Annual Report of the Central Bank of Tunisia, covering the year 1997.

This report analyzes the development of the economic and financial situation during the first year of the ninth development plan, and attempts to evaluate our country's ability to manage the effects of the economic situation and to adapt tofinancial globalization.

Mr President, the most outstanding feature of the international situation in 1997 was undoubtedly the major monetary andfinancial crisis that began, in the middle of the year, to shake certain countries of South-East Asia, leading to the collapse of their economies and their financial systems. The resulting domino effect was not only detrimental to the region but had negative repercussions on other areas of the world, confirming once again the "global village" aspect of our planet. The crisis revealed the incoherences in the overall management of the region's economies, which until that time had been considered quite successful, and especially the fact that inflation in these countries was higher than in their partner countriès, a phenomenon which inevitably created an interest rate differential. Added to this were the effects of free circulation of capital in a context of fixed exchange rates pegged to the US dollar.

The resulting erosion of the domestic purchasing power of those currencies, at the same time that their external value remained stable, pushed economic operators to excessive recourse to external indebtedness, and the banks, finding themselves in a situation of high liquidity, began granting easy and risky credit o~ terms that failed to respect even the most elementary rules of banking orthodoxy.

This situation favoured the execution of large project'l which were of liule value and even less profit-making potential, leading to excess debt and reduced competitiveness, factors which naturally aroused mistrust on the part of funders.

Despite the effects of this crisis, vigorous economic growth in the United States and a firming of activity in western Europe stimulated world trade, which advanced in volume by 7% in 1997, compared with 5% in 1996, maintaining world growth at the 4.1% level registered a year earlier.

Foreign exchange was marked by the contrast between relative stability in parities among the currencies of the European Union, favoured by the effort to meet the criteria of convergence, and an upsurge in the US dollar which increased the cost of the debt in developing countries. Mr President, following a decade of development characterized by structural reform and increased diversification of production, Tunisia's economy has succeeded in improving not only its competitiveness but also its ability to withstand the effects of unpredictable weather and of the international situation.

This has enabled the country's production apparatus to draw maximum advantage from a recovery in foreign demand, particularly in partner countries, and with the resulting revitalization of exports the economy has succeeded in positioning itself on a new level of growth. The growth rates of 7.1% and 5.4%, in real terms, registered in 1996 and 1997 respectively place Tunisia among the countries with high growth rates. lndeed, if the farming and fisheries sector is excluded, economic. expansion rose from 4% to 5.9% between these two years. This development has been supported by confirmed recovery in investment, and the ratio of investment to GDP advanced from 23% in 1996 to 24.4% in 1997.

Mr President, concurrently with its efforts to assure appropriate financing of the economy, the Central Bank of Tunisia continues to ensure a balance between growth in the money supply and growth in economic activity; this contributes to containing inflation, which in 1997, for the second consecutive year, remained at 3.7%, the lowest rate reached since 1973.

At the same time, vigilant control of banking activity has improved the compliance of the banks' situation with prudential rules that are comparable to international standards. The banks reduced the proportion of their unsecured debts and thereby strengthened their financial base, guarantee of a sound contribution to economic development. These positive results improved the credibility of our banks on international financial markets, a situation which led them to use modern means of satisfying their financial needs. Jn 1997, for the first time, a Tunis bank.floated a bond issue for international Japanese investors; a second bank opened ils capital at the beginning of 1998 by trading global depositary receipls on lhe London Stock Exchange.

There was, in fact, a forerunner to this positive action in the activities which the Central Bank of Tunisia initiated in 1994 on various capital markets as a means of raising foreign funding on behalf of the State. Jn addition to obtaining favourable terms which made it possible to lower the cost of foreign financing, Ihese operations were intended to demonstrate to foreign investors lhe results lhat had been achieved by Tunisia's economy. The strategy wasfirst

10 make new potential partners aware of Tunisia, then in a second stage to lead

them 10 become direct investors.

JI should also be stressed that a government initiative to assume responsibility for Ihe unpaid debts of public enterprises will complete the strenglhening of financial equilibrium for the banks, and will at the same time avoid any effect of eviction with respect tofinancing of the economy.

Mr President, our country's external position continues to be favoura!Jle, despite a widening of the current deficit to 3.1% of GDP, compared 102.5% in 1996, related to an increased deficit in the trade balance. The accentuation of this deficit should not be viewed with alarm. It resulted from increased cereals imports in response to the effects of drought, and from increased imports ofraw materials, semi-finished products and capital goods, a foundation for sustained economic activity and cumulative future development. Thetrade balance was marked by cyclic trends in olive oil exports and by a structural decline in the exportation of energy-related products. Excluding these two product groups, exports increased over the last ten years by an average of 16.8% per year, a rate which is higher than growth in GDP in current priees during the same period (10.2%). This development reflects greater competitiveness in our economy, a result of our structural reform policy aimed at removing ail constraints on enterprise.

Mr President, the international consensus that Prin managing its economy, Tunisia has achieved a growth rate which is, in real terms, twice the inflation rate" should not lead us to be complacent.

Having achieved some of the preconditions for regular, more sustained growth, we must now improve containment of the effects of unpredictable weather on the main crops and activities, through recourse to the seeds that are best adapted to the country's conditions and rational use of water and fertilizer; these measures will enable the farm sector to assure that it is duly competitive in the context of world priees.

lnvestment remains inadequate, and must be increased to absorb ail of the new job demand. University graduates must be incorporated into the working world, and this will be achieved when operators understand the necessity of increasing the proportion of skilled managers in their companies; nevertheless, employment in Tunisia is a question not only of quality but also of numbers. Our approach should favour the sectors that provide the greatest number of jobs corresponding to the different skills. Ali forms of training must target the sectors in which we have the greatest capacity to crea te jobs, and supply and demand in employment must always be ready to adjust to each other. The degree of maturity that our economy has reached means that it is increasingly in need of fine-tuned solutions of a more qualitative nature. Our goal is still to reduce the inflation differential, which remains high in comparison with our partner countries. Achieving this will require continued rationalization of government expenditures. Similarly, acceleration of accomplishments outstanding under the programme to privatize public enterprises will also help to strengthen the production sector.

Mr President, much can be learned from the crisis in the South-East Asian countries. Above all, in revealing the inadequacy of banking system control and the failure of global management of that region's economies it shows us what must be avoided in conducting our policy of economic development. Not only that, but it confirms us in the choices we have made, particularly the decision for pragmatic management of the exchange rate, and eliminates any inclination to be dogmatic in the eminently sensitive area of quotation of the dinar.

By the same token, our country was well advised in being selective regarding the admission of foreign capital, an attitude which spared our economy the tremors that would undoubtedly have resulted from flows of floating capital.

Mr President, the pressures of adapting to the conditions of our association with the European Union, whose member countries are obliged to pursue their policy of convergence because of the establishment of the euro, which gives the Central Bank of Europe exclusive control over monetary and foreign exchange policy, require that we step up our efforts to draw maximum benefit from this framework of cooperation. Against this background, we must modernize our economy and keep step with the increasing thoroughness of reform in those partner countries. The stage of comprehensive upgrading should, therefore, be followed by a second stage, to which you have given the name "efficiency".

Mohamed El Béji Hamda CENTRAL BANK OF TUNISIA

39th ANNUAL REPORT

His Excellency the President of the Republic of Tunisia on behalf of the Board of Directors of the Central Bank of Tunisia

by Moharned El Béji Harnda, Governor Introductory letter to His Excellency the President of the Republic frorn Moharned El Béji Harnda, Governor of the Central Bank

THE INTERNATIONAL ENVIRONMENT

1. The international situation 3 II. The international foreign exchange and gold markets 10 III. International capital markets 15 IV. The world commodities market 19

THE DEVELOPMENT OF TUNISIA'S ECONOMIC ACTIVITY

1. Agricultural activity 32 II. Industrial activity 46 III. Services 61 IV. Priees 78 V. Employment and wages 84 VI. Investments 90 VII. Foreign trade 98 VIII. External payments 113 IX. The foreign exchange market 129 X. Public finances 135

MONETARY DEVELOPMENTS AND DISTRIBUTION OF CREDIT 143

1. The principal economic, monetary and financial measurestaken 145 II. Liquidity and balance of the banking system 154 III. The money supply in circulation and counterparts 173 IV. Total indebtedness 182 V. Distribution of credit 184 VI. The capital market 192

MANAGEMENT OF THE CENTRAL BANK 201 .lN3~NO}jIAN3 lVNOl.l VN}j3.lNI 3H.l The international situation was marked in 1997 by a continued rise in the value of the US dollar against the other principal currencies, increasing the costs of imports invoiced in dollars and raising service on the debt, particularly for countries where the debt is high. This appreciation also adversely affected economies whose currencies are tied to the dollar.

Aggravated by inconsistencies in the development model followed by the South-East Asian countries and by a banking system that gave in to the temptation of easy lending, such effects precipitated a monetary and financial crisis in these countries that not only affected the economy of the region but also had repercussions on most stock exchanges, particularly in New York. It even caused vulnerability in the Japanese economy, already affected by a policy of low reflation of domestic demand and by substantial difficulties in the banking system.

Thus, in the economies of South-East Asia and other economies that depend on them because of the magnitude of their trade, the dynamic growth of the first three quarters of 1997 fell off during the rest of the year, exerting a detrimental effect that will continue to be felt during 1998 and will slow down world growth.

This crisis had no direct effect on Tunisia's economy in 1997, since about 80% of the country's trade continues to be with the European Union, a region in which repercussions were among the weakest. ln addition, Tunisian regulations prohibit uncontrolled entry of floating capital, setting ceilings w~lich cannot be exceeded without authorization. This situation is further strengthened by containment of inflation, reinforcement of other fundamentals of the economy, and the application of a realistic exchange rate management policy which confirms the stability of the currency's real effective level. Tunisia might, however, face indirect commercial and financial consequences as strong depreciation of Asian currencies will make those economies more competitive, although this short-term effect will be attenuated by an acceleration of price rises.

Against this background, world economic growth changed liUle in 1997, growing at a rate of 4.1 % compared with 3.7% in 1995, with most growth being attributable to continuing vigorous expansion in the United States and the emergent countries of Latin America, and to renewed activity in the European Union. The English-speaking countries, especial!y the United States and the United Kingdom, have contined to reconcile accelerated growth, containment of inflation, a considerable reduction in budget deficit, and declining unemployment. ln the developing countries, on the other hand, economic growth slowed in 1997, rising by 6.2% against 6.5% the previous year due to more sluggish activity in Africa, Asia, and central and eastern Europe. Vigorous expansion in America and, to a lesser extent, western Europe gave renewed impetus to world trade, which advanced 7% in volume in 1997 against 5% the previous year.

Unemployment was down slightly from its 1996 level, particularly in the United States, Canada and the United Kingdom, as increased investment in production received encouragement from steady demand and low interest rates. Outside the industrialized countries, unemployment worsened, especially in the developing countries and more especially in Africa and the countries of South-East Asia.

The world inflation rate fell back from 7.4% in 1996 to 5.6% in 1997, and in the OECO countries it was only 2%, compared with 2.2% the year before. ln developi'1g countries, too, the rate of price increase dropped, going from 15.6% to 11.2%, a decrease which was favoured primarily by lower priees for industrial raw materials and crude oil, and by the application of restrictive budget policies in most countries. Growth in GDP Budget deficit Inflation (% of Interest rate Unemployment (vol. & %) (% of GDP)l consumer (%)3 (% of working- priee variat.)2 aqe por::ulation) 4 4 4 1996 1997 1996 1997 1996 1997 1996 1997 1996 19974

ŒŒ> 2.5 2.8 2.7 1.4 2.2 2.0 7.5 7.3 of which United States 2.8 3.8 1 .1 0 2.9 2.3 5.29 5.50 5.4 5.0 Japan 4.1 0.9 4.4 2.8 0.1 1.7 0.35 0.39 3.4 3.4 Canada 1.2 3.8 1.8 -0.4 1.6 1.6 3.01 4.34 9.7 9.2 European Union 1.8 2.6 4.3 2.7 2.5 1.9 11 .4 11 .3 of which : Germany 1 .4 2.3 3.4 3.0 1.5 1.8 3.11 3.44 10.3 11 .4 France 1.5 2.4 4.1 3.1 2.0 1.2 3.29 3.38 12.3 12.4 Italy 0.7 1.5 6.7 3.0 3.9 1.7 7.25 6.08 12.1 12.3 United Kingdom 2.5 3.1 4.7 2.3 2.4 3.1 5.88 7.13 8.0 6.9

Despite a distinct slackening in production in Japan, economic growth in the industrialized countries improved in 1997 for the second consecutive year, and at 2.8%, (compared with 2.5% the year before) it exceeded initial estimates. This development resulted above ail from accelerated activity in the United States and firmer recovery in western Europe starting late in 1996.

Economic growth was vigorous in the United States. At 3.8% (against 2.8% in 1996), it was higher than it had been since 1988, and came in a context of balanced public finances, absence of inflationary trends, and lowered unemployment. Expansion was fuelled primarily by private consumption, which was stimulated both by higher employment and real wages and by demand in businesses, the latter resulting from a substantial 9.7% rise in production investment, compared with a 7.4% increase in 1996.

The recovery shown by Japan in 1996 proved temporary and vulnerable, due to weakness in fundamental elements in the Japanese economy. Growth in that country slowed down considerably in 1997, falling from 4.1 % to 0.9%, a decline which is explained by a low increase in domestic demand (1.5% against 4.5% in 1996), partly because of lower household consumption resulting from increased indirect taxation, a strong reduction in public expenditure and a slackening of exports, 25% of which goe5 to the Asian countries affected by the financial crisis.

The countries of the European Union showed growth averaging 2.6% in 1997, compared with 1.8% the year before, resulting from the positive effects of increased household consumption and business investment, related in part to more flexible monetary policies.

1 The - sign indicates a surplus. 2 Base 100 in 1990 and not including countries with a high inflation rate (Mexico. Hungary, Poland, Turkey and the Czech Republic). 3 Money market rate for December of each year. 4 Estimates. Exports were the main factor in growth, profiting from increased competitiveness due to the rising dollar.

Following the 1995 crisis, there was vigorous expansion in the countries of Latin America for the second consecutive year in 1997, accompanied by a perceptible drop in inflation. The growth rate in these countries surged from 3.5% in 1996 to 5.2% in 1997, helped along by continued application of sounder macroeconomic policy, stepped-up structural reform, and increased exports, chiefly to the United States and Canada. ln Africa, economic growth dropped from its 1996 figure of 5.2% to 3.7% in 1997 because of declining export priees for the main commodities and petroleum, and also due to drought and other difficulties that affected certain regions. Twelve African countries, including Tunisia, did nonetheless register growth rates of 5% or more, levels which are above the rate of population increase. Expansion in the countries of the Arab Maghreb Union slowed down somewhat, with s~ackened growth in Tunisia and Aigeria and negative growth in Morocco.

TRENDS lN SELECTED ECONOMIC INDICATORSlN CERTAIN DEVELOPINGAND EUROPEAN UNION COUNTRIES

Growth in GDP Inflation (% consumer Budget deficit (volume & %~ price variation) 1 1% of GDP) 1996 19972 1996 19972 1996 19972 EU countries 1.8 2.6 2.5 1.9 4.3 2.7 of which: Spain 2.3 3.4 3.6 2.0 4.5 2.9 Portugal 3.0 3.3 3.1 2.2 3.2 2.9 Greece 2.6 3.5 8.2 5.5 7.6 5.0 Developing countries 6.5 6.2 15.6 11.2 of which : Tunisia 7.1 5.4 3.7 3.7 4.3 4.0 Morocco 12.0 -2.5 3.0 1.0 3.3 3.4 Aigeria 4.0 3.0 21.6 14.0 4.0 2.4 Egypt 5.1 5.9 7.2 4.6 1.3 1.1 Jordan 5.2 5.0 6.5 3.0 4.6 3.6 Turkey 7.2 6.3 80.4 85.7 8.1 8.7 Argentina 4.3 7.2 0.2 0.5 2.0 1.0 Chili 7.2 6.2 7.4 6.1 1.0 0 South Korea 7.1 5.5 4.9 4.4 4.9 3.9

Following several years of sustained expansion, production was somewhat slower in 1997 in the developing countries of Asia, going from 8% in 1996 to 6.6% in 1997, a fact which is explained chiefly by the monetary and financial crisis that disrupted most countries in the region, causing the collapse of their currencies and stock markets and leading them to seek assistance from international financial institutions and industrialized countries. The emergence of the crisis during the second half of 1997 slowed economic growth considerably, bringing it down to 0.6% in thailand and 5% in Indonesia, against respective initial estimates of 6.8% and 8.2% and 1996 figures of 6.7% and 7.8%. Simîlarly, growth fell from 7.1% in 1996 to 5.5% in 1997 in South Korea, one of the countries in the region

1 Base 1()() in 1990. 2 Provisional figures. that was seriously affected by the emergence of difficulties in the banking sector, aggravated by indebtedness and deterioration in the cash situation of large businesses. China was spared contagion by the effects of the Asian crisis, and despite a slackening in 1997 continued to register the world's highest growth, 9%, compared with 9.7% in 1996. ln the Middle East, economic growth was highest in the petroleum exporting countries because of higher petroleum revenues. Lower oil prices were offset by increased production and a rising dollar, providing most of these countries with budget surpluses, following the deficits of recent years. ln eastern Europe, economic growth slowed down considerably, falling from 3.6% in 1996 to 2.6% in 1997, due in part to short-term difficulties generated by structural reform, particularly privatization and bank restructuring.

Expansion in the countries of the Community of Independent States showed minor improvement in 1997 following several years of recession. ln Russia, GDP increased by 0.4% in real terms, against declines of 1% in 1996 and 4% in 1995. This was the first year in which growth was recorded since the collapse of the former Soviet Union in 1991.

Ih 1997, as in previous years, growth in world trade outstripped production rises, illustrating the advantages of globalization and of foreign !fade Iiberalization policies. Following a slackening in 1996, growth in the volume of world trade in merchandise picked up in 1997, reaching 7% compared with 5% the previous year and 8% in 1995. This is attributable to favourable trade conditions in the industrialized countries, which account for sorne 80% of the total and which showed growth of 8.2%, compared with 5.5% in 1996, following a revitalization of activity in both North and South America and recovery in western Europe.

ln developing countries, on the other hand, where trade had grown weil during the previous three years, there was a decline in 1997. Export growth in particular was slower, falling to 7.5% from 8.6% in 1996 and 12.5% in 1994.

The monetary and financial crisis in the countries of South-East Asia accounted for the distinct decline observed in trade in Asia, particularly in Thailand and Indonesia.

While the volume of trade was up, trade expressed in dollars felt the effects of appreciation in that currency, and the value of goods exports rose by 3%, compared with 4.1% in 1996, reaching a new record of $5.327 trillion. The United States continues to be the world's foremost exporter and importer, with respective shares of 12.6% and 16.1 % in those activities in 1997. Germany and Japan occupy second and third place respectively, and together account for 17.1% of world exports and 13.9% of imports.

African exports quoted in US dollars increased 5.8% in 1997 against 10.5% the year before, because of lower volume (7.5% compared with 12%). The share of this continent in world trade nonetheless remained at virtually the same level as in 1996, 2.4%.

Intra-African trade, which advanced by 22.4% in 1997 compared with 18.7% the year before, totalled approximately $32 billion, with South Africa accounting for 20% of that figure. However, intra-African commerce represents only a small proportion of total trade in Africa-12.5% in 1997, 10% in 1996. World trade in services reached $1.35 trillion, up 1.5% from 1996 compared with a 5.4% increase in that year over the preGeding one. This was due mainly to the crisis in the South- East Asian countries following the collapse of their economies du ring the last quarter of the year.

Success in the containment of inflation continued lhroughout the world in 1997, particularly in the industrialized countries. ln the United States, inflation came down from 2.9% in 1996 to 2.3% in 1997, thanks to an average 4.5% decrease in import priees due primarily to appreciation of the dollar.

ln -the countries of the European Union, inflation averaged 1.9% in 1997 against 2.5% in 1996, a decrease that can be attributed essentially to declining production cost increases resulting from a drop in world commodities priees and continued application of restrictive budget policy to meet the criteria of convergence for participation in the single currency (the euro) which will come into effect in January 1999. An exception was the United Kingdom, where the inflation rate rose from 2.4% in 1996 to 3.1 % in 1997. To combat rising priees, the U.K. raised its short-term interest rates, which are among the highest in the European Union, leading to appreciation of the British currency.

A higher VAT and wage increases in Japan caused a 1.9% increase in factory priees, which had fallen a year earlier, and brought inflation to 1.7% where it had been nearly non- existent during the previous two years.

ln the developing countries, inflation continued to drop despite the rise in the dollar, which is the main currency of billing and payment. The rise in consumer priees in Africa was approximately 15"/0 in 1997, compared with 25.1 % the year before, and 33 countries registered a rate of under 10%, although only approximately ten countries experienced priee rises of less than 4%. Tunisia was able to keep inflation at ils 1996 level of 3.7%.

ln the Asian countries other than Japan, and despite a strong acceleration in priee rises in the countries directly affected by the financial crisis, the ove rail level of inflation fell back to 5%, compared with 6.7% in 1996.

Inflation also dropped sharply for the second consecutive year in the Latin American countries, falling to 13.7% against 22.8% in 1996 and 44.2% in 1995. ln the central and eastern European countries, a 1996 drop was succeeded by an acceleration in 1997, with inflation rising from 45% to 58.2% and reaching an excessively high 154.8% in Romania.

Improvement in public finance was stepped up in 1997 in most countries of the world. ln the European Union particularly, economic policy continued to be affected by the prospect of Economie and Monetary Union, and was expressed in increased convergence of interest rates and public deficits.

ln this context, the overall budget deficit of the OECO countries has been dropping steadily in recent years, and was 1.4% of GOP in 1997 against 2.7% the year before. The excellent economic situation in the United States wiped out that country's budget deficit in 1997, where it had been 1.1% of GOP the previous year and 4.4% in 1992. Canada, too, showed a budget surplus in 1997 (0.4% of GOP), against a 1.8% deficit in 1996. Faced with a deteriorating public finance situation in 1997, Japan replaced its broad programmes of economic reflation with enforcement of a restrictive budget policy. Although the overall situation was weak, this policy did provide a substantial reduction in the deficit, which amounted to only 2.8% of GOP, compared with 4.4% a year earlier.

The European Union countries also pursued the policy of budget improvement they had first brought into effect in 1993. Lowering of the overall budget deficit was particularly perceptible in 1997, falling to an average 2.7% of GOP against 6.4% in 1993 and 4.3% in 1996.

ln the area of monetary policy, short-term interest rates remained relatively stable in ail industrialized countries except the United Kingdom, through the combined effects of controlled inflation and a policy of budget adjustment. Rates went up slightly in the United States du ring the first half of 1997, supported by the Federal Reserve, which raised its base rate trom 5.25% to 5.50% on March 25 to avoid a resurgence of inflation. Following that date. however, the rate remained unchanged until the end of the year.

ln the European Union, the convergence of member countries was considerably strengthened in 1997 when the German, French, Outch, Belgian and Austrian central banks decided, on October 9, to adjust their intervention rates by setting themall at the same level, 3.3%; this represented increases of between 0.2 and 0.3 percentage points.

ln Japan, too, the money market interest rate rose sluggishly during the first half of 1997, going from 0.35% to 0.50% in anticipation of better economic performance. Deterioration in the ambient situation then took it back down to 0.39%.

Long-term interest rates in the United States rose at the beginning of 1997 and reached their highest level, 7%, in April. They eased gradu;lIy during the second half of the year, falling back to 5.8% in December in anticipation of a balanced budget situation and a downward adjustment in inflation. Long-term rates in Europe, particularly Germany, followed nearly the same trend as American rates. ln Japan, on the other hand, rates dropped back to very low levels, falling under 2% in September.

Despite a slight improvement in the job situation in the industrialized countries, where the unemployed represented 7.3% of the working-age population in 1997 against 7.5% in 1996, unemployment has become a structural phenomenon and continued to be a major problem for the authorities, remaining excessively high in a number of countries.

Sustained economic growth in the United States brought about a 2.2% increase in jobs in 1997, more than had been created in the two previous years. This brought unemployment down from 5.4% to 5%, its lowest level since the 70s.

ln Japan, unemployment remained at its 1996 level of 3.4%, and the low increase of approximately 1% in job creation, essenlially in businesses, was identical to the change in the working-age population.

Unemployment fell back only very slightly in the European Union, touching 11.3% of the working-age population in 1997 against 11.4% in 1996 and 11.2% in 1995. This decline concerned only the United Kingdom, where the unemployment rate went from 8% in 1996 to 6.9% in 1997. ln the other EU countries, particularly Germany and Italy, there was a surge in unemployment, which is now largely structural, as is illustrated by the proportion of the long-term unemployed, who average over 5% of the working-age population, and by the prevalence of unemployment among the young, for whom the rate is twice that of adults.

ln the field of international cooperation, 1997 was marked by an increase in mergers and takeovers among large firms, especially in the industrial, banking and insu rance sectors, and by a strengthening and widening of regional groupings. A number of agreements for the creation of free-trade zones have been signed between the Arab countries, the European Union and Mexico, and between the EU and certain countries south of the Mediterranean.

Agreements for Iiberalization of basic telecommunications services and products of information technology were signed in February and March 1997 respecti'lely by the World Trade Organization member countries. Negotiations on the liberalization of financial services were also concluded at the end of December 1997.

It was the advent of the single European currency that characterized most negotiations amüng EU countries. A number of decisions were made, especially regarding the pact for stability and growth, the status of the euro, and the future European exchange mechanism. ln addition to providing financial support for structural adjustment in a number of developing and transition al countries, the International Monetary Fund (IMF) played a central role in drafting programmes for economic adjustment in the countries of South-East Asia that had been affected by the crisis.

The IMF decided to adapt its role to the reality of an international monetary system in which movements of capital play a preponderant part, and is also considering drafting a code of conduct regarding transparency of public finance in member countries, to forestall crises. The main trends shown on international foreign exchange markets in 1996 continued in 1997, but the overall situation was greatly affected by the crisis that occurred in mid-year in the emerging countries of South-East Asia, resulting in strong depreciation of their currencies. The United States dollar benefited from these events as a safe currency, while the Japanese yen was negatively affected.

The currencies of the European countries preparing to join the Economie and Monetary Union remained practically stationary in 1997; those of countries that have not yet succeeded in meeting the criteria for eligibility to the euro appreciated in varying degrees.

Supported by an expanding economy, the position of the US dollar improved in 1997, aided also by the monetary and financial crisis in the countries of South-East Asia. Growth in the United States economy reached 3.8% in 1997, the highest level attained since 1988, accompanied by low inflation and-in October-the lowest unemployment rate since 1973, 4.7%. As a result, the Federal Reserve raised its base rate only once during the year, increasing it from 5.25% to 5.50% on March 25. Against this favourable background, the dollar exchange raie rose du ring the year from FFr5.21 to 5.98, DM1.54 to 1.79, and ~115.30 to 130.50.

LJS$/DM US$/Y

1 94 130.0

1 78 117.5

162 105.0

1.46 92.5

1 3 80.0 95 96 97 95 96 97

The position of the dollar versus other currencies evolved variably during the year. The first quarter was marked by steady appreciation, helped along by sustained economic activity, an absence of inflationary tendencies, a relatively sound budget situation, and a favourable interest rate differential. At the end of the first quarter the dollar was worth FFr5.66, DM1.68, and ~122. ln mid-February, it reached ~125, a record for the preceding four years, but dropped back quickly to ~121 at the end of the same month, following the announcement of a 1996 commercial deficit of approximately $144 billion, the highest since 1988. Continuing to move downward during the second quarter, the dollar closed the first half of the year at ~114 and fell to ~112 in July, largely because of renewed upward movement in the Japanese trade surplus. Improvement of the dollar with respect to European currencies continued into the second quarter, and at the end of June the dollar was worth DM1.74 and FFr5.84. Continuing to move upwards with respect to European currencies, the dollar made a remarkable leap at the beginning of August to reach FFr6.38 and DM1.89, the highest levels in eight years. (Here it should be noted that the mark was penalized by confirmed prospects for an EMU grouping a large number of countries, and by the announcement of a large budget deficit for the 1997- 98 fiscal year.) Aiso in August, the dollar brought 1,850 Italian lira, the highest level in twelve years, and 1.54 Swiss francs, a record for the previous four years (compared with 1,520 lira and 1.34 Swiss francs at the beginning of the year).

Fearing the risks inherent in an uncontrolled rise in the dollar exchange rate, the G7, at a summit meeting in Hong Kong on September 20, appealed for moderate growth in the dollar, and as a result, the exchange rate returned to its level of early July, FFr5.90 and DM1.75. The dollar did appreciate versus the yen, reaching \'122 under the combined effets of structural weakness in the Japanese economy and the unfavourable consequences of the monetary and financial crisis in South-East Asia; pursuing this trend versus the yen, it reached a value of \'130.50 at the end of the year.

The dollar declined slightly with respect to European currencies du ring the last quarter of 1997, varying within narrow margins versus the French franc (5.80-5.98) and the Deutschmark (1.70-1.79). ln terms of trade, it should be pointed out that the overall strengthening of the dollar penalized the competitiveness of U.S. exports.

Within Europe, parities in European Union countries were influenced in 1997 by a regular increase in the process of monetary integration. Member country currencies, particularly those of the hard core, showed great stability throughout the year, a situation which was favoured by the adoption of concerted policies devised to achieve monetary union within the allotted time frame.

The Deutschmark brought FFr3.375 and between 965 and 1,003 Italian lira during the first quarter of 1997, but showed signs of weakness versus sterling, with parity varying from E2.48 to E2.70, and towards the US dollar. This is explained by the persistence of budget problems in Germany and by uncertainty as to the number of countries participating in EMU. Also during the first quarter, dollar/mark parity went from 1.54 to 1.70. The mark depreciated strongly during the third quarter of the year, particularly in August because of a strong rise in the dollar and the pound sterling; du ring that month the dollar and the pound were worth 1.88 and 3.03 respectively. The mark gained in strength du ring the rest of the year, supported by anticipations of a rise in Bundesbank base rates and reduced inflation, but a stronger dollar resulting from the Asian crisis brought it back to DM1.70 against the dollar in mid-November. At the end of the year, the dollar was worth DM1.79, the mark was bringing FFr3.34, and the pound was worth DM2.93.

The French franc remained practically stable versus the mark du ring the first quarter of the year, with mark/franc parity averaging 3.375 during that period, but weakened versus the dollar, with dollar/franc parity rising during the same period from 5.21 to 5.79. ln mid- April, the mark fell back to FFr3.36, the lowest level registered since June 1993, then rose to FFr3.37 at the end of the month. The recovery generated by the announcement of early elections in France was confirmed with the reopening of the debate on the stability pact. The reinforcement of European orientations was undeniably beneficial to the German mark. and as a result, mark/franc parity reached 3.38 during May 1997.

Favoured by the advent of a cohabitation government in France, this trend continued until August, when mark/franc parity began to decline, moving increasingly doser to the pivot rate, which the European Exchange Mechanism has set at 3.35386. Improvement in the French economy was partially responsible for this development, as was containment of the budget deficit forecast for 1998 at between 3.1% and 3.3% of GDP, an element in the cOûntry's effort ta respect the criteria of convergence related to the achievement of monetary union. The value of the mark versus the French franc varied during the rest of the year within a narrow range, 3.34 to 3.35, despite social unrest among the unemployed, which is liable to give rise to considerable budget concessions.

Sterling gained value throughout 1997, particularly against other European currencies, rising fram FFr8.50 to 9.34, and trom DM2.58 to 2.88. This is explained by the fact that in view of increased retails in June operators anticipated increases in Bank of England base rates, judging that reforms under the plan for budget improvement were insufficient to contain inflation. Anticipation of a tighter money situation drove the pound to new heights, during the third week of July it reached DM3.08, its highest rate in eight years. The rate of exchange against the French franc actually rose above the symboliclevel of 10 in early July, and was 10.25 at the beginning of the following month. ln a meeting on August 7, the Bank of England raised its base rate by 0.25% to 7%. Operators considered this a very modest move, and it brought the pound down somewhat to FFr9.65 and DM2.88. These two parities continued to decline thereafter, and in early October the pound was down to FFr9.50 and DM2.80. This trend was reversed during the las! two months of the year, and at the end of 1997 the British currency was bringing in DM2.95, FFr9.92, and US$1.68.

The Swiss franc has, been among the currencies that have benefited, du ring the last two years, from persistent uncertainty regarding the achievement of economic and monetary integration in Europe. The Swiss National Bank did, however, adjust the instruments of its monetary policy in an attempt to Iimit appreciation of its currency. The value of the mark versus the Swiss franc thus varied fram 0.81 to 0.82 during the second half of August, compared with 0.87 at the beginning of the year. ln French francs it went from 3.89 to 4.09 during the same period, and at year's end the two' rates were, respectively, SFrO.81 and FFr4.10.

3.53

3.48

3.43

3.38

960 3.33 L 95 96 97 95 96 97 The trend followed by the Italian lira in 1997 bore the mark of two opposing factors. Uncertainties as to whether Italy will participate in EMU on January 1, 1999 tended to encourage depreciation. The country's economic results, on the other hand, acted more as a stimulant. The lira had begun moving downward versus the mark at the beginning of 1996, and DM/lira parity rose to 965 in mid-January 1997 and to 1,000 at the beginning of April. It fell back again after that, dropping in August to 975, a level below the pivot rate, set at 990. This appreciation of the lira can be attributed to Italy's economic progress and to the substantial reduction in its budget deficit, linked with the efforts it is making to achieve membership in EMU. Parity of the mark to the lira was 980 in October, reflecting the political crisis that appeared in Italy at that time and the mark closed the year at 981 lira. Dollar/lira parity at the end of the year was 1,759, compared with 1,520 at the beginning of the year, after peaking in August at 1,850.

The Spanish peseta firmed up at the beginning of 1997, and the Deutschmark/peseta exchange rate, which had steadied at around 84 during the second half of the previous year, was 83.30 in January of 1997, a trend which was favoured by increasing optimism on the markets regarding Spain's participation in EMU as of January 1999. The peseta, however, depreciated gradually thereafter, and in the spring the DM/peseta exchange rate rose to around 84.50, remaining at that level until the end of the year. The Bank of Spain intervened massively on foreign exchange markets to avoid any appreciation that might bring the mark/peseta exchange rate below the pivot value of 83.10 set by the European Exchange Mechanism. Between the beginning and the end of 1997, the dollar/peseta exchange rate went from 130.36 to 151.68, peaking at 159.36 in August.

The value of the Japanese yen against the US dollar reached its lowest level ever in April 1995, )/79.75, marking the beginning of a depreciation that continued over the following years, worsening in September 1997 with the monetary and financial crisis in South-East Asia. Dollar/yen parity went from 116 at the end of 1996 to 125 early in February of 1997, the highest level recorded since January 1993, a trend that received support from a growing gap between the economic situations of the United States and Japan, which contributed to reinforcing prospects for the persistence of a difference in short rates that would favour the dollar.

Traditional monetary and budget measures were unable to shore up the Japanese econorny as it confronted structural difficulties. Interest rates were already low, and could not be lowered further. The financial crisis and the succession of monetary depreciations in the countries of the region only aggravated the situation, revealing the persistent internai problems of the Japanese financial sector.

During the Group of Seven summit meeting held in Berlin in February 1997, the Japanese authorities confirmed their concern over the rate at which the yen was falling, which was judged excessive and unfavourable. Exchange markets viewed this concern positively, and as a result, dollar/yen parity improved, fluctuating between 122 and 125 until the beginning of April. However, the American monetary authorities' statement that they would not use the exchange rate to reduce the United States' trade deficit with Japan pushed the dollar up to )/127.50 on May 1, its highest level in over four years, despite the reaffirmed determination of the G7 monetary autorities to stabilize the rise in the dollar. The yen appreciated considerably during the following three months, fluctuating between )/111 and )1119 to the dollar, a trend which was generated by increased anticipation of Bank of Japan intervention on the markets to support its currency, since depreciation would risk accentuating imported inflation. The financial crisis in South-East Asia caused a perceptible depreciation of the yen starting in September, for two reasons, a large decrease in Japanese exports to neighbouring countries and the strong effect of the crisis on the financial system, and at the end of the year, dollar/yen parity reached a new high at 130.50.

The monetary and stock exchange crisis which arose early in the summer in Thailand, Indonesia, Malaysia and the Philippines touched Hong Kong and South Korea during the autumn, and was accompanied by strong monetary depreciations throughout the region. It should be recalled that these countries have, for over a decade, benefited from an important influx of foreign investment, attracted by high interest rates and exchange stability due to the pegging of Asian currencies to the US dollar. The resulting overabundance of foreign financing, which exceeded the real needs of these economies, brought about the formation of a speculative bubble in real estate and finance, increasing the vulnerability of the banking system and affecting a certain number of foreign banks.

The appreciation of the US dollar that began in the second half of 1995 not only compromised the competitiveness of these economies but also, and especially, unveiled the structural problems of the region's banking systems, which contain a large volume of doubtful and overvalued assets. The central banks in the region attempted to defend their currencies, but their efforts were not sufficient to avoid strong falls in these currencies beginning in early July. As of the end of 1997, Asian currency depreciations were as follows: Indonesian rupee: 57%; Thai baht: 46%; Malay ringgit: 35%; Philippine peso: 34%; Korean won: 50%.

The price of goId on the London market dropped almost continuously in 1997. Expressed in monthly averages, it fell from $355.2 an ounce in January to $288.7 in Oecember, levels which were also the year's high and low. This downward trend was undoubtedly favoured by the sale of gold by certain central banks. It was also maintained by a decline in gold as a safe investment, despite the 1997 financial crisis in the countries of South-East Asia, which also shook other financial markets throughout the world. The vitality that characterized the international capital markets in 1996 persisted through the early months of 1997. Abundant liquidity ail over the world was accompanied by a continued decline in inflation, more rigorous management of public finances and the implementation of appropriate monetary policies. Subsequently, however, these markets- particularly those dealing in securities-were strongly affe..;ted by the monetary and stock exchange crisis that occurred in South-East Asia early in July, and which worsened considerably in October and November, even extending outside the region and touching, in particular, Wall Street.

The crisis did, however, constitute a factor of easing for long-term interest rates, which had been rising under the combined effects of renewed economic growth in Europe and the prospect of inflation in the United States. A number of countries where economic growth was high, especially .the United States and Great Britain, did not effect the expected monetary tightening, and there was a drop in long-term interest rates during the second half of 'ihe year as investors sought the safety of governrnent securities.

The securities markets did feel the effects of the crisis, however, particularly du ring the last quarter, and the volume of net offerings dropped slightly in comparison with the previous year. The banking markets, contrary to ail expectations, appeared to be little affected by the financial turbulence in Asia.

Conditions on the banking markets improved in 1997 as a result of a distinctly better situation with regard to syndicated loans, and declared advantages for the year totalled $804 billion, compared with $635.2 billion the year before. Within this ove rail development, however, there was a decline in the funds devoted to mergers and acquisitions in industrial countries, particularly during the third quarter. Despite the Asian crisis, flows to developing countries continued to grow, though moderately. International movements of capital continued, generally speaking, to be attracted to South-East Asia, and especially to China, which was little affected by the crisis and had already launched the process of economic deregulation.

The greatest increase was in bank financing for North America and the United Kingdom, which went primarily to business concerns and investment bpnks. Bank financing for developing countries, on the other hand, slowed down somewhat, particularly in the case of assistance to the Latin American countries. Tightening in that region came from a decline in loans for Argentina, Chili and Mexico starting in the second quarter of the year, although this was offset by increased direct investment, particularly in the form of foreign bank purchase of financial institutions there. This situation did not affect Brazil, which stepped up its cali on the international banking market to finance its current deficit, an action which was favoured by an easing of that country's restrictions on external financing.

Loans ta eastern Europe also failed, in 1997, to reach the previous year's levels. Russia, the region's chief beneficiary, took out a large syndicated loan in favour of a gas company. Lower levels of borrowing in the other countries of the region were due principally to a reduction in their current deficits and to an inflow of investments in securities.

The falloff in loans to the developing countries of Asia is attributable to the determination shown by some, especially Malaysia and Thailand, to Iimit the indebtedness of their financial systems, which had been strongly affected by the crisis, and to favour actions of adjustment. Foreign loans to Africa and the Middle East remained modest and were highly concentrated in a small number of countries. South Africa was the destination for most monies lent to the African continent, and Saudi Arabia and the United Arab Emirates received the major part of loans destined for the Middle East.

Developments in the international climate, marked as it was by the financial crisis, were not such as to lower the bank margins for loans to developing countries. This was not true for industrialized countries, which benefited from the fact to step up their recourse to foreign loans.

Net offerings of international securities totalled $519.9 billion in 1997, a decline of 3.7% from the previous year which brought total outstandings for such securities from $3.2 trillion in 1996 to $3.531 trillion in 1997. Behind the minor decline exhibited thoughout the year lay a steep drop during the last quarter, linked with the monetary disturbances in South-East Asia. Net offerings during that period were only $66.8 billion, against $163.3 billion during the third quarter of the year. This led to a drop in inflow in the Asian region, whic~l was partially offset by stronger offerings to other regions. Resumed growth in transactions in North America and western Europe were accompanied by strengthened transactions on the part of the countries of Latin America, especially in the form of public debt exchange.

The financial institutions were, once again, the most active among beneficiary sectors in 1997, accounting for approximately two-thirds of total offerings, or $346.5 billion, compared with $343.9 in 1996. Non-financial institutions and the state issued packages amounting respectively to $70.4 billion and $103 billion. More than half these offerings, or $265.4 billion, were quoted in US dollars, a curre,lcy which is sought after both because of the relatively high interest rates it calls in and because of its status as a safe currency, which was reinforced by the Asian crisis.

That same crisis had unfavourable repercussions on the bond market, where the volume of offerings dropped significantly during the last quarter of 1997, falling to $188 billion against $261 billion du ring the previous quarter. For the year as a whole, however, this market followed an upward trend, with total bond offerings amounting to $962.9 billion in 1997 against $877.1 billion the preceding year. The preponderance of the dollar became still stronger during the second half of the year, as the crisis worsened.

Long-term interest rates eased considerably, a trend which persisted right through to the end of the year. The monetary authorities of most industrialized countries refrained from raising their base rates, reacting to the Asian crisis which had slowed down world growth and thereby attenuated the risks of overheating.

Yield in the United States on 30-year government bonds, the reference bond sphere, dropped back from 6.7% to under 6% between mid-September and mid-December 1997, and closed the year at 5.94%. ln France, the rate for 10-year Treasury and equivalent bonds dropped in a short space of time to 5.27%, its lowest-ever level.

The stock market began the year weil, but was strongly affected by the Asian crisis and the setback on most of the important stock exchanges throughout the world in October. After that time, a certain recovery appeared in countries outside Asia. Wall Street and the European stock exchanges resumed their upward movement following the mini-crash of October 27. The Asian markets, on the other hand, continued to experience significant losses right up to the end of the year. These markets, which had been offering exceptional yields since the early 90s, lost from 20% to 55% of their value in 1997. ln Tokyo, the Nikkei 225 index closed the year at 15,000 points, 21% down from the beginning of the year. The effects of restrictive tax measures which came into effect on April 1 were aggravated in September by the spread of the monetary and financial crisis in neighbouring countries. This weakened a number of Japanese banks, and some actually went bankrupt in November, as did certain brokerage houses.

Results on Wall Street were good for the third consecutive year. The Dow Jones Industrial Average, after rising by 33% in 1995 and 23'% in 1996, increased by a further 22.6% in 1997, economic growth in the U.S. continued steadily and without inflation, and a number of mergers took place on the capital market. After reaching 8,259 points in August (compared with 6,549 points at the end of 1996), its highest figure for the year, the Dow Jones Average fluctuated between 7,500 and 8,000 points until October 27, the date of the crash on the Hong Kong Exchange, when it lost 1,000 points in a few days. This situation can, however, be seen as something of a correction of the soaring rates of recent years, and it improved rapidly, with the average rising again to end the year at 7,924 points, a level similar to that preceding the crisis.

The London market, too, showed an appreciable gain in 1997. The FTSE 100 Share Index reached its highest point for the year on October 3, at 5,330 points (against 4,118 at the end of December 1996), marking a 24.7% increase for the year as a whole despite the unfavourable effects of the Asian crisis, which braught it down to 4,800 points at the end of October but did not prevent it fram rising again to close the year at 5,127 points, not far from its peak for the year.

On the Frankfurt exchange the Dax 30 index, which had ended 1996 at 2,889 points, rose 58% during the first seven months of 1997 to reach 4,500 points. After that time, there was an overall drop in German securities, related to somewhat sluggish economic growth and increased unemployment. This trend gained ground in the autumn because of the Asian crisis, but the Dax 30 nonetheless did show some recovery starting in mid-November, ending the year at 4,224 points, which represented a 46.7% increase for the year as a whole.

Results were also favourable on the Paris Stock Exchange in 1997, with French securities gaining 29.5%, compared with 20% in 1996. The CAC 40 index rose above the 3,000-point mark on two occasions, and reached its maximum for the year, 3,114 points, on October 3. The Asian crisis brought the index down to 2,600 points during the last week of October, after which it moved upward again, to close 1997 at 2,965 points, against 2,256 points at the beginning of the year.

Markets in derivative instruments were affected by two major factors in 1997. One was the expected establishment of the single European currency and the capacity of EU member countries to realize this aim within the Maastricht criteria. The other was the Asian crisis. These two elements introduced new unpredictable factors into the international situation and required increased recourse to mechanisms of risk coverage.

The ove rail rise on these markets does not reflect individual increases on the organized and negotiated markets. The markets for negotiated instruments continued to show vitality in most areas, while the organized markets advanced steadily, if moderately. Statistics available from the Bank for International Settlements (BIS) for the first nine months of the year indicate that financial contracts exchanged on the organized markets during that period totalled approximately 900 million, only slightly above the figure of the year before. After dropping throughout the last three quarters of 1996, activity on these markets picked up at the beginning of 1997. Interest rates for futures contracts rose due to urgent anticipation of monetary hardening in the United States and to uncertainty as to the achievement of Economie and Monetary Union (EMU).

Utilization of contracts on hard currencies and stock exchange indexes was down, with the Asian crisis attenuating uncertainty as to trends in interest rates and in the major currencies. ln the United States, this branch of the capital market has been stagnating for several years because of the high cost of contracts resulting from the increase in their nominal priee.

The Chicago Board of Trade did continue to predominate in 1997, but European markets advanced rapidly by offering a more diversified range of products and assuring greater coherence among these products. This enabled them to strengthen their market share for futures contracts at the expense of the American markets, which nonetheless remained in a bette!' position with respect to options.

On the markets for negotiated contracts, unlike the organized markets, activity continued to increase in 1997. It was, indeed, instruments for handling rates which developed most rapidly, in a situation of limited American Treasury note supply and a flattening of the US dollar yields curve. Uncertainty as to German interest rates produced wide demand for various instruments. The European effort at convergence around German rates in the context of EMU and the expected introduction of the euro also contributed to development of this market compartment.

Growth in foreign currency exchange contracts was less rapid in 1997 because of stability in intra-European exchange rates. There was, nevertheless, a strong concentration on US$/DM options up to September, followed by options on the US$/yen because of the excessive weakness of the Japanese cUirency, which suffered from the monetary turbulence in the South-East Asian countries. Share instruments showed a need for coverage as a result of the fall in stock exchange indexes.

Net flow of private investment in developing countries fell back sharply in 1997, with a total of $200 billion that contrasted with a record $295 billion in 1996. This sharp drop was caused by repercussions from the Asian crisis, which greatly limited capital flow to the countries most strongly affected, South Korea, Indonesia, Malaysia, the Philippines and Thailand. Net entries of capital in these five countries, which had reached $93 billion in 1996, became net outflows of some $12 billion in 1997. Investment bank inflows dropped most sharply, and 1997 was marked by of approximately $21 billion in net outflow, compared with net entries of $56 billion the year before. Thus investors in transferable securities accounted for approximately $12 billion in divestments in 1997, compared with entries of the same magnitude in 1996. The massive outflows of private capital were, nonetheless, offset by other factors, particularly an estimated $23 billion in officiai assistance financing from the IMF, which brought net external financing of these countries to $15 billion, against $93 billion in 1996.

ln the other emergent markets, less affected by the cnSIS, private financing continued to rise, totalling $212 billion in 1997 against $202 billion the year before. ln 1996, reversing previous trends, commodities prices began to drop, and this movement was confirmed in 1997 when supply outstripped demand and economic activity slackened in the countries of South-East Asia as a result of the financial crisis there. World prices for certain commodities fell to their lowest levels since 1995, contrasting with prices for other products, particularly coffee, tea, cocoa, phospate and piîosphate by-products, because of increased demand resulting especially from speculative activity. Crude oil and refined petroleum product prices, which had advanced sharply in 1996, fell back in 1997 as supply outstripped demand. ln addition to being affected by the Asian financial crisis, price trends reacted to the El Nino phenomenon, whose unpredictable impact on farming results throughout the world affected farm prodùce prices and even generated speculation on certain products such as palm oil, coffee and rubber. This situation, coupled with increased demand in North America and the European Union, stimulated world trade, which advanced by 7% in volume during 1397, compared with 5% the year before.

The global price index for commodities excluding energy (base 100 in 1990) fell back 3.8%, compared with a decline of 1.3% in 1996. The drop in the agricultural raw materials price index, in particular, continued to decline significantly, falling 8%, against 3.1 % a year earlier. Nevertheless, this drop in priees for exporting countries was partially offset by appreciation in the US dollar. The drop in commodities priees contributed substantially to the containment of inflation throughout the world, but it hindered economic growth in a number of African countries, particularly those whose expansion is fuelled primarily by exports of raw materials.

ln Tunisia, the general trend in priees for commodities traded in 1997, aside from olive oil, had a relatively favourable impact on the balance of trade.

Generally speaking, there was a decline in the priees of staple foods in 1997 with the exception of coffee, tea, cocoa, and vegetable oils, largely because of speculation and through fear of the impact El Nino might have on harvests.

World cereals production was approximately 2.07 billion tons, up 1.1% against a 7.5% rise in 1996, due particularly to an increased soft wheat harvest. This second consecutive year of improved production made it possible to enlarge stocks and favoured lowering of priees on the international market.

World wheat production increased by 4.8% in 1997 compared with a 7.4% rise the year before, to total 608 million tons, although quality in 1997 was inferior to that of 1996, for reasons related to weather. Increased production resulted from improved harvests in China, Russia, Argentina and Australia, and brought world wheat trade up by 2.1% (compared with a 3.6% rise in 1996) to 95.2 million tons.

A rise in wheat priees which be'gan in the second half of 1996 continued in 1997, reflecting increased production coupled with low dernand. Wheat fell from $176 per ton in January 1997 (compared with $207 in January 1996) to $145 in December 1997. Expressed in annual averages, wheat priees fell back 22.7%, as opposed to a 17% rise in 1996. The production of secondary cereals remained at virtually the sa me level as in 1996, 900 million tons, only just sufficient to cover world consumption. The stagnation was attributable especially to a 2.7% drop in the maize harvest, which accounts for more than two-thirds of the total. against a 14.4% increase a year earlier. At 89 million tons. world trade in secondary cereals was down slightly because of declined imports in non-producing countr:es, particularly Japan. South Korea and Taiwan.

Stocks totalled a comfortable 120 million tons at the end of 1996, and this. coupled with low world demand, lowered secondary cereals priees. Maize, in particular, fell to $109 per ton. an average drop 29.2% that contrasted with a 34% increase in 1996. Sarley priees, too, were down: after peaking at $164 in May. they fell gradually to close the year at $122, 10.3% lower than the December 1996 priee. Expressed in averages, the drap was $33, or 19.6%.

The world rice harvest remained nearly unchanged in 1997 at 562.3 million tons; abundant harvests in China, Peru, Argentina and Spain were offset by lowered production in Indonesia, Ecuador and Tanzania. Priees dropped slightly starting in May, a decline which became more pronounced during the third quarter of 1997. but was followed by some recovery starting in October. At $478 in late December 1997, the priee of rice was practically the same as that of December 1996. ln annual averages, rice priees fell back 4.6%, against an 18.8% rise in 1996.

World production of vegetable fats in 1997 was approximately 97 million tons, up 3.4% following near-stagnation in 1996. This development is attributable chiefly to production increases of 7.1% in palm oil and sorne 60% in olive oil, with respective productions of 18.2 million and 2.6 million tons. Despite increased production, priees for the main vegetab!e oils rose in 1997, following a certain decline in 1996, because of low world stocks and a sharp increase in demand due especially to speculation. Priee increases averaged 2.4% for soya bean oil, 2.6% for palm oil, and 12".6% for peanut oil, compared with respective decreases of 11.7%. 15.4%. and 9.5% in 1996.

Olive oil priees, reversing the trend which provided a 16.3% increase in 1996, registered a strong decline on the Milan market in 1997. varying between approximately 38% and 40%, or 5.100 and 5,500 Italian lira per litre of premium virgin oil drawn at one degree of acidity. This decline resulted from the existence of satisfactory butter stocks, estimated at 367.000 tons, and from a strong increase in world production, particularly in Spain, Greece. Italy and Tunisia. the four main world producers. Aiso at play here were prospects for an estimated 2.3-million ton increase in production during the 1997-98 season. The drop in olive oil priees encouraged consumption in the main industrialized countries, where it registered particular improvement in the United States (+11.5%). Japan (+40%). Australia (+28%) and Canada (+18%).

World sugar production was approximately 123 million tons for the 1996-97 season, down slightly from the previous year's level. Increased production in the European Union, Africa, Australia. the United States and China was neutralized especially by declining production in the Ukraine, Russia, Cuba, Thailand, and India, the latter leading the world in both production and consumption. Unlike the previous year, world sugar production in 1997 fell below consumption, whieh increased by 1.5% to 124.6 million tons, producing a 1.6 million ton deficit compared with a 1.5 million ton surplus in 1996.

Sugar priees were at their highest level for the year 1997 in January, $298 per ton, influenced by a steep increase in purchases by China. Priees then fell until May, when the ton dropped to $263 before rising once again and closing the month of December 5.2% up from the same month in 1996. This recovery resulted primarily from speculation on sugar tied to foreeasts of lowered world production in 1997-98 and the possibility of large purchases by India to eompensate for reduced production in that country. Despite this reversed trend, the priee of sugar expressed in annual averages was $271 a ton, a drop of 4.2%, compared with a decline of 3.7% in 1996. ln 1996, priees on the eoffee market dropped by an average of 19.5%, a trend which was totally disrupted at the beginning of 1997, when priees soared during the first five months of the year to peak at $5,831 per ton in May, an absolute record for the last 20 years. The main explanation lies in low stocks in consumer countries and the prospect of a decline in production caused by extended strikes and labour unrest in Brazil and Colombia, the world's first producing and exporting countries. Priees fell somewhat with the announcement in July 1997 of a slight rise in world coffee production, but began to move up again in August and September. After consumer countries had replenished their stocks, at 12 million sacks, prices slumped again du ring the last quarter of the year, reaching $3,842 per ton in December. This priee was nevertheless 51.5% higher than that of December 1996.

World coco a priees also rose throughout 1997. A high was reached in September when the ton brought $1,766, and the market elosed in December at $1,739 per ton. This price represents an 18% increase over that of December 1996, compared with a 6.7% increase a year earlier, a development whieh is explained by a steady 3% increase in world eonsumption since 1990, combined with low stocks and a 4.6% drop in production for the 1996-97 season. The rise in cocoa priees also resulted from uncertainty as to the impact of the El Nino phenomenon on harvests for the 1997-98 season; the se had been estimated at 2.8 million tons, a figure 3.7% greater than that of the previous season.

The tea market remained firm in 1997, supported by strong demand in the countries of the Community of Independent States, chiefly Russia, and by a decline in harvests in Sri Lanka and Kenya, respectively the world's third tea producer and second tea exporter. The market was also affected by a perceptible reduction in tea stocks in India, where consumption is increasing steadily. Average tea prices advanced by 27.5% in 1997 to reach $2,260 per ton, compared with a 7.9% increase in 1996. The highest priee was registered in December 1997, when the ton of tea was worth $2,651 because of strong demand in Muslim countries as the month of Ramadan approached.

(in dollars per ton' Averages for December Annual averages Place of quotation Variations Variations 1996 1997 in % 1996 1997 in % 1997/96 1997/96 Wheat Gulf ports USA 176 145 -17.6 207 160 -22.7 Maize Gulf ports USA 109 106 -2.8 154 109 -29.2 Rioe U.S. (New Orleans) 480 478 -0.4 499 476 -4.6

Oïl soya bean Dutch ports 514 622 21.0 552 565 2.4 palm Malaysia/N. Europe 560 566 1.1 532 546 2.6 peanut Europe 868 1,058 21.9 897 1.010 12.6 0live1 Milan 8,550- 5,100- -40.4 8,900 5,500 -38.2 Sugar Australia 267 281 5.2 283 271 -4.2 Coffee New York 2,536 3,842 51.5 2,651 4,076 53.8 Cocoa London & New York 1,474 1,739 18.0 1.455 1,619 11.3 Tea London 1,977 2,651 34.1 1.772 2,260 27.5 International priees for industrial raw materials continued to move down in 1997 except in the cases of zinc, phosphate and phosphate by-products, as a result of increased world supply and declining demand from the countries of South-East Asia because of slackened activity.

World cotton production for the 1996-97 season totalled approximately 20 million tons, up 3.6% from 1996, compared with a slight decline in the previous season, because of continued growth in the land areas devoted to cotton in Africa. This figure is, however, greater than world consumption, estimated at 19 million tons. The increase in production, joined with large stocks and a decline in demand, essentially in South-East Asia during the second half of 1997, explain why priees continued to fall for the second consecutive year, with the ton of cotton averaging $1,746, a 1.7% decline compared with a drop of 18% in 1996.

World rubber production totalled 6.3 million tons for the 1996-97 season, slightly higher than the preceding season's figure. Thailand, the world's leading producer, which accounts for approximately 30% of ail rubber production, experienced a priee increase of 4.3%. This figure is in excess of world consumption, which indeed is falling from one year to the next, particularly in the industrialized countries of Europe. The existence of 1.4 million tons in stocks at the end of 1996, combined with a relatively low demand and ample supply, weighed heavily on rubber priees in 1997, and they eontinued the downward movement that had begun during the second half of the previous year. The South-East Asian financial crisis, causing among other things strong depreciation in the currencies of those countries, exerted no favourable effect on priees, which in December 1997 had declined 42.2% from those of December 1996, compared with a drop of around 23% in that year from the previous one. For the year 1997 as a whole, priees fell by an aw rage of 27.4%, against a decrease of 11.3% the year before.

World phosphate production advanced by 2.6% in 1997 to 145 million tons, but consumption increased at a rate of 3.4% to 113.3 million tons, meaning that priees on the international market rose by an average of 5.1%, against 11.4% in 1996, to reach $41 per ton. World exports followed nearly the same trend as consumption, and totalled 32 million tons. Tunisia accounted for approximately 5% of world phosphate production and 4% of world phosphate exports in 1997, levels which are approximately the same as those of the previous year. Increased demand drove selling priees up on the international market for phosphate by-products, particularly phosphoric acid.

World priees for most non-ferrous metals continued to drop, following a trend that began in 1996. Copper priees declined in 1997 until May, when they rose in reaction to decreased exports from Chili, the world's first producer, because of miners' strikes in that country. Priees then moved down again in the following months, particularly starting from late October, because of a sudden, large drop in world reserves on the London Metal Exchange (LME). They ended the year at $1,761 per ton, compared with $2,265 in December 1996. ln terms of averages, on the other hand, the drop was slight at 0.8%, compared with a fall of 21.8% the year before.

Trends on the tin market were similar to those for copper. Priees increased in May because of a slight decline in stocks on the LME, then dropped again starting in June in reaction to low demand. The ton of tin brought $5,506 in December 1997, a 5.5% drop that followed a 7.2% decline the year before. The lowering of priees was more perceptible for the year as a whole, at 8.6%. World lead priees were also down in 1997, exeept for inereases in Mareh and July beeause of large purehases by battery manufaeturers and a deeline in stocks on the LME, and elosed the year at $526 per ton, a drop of 23.7% from the priee in Oeeember 1996, eompared with a 5.4% decline a year earlier.

Priees moved steadily up on the zinc market in 1997 until Oetober, when the demand for this and other metals was affeeted by the finaneial problems of the South-East Asian eeonomies. Priees did, nonetheless, remain above their 1996 levels. The rise in zinc priees during the first three quarters of 1997 resulted from speculative purehases based on foreeasts of a world defieit starting in the third quarter of the year, sustained world demand, and lower world stocks. ln annual averages, priees rose by 28.3%, eompared with a 0.6% fall in 1996, to reaeh $1,315 per ton.

Organie raw materials priees, partieularly those of plastics and paper pu/p, rose slightly in 1997 after having dropped substantially the year before.

(in dollars per ton Averaqes for December Annual averaqes Place of quotation Variations Variations 1996 1997 in % 1996 1997 in % 1997/96 1997/96

Cotton Liverpool 1,726 1,639 -5.0 1,776 1,746 -1.7 Natural rubber Singapore 1,257 726 -42.2 1,402 1,018 -27.4 Copper London 2,265 1,761 -22.3 2,293 2,275 -0.8 Tin London 5,826 5,506 -5.5 6,159 5,629 -8.6 Zinc London 1,037 1.101 6.2 1,025 1.315 28.3 Lead London 689 526 -23.7 774 623 ·19.5 Phosphate Casablanca 39 41 5.1 39 41 5.1

The steep rise in 1996 in priees for erude oil and, as a result, for refined produets as weil, did not continue into 1997, with supply growing more rapidly than demand. Priees did, nevertheless, remain above those of 1993, 1994 and 1995.

The priee of oil in the OPEC referenee basket deereased by some 8%, or $1.61 per barrel, against a rise of 20.3% or $3.43 in 1996, rising to an average of $18.68 per barre!. ln addition, there was a perceptible differenee of $6.35 per barrel between priees in January and Oeeember 1997.

Priees began the year as they had behaved in the second half of 1996, at a high $23.19 per barrel, but this trend was entirely reversed in February, with priees dropping by $5.73 per barrel between January and April, when they steadied at around $17.50. Following this, they moved up between June and Oetober, before deelining once again to close the market at $16.84 per barrel in Oeeember 1997. This drop resulted from an inerease in demand whieh was only moderate, beeause of mild winter weather in Europe and the effeets of the Asian erisis, whieh not only slowed down eeonomie aetivity but also ereated a elimate of uneertainty whieh speeulators did not hesitate to exploit.

The world demand for petroleum inereased 2.8% in 1997 to an average level of 73.7 million barrels per day. Most of this inerease resulted from eontinuing vigorous growth in North America and renewed aetivity in western Europe. Oemand in the OECO eountries inereased by 1.7% in 1997, against a 2.4% decline in 1996, to represent approximately 57% of the total demand.

The rise in demand did not, however, match the increase in world supply, a fact which helped keep priees down. particularly after resumption of Iraqi exports and the OPEC decision in November 1997 to raise its daily production ceiling from 25.3 million to 27.5 million barrels. The world supply of crude oil advanced by 3.9% in 1997, compared with 1.7% in 1996. to an average of 77.5 million barrels per day. OPEC countries accounted for far more of this production than did non-member countries, 5.4% against 3.1%. This brought oil revenues for OPEC countries up 3.5% to $175.6 billion, their highest level since 1982, with increased volumes of crude oil exports more than compensating for the drop in selling priees.

(in millions of barrels par dav 1996 1997 Variations in % 1997/96

Petroleum supply 74.6 77.5 3.9 of which: OPEC 25.8 27.2 5.4 Petroleum demand 71.7 73.7 2.8 of which: OECD 41.2 41.9 1.7 of which - North America 20.3 20.6 1.5 - Western Europe 14.2 14.3 0.7 l -Japan 5.8 5.8 0.0 Difference: supply - demand 2.9 3.8 31.0

Unlike the previous year, commodities priee trends in 1997 had a negative effect on Tunisia's balance of trade. Based on a sampling of exported and imported products representing approximately 26% and 17.9% of Tunisia's sales and purchases respectively, priees in 1997 moved downward in the case of a number of products, adversely affecting the equilibrium of the balance of trade. The negative impact reached TD144.6 million taken in comparison with maintenance of priees at their 1996 levels, accounting for 5.5% of the total deficit.

The main factor in this situation was a drop in export priees, chiefly those for olive oil and dates. Excluding olive oil, priee variations had a positive effect of TD77.4 million, resulting above ail from increased phosphate and phosphate by-product priees combined with a drop in cereals priees. (Quantities in thousands of tons; criees in dinars cer ton) 1996 1997 Variations Unit Quantity Value in Unit Quantity Value in Unit Impact in priee millions of priee millions of priee millions T01 T01 of TO

Exports 1,327.6 1,577 .8 -148.4 Olive oil 4,050 28.9 117.1 2,288 126.0 288.4 -1,762 -222.0 Seafood 6,805 13.3 90.8 6,884 15.6 107.4 79 1.2 Dates 2,561 18.2 46.7 2,444 21.3 52.1 -117 -2.5 Cereal f10urs 318 56.9 18.1 328 114.1 37.4 10 1.1 Crude oil 142.9 3,147.7 449.8 148.8 2,795.5 416.0 5.9 16.5 Calcium phosphate 29 1,205.7 35.7 36 1,247.0 45.6 7 8.7 Superphosphate 169 704.7 119.7 181 672.8 122.1 12 8.1 OAP 223 844.7 188.5 235 766.7 180.3 12 9.2 Phosphoric acid 182 1,198.5 218.2 209 1,345.3 281.3 27 36.3 Cement 41 1,048.0 43.0 37 1,253.1 47.2 -4 -5.0 Imports 1,353.7 1,570.1 -3.8 Oairy products 1,872 14.9 27.9 1,412 30.1 42.5 -460 -13.8 Hard wheat 260 205.9 53.5 229 238.8 54.6 -31 -7.4 Soft wheat 198 663.8 131.5 173 1,020.8 176.6 -25 25.5 Barley 158 29.1 4.6 159 273.5 43.6 1 0.3 Maize 184 315.2 58.1 155 445.7 69.2 -29 -12.9 Coffee 2,266 7.1 16.1 2,164 10.5 22.7 ·102 -1.1 Tea 1,545 10.7 16.6 1,941 12.0 23.3 396 4.8 Sugar 361 242.1 87.4 373 246.8 92.2 12 3.0 Meat 2,829 3.5 9.9 2,205 12.2 26.9 -624 -7.6 Soya bean ail 563 116.9 65.9 606 109.7 66.5 43 4.7 Rapeseed oil 585 79.6 46.7 661 50.1 33.1 76 3.8 Crude ail 152.6 758.0 115.7 163.7 935.2 153.1 11.1 10.4 LPG2 254 197.3 50.2 293 226.7 66.4 39 8.8 2 Fueloil 111 323.5 36.0 110 200.6 22.0 -1 -0.2 Oieseloil2 195 750.3 146.2 196 915.7 179.6 1 0.9 Kerosene2 213 244.5 52.1 213 291.9 62.2 0 0 Natural gas 57 1,871.3 106.7 76 763.8 58.2 19 14.5 1,443.4 Sulphur 54 78.4 54 1,693.0 92.9 0 0 Ammonia 191 298.3 57.0 181 270.1 48.8 -10 -2.7 Wood 410 201.0 82.4 452 268.5 121.4 42 11.3 Bulk cotton 1,847 28.3 52.2 1,937 24.2 46.9 90 2.2 Paper pulp 498 44.6 22.2 502 50.3 25.3 4 0.2 Natural rubber 1,822 10.1 18.4 1,840 9.4 17.3 18 0.2 Raw tobacco 2,883 6.2 18.0 3,173 7.8 24.8 290 2.3 Overall efleet (ExDort-lmDort) 1 -144.6

1 Figures are rounded off and agree with the data in the section pertaining ta foreign trade. 2 Quantities imported by ETAP. A.lIAI.lJV JI~ONOJ3 S.VISINn.l ::jO.lN3~d013A3a 3H.l Vigorous world growth in 1997, particutarly in Tunisia's main partner countries, accompanied by a similar strengthening in world trade, revived the country's merchandise exports, which rose by 14.4% in 1997 compared with 3.8% the previous year. This advantage was, however, tarnished by the effects of higher import priees for certain foodstuffs and industrial raw materials, joined with a surge in the US dollar..exchange rate.

Inside the country, and contrary to what had occurred during the previous year, the economic situation was marked by inadequate rainfall from November 1996 through April 1997. The negative effects of this on cereals production were relieved slightly by favourable late- season farm activity, thanks to rainfall during the last four months of the year. Growth in value added in the farming and fisheries sector thus fell back from 29.5% in 1996 to 3% in 1997 in real terms, representing a contribution of 14.2% to GoP this year against 14.5% in 1996. This substantial slackening was offset by more sustained growth in other seetors of economic activity (5.9% against 4% in 1996).

The manufacturing industries picked up particularly, showing 6.9% growth in constant priees compared with 3.4% in 1996, bringing their contribution to overa" GoP from 17.7% in 1996 to 18% in 1997. This was due chieny to a steeper improvement in the mechanlcal and electrical industries and in textiles. leather and footwear(growth in these sectors was 7% and 4.8% respectively, in real terms. against 1% and 4.7% in 1996}.

SimilarJy, activity in market services firmed up consïderably in 1997, advancing by 6.7% in value added in real terms, against 5.9% the previous year. This expansion touched every sector, and is attributable particutarly 10 a continuation of the recovery in tourist activity already observed in 1996. Growth in tourism rose from 3.7% to 7.5%, improving the share of this activity in GoP slightty from the preceding year's 5% to 5.1% in 1997.

Economie growth in 1997 was 5.4% in constant terms, against 7.1% in 1996, a development which is consistent with the objectives for the first year of the Ninth Plan for Economie and Social oevelopment. Growth was fueUed by both external and internai demand. The net advance in goods experts brought their share in nominal GoP from 28.2% in 1996 to 29.3% in 1997. A sustained increase in domestic demand (4.7% in real terms, compared with 5.9% in 1996), accounted for by private and public consumption and by confirmed recovery in investments, undeniably favoured growth in production.

The attainment of a level of growth that was commensurate with initial forecasts despite a relatively difficult farm situation accompanied a strengthening of other fundamental factors in the economy. Recovery in investments, which started in 1996, continued in 1997 with a 17.2% increase in current priees, against a rise of 6.2% the previous year, providing a 1.4-percentage point improvement in the investment rate which brought it to 24.4% of GoP in 1997. The share accounted for by the private sector rose from 47.4% to 53% from one year to the next, due in part to progress in the industrial upgrading programme. Foreign direct investment in the manufacturing industries reached approximately T086 million in 1997 compared with TD50 million in 1996. It is significant that gross fixed capital formation in the production sector chiefly involved export-oriented activities and market services, as was the case for trade and transport.

This investment effort was accompanied by an improvement in the national savings rate, which rose from 23.6% of GDP in 1996 to 24.7% in 1997, assuring approximately 87% of overall investment financing, compared with 88% the previous year. Thus new employment in the non-agricultural sectors went up to 58,000 jobs, or 2,700 more than in 1996, although remaining beneath the estimated additional demand of 66,000. With respect to foreign "payments: the éürrent defidt widened from 2.5% of GDP in 1996 to 3.1 %,1 affected by the increased commercial deficit which resulted from greatly increased imports of foodstuffs, especially cereals, related to prevailing conditions, and by accelerated purchases of raw materials, semi-finished products and capital goods, partiallyoffset by an advance in the surplus of services transactions. The level of net capital entries was satisfactory, and this provided an appreèiable surplus in the general balance of payments (TD373 million, against TD386 million 'in 1996), preserving Tunisia's external position. This situation strengthened net foreign curl'ency holdings, which, expressed in days of imports, remained unchanged from their year-end 1996 level of 91 days, compared with 74 days in 1995.

The improvement in basic economic factors also touched monetary and financial indicators. Despite the shortfall in proceeds which resulted from the dismantling of customs duties for a new list of' products, inaccordance with the creation of the free-trade zone with the European Union, revenues from the general state budget rose by 5.8%. This, addèd to an èffort to rationalize -expenditures, made it possible to lower the budgèt deficit, excluding repayment of the principal of the debt, from 4.3% ofGDP in 1996 to 4% in 1997.

Ar the, same time, a vigilant monètary policy eontinued to maintain a development of the M4 mOney supply which was compatible with the objectives of monetary equilibrium. Growth in thisaggregatê was slightly belowgrowth in nominal GDP, at 8.6% against 10.2%. This favourable development iscorroborated by Stabilization of inflation at 3.7%, despite the effects of priee adjustment measuresfor subsidized products, and of increased priees of imports, especially inputs for industrial activity.

According to the 5th edition of the methodology in the IMF manuaL See Chap. VIII: External payments. (in millions of current TD unless otherwise soecified Indicator 1995 1996 1997 Variations in %

1996/95 1997/96 Country accounts GOP (in constant 1990 priees) 13,082 14,010 14,773 7.1 5.4 GOP excluding agriculture and lisheries 11,509 11,973 12,675 4.0 5.9 Value added in agriculture and lisheries 1,573 2.037 2,098 29.5 3.0 GU' 17,027 19,070 21,016 12.0 10.2 GOP dellator (1990=100) 130.2 136.1 142.3 4.5 4.6 GNP par capita (dinars) 1,812 1,986 2,163 9.6 8.9 Gross available national revenue (GANR) 16,915 18,843 20,814 11.4 10.5 Total national consumption 13,505 14,581 15,867 8.0 8.8 Public consumption 2,789 2,995 3,250 7.4 8.5 Private consumption 10,716 11,586 12,617 8.1 8.9 Av. propensity to consume (cons.lGAN R) (en%)1 79.8 77.4 76.2 -2.4 -1.2 Gross national savings 3,410 4,262 4,947 25.0 16.1 Rate 01 national savings (in % 01 GNP) 1 21.0 23.6 24.7 2.6 1.1 Gross lixed capital lormation (GFCF) 4,124 4,379 5,130 6.2 17.2 Public sector 2,128 2,303 2,411 8.2 4.7 Private sector 1,996 2,076 2,719 4.0 31.0 Rate 01 investment (% 01 GOP) 1 24.2 23.0 24.4 -1.2 1.4 Consumer priee index (1990=100) 132.4 137.4 142.4 3.7 3.7 01 which: loodstuffs 132.0 137.0 142.8 3.8 4.3 Job creation (thousands 01 positions)2 61.0 55.3 58.0 -9.3 4.9 External account3 Rate 01 coverage (exports/imports, in %)1 69.3 71.6 69.9 2.3 -1.7 Trade balance delicit 2,291 2,127 2,646 -7.2 24.4 Tourist revenue 1,323 1,413 1,565 6.8 10.8 Labour income 712 798 846 12.1 6.0 Current delicit 735 466 655 -36.6 40.6 ln %01 GOP 4.3 2.5 3.1 -1.8 0.6 Net capital inllows 839 882 1,054 5.1 19.5 General balance 01 payments +76 +386 +373 407.9 -3.4 Foreign debt service coefficient (in %) 1 17.6 17.2 16.4 -0.4 -0.8 Rate 01 external indebtedness (% of GANR)1 53.7 51.1 52.6 -2.6 1.5 Public linances Fiscal pressure (in % of GOP) 1 20.5 19.9 20.1 -0.6 0.2 Balance 01 the ordinary budget 431.8 442.6 339.8 2.5 -23.2 Investment expenditures 1,290.7 1,439.5 1,464.9 11.5 1.8 Budget delicit in % 01 GOP1 4.2 4.3 4.0 0.1 -0.3 Total state indebtedness/GOP (in %)1 58.7 57.0 57.3 -1.7 0.3 Currency and counterparts4 Money supply M4 11,056 12,505 13,576 13.1 8.6 Economy Iiquidity ratio (M4/GOP) in %1 60.6 60.6 61.8 0.0 1.2 Net loreign assets 854 1,137 1,537 33.1 35.2 01 which: net assets in loreign currency5 1,525 1,892 2,227 24.1 17.7 ln days 01 imports 74 91 91 17 1 Net claims on the state 3,163 3,527 3,702 11.5 5.0 FinancinQ 01 the economy 11,903 13,353 14,521 12.2 8.7

Variations in percentage points. ln non-agricultural activities. According to the 5th edition 01 the IMF manual. Financial system including market instruments. Variation expressed in days. The strategy for the development of agriculture and fisheries adopted between 1987 and 1996 and pursued in 1997 aims at ensuring food security and strengthening this sector's contribution to the fundamentals of the economy, particularly growth and the food balance with the exterior. The main elements in the strategy are restructuring and modernizing the sector, improving the general environment for agriculture and fishing, increasing yields, and mobilizing and making maximum use of natural resources.

Measures and reforms in this sector have favourably affected farmers' income and living conditions and have helped Iimit the rural exodus. Among the main reforms are the restructuring of state-owned lands, improvement of land ownership structures, and expansion of institutions engaged in research and outreach.

Improvements in productivity in the sector between 1987 and 1996 provided a rise in average annual production of 35% compared with the previous ten-year period, meaning that the agricultural growth rate in constant terms averaged 4.3% during the last decade. The year 1997 was relatively difficult for agriculture because of inadequate rainfall, and brought the rate down to 4.2%, nearly the same as growth in GOP in real terms. The share of the agricultural sector and fisheries in GOP in current prices has varied considerably from one growing season to the next; during the last two years, it averaged 13.5% of nominal GOP.

GROSS FIXED CAPITAL FORMATION (G.F.C.F.) ANDCREDIT TO AGRICULTUREANDFlSHERIES

800

700 Q !- 600 ...c 500

t.si 400

200 1988

I-GFCF agr. "lIsMries -·-Medlum-" IODg-tennbank credit outstandlngS]

Gross fixéd capital formation invested between 1987 and 1996 totalled T04.498 billion, compared with T01.918 billion for the previous decade, an increase of approximately 135%. This substantial increase was directed particularly at farm watering, Iivestock farming, tree-farming, forestry works and water and soil conservation. Private agricultural investments totalled T02.025 billion, or 45% of the total compared with 34% for the 1977-86 decade, accounted for primarily by the purchase of farm equipment, stepped-up fruit-growing and the promotion of livestock farming.

With respect to financing, outstanding short-term loans granted direeÏly to farmers more than tripled, going from T0135 million in 1987 to T0469 million in 1996. Investment credits followed the same trend, with outstandings in the banking system rising, during those ten years, from T0232 million to 558 million. The respective shares represented by these amounts in total loans went from 5 to around 7%, and from 12 to 11.4%. At the same time, the thorough changes that have been occurring in the agriculture and fisheries sector since the beginning of the 80s have led to two trends with opposite effects. According to a study done by the Ministry of Agriculture, the population working in this sector has remained practically unchanged since the 60s, with an agricultural work force of 549,000 in 1995, made up of 282,000 farmers, 230,000 family helpers, and 37,000 wage-earners. Increased mechanization has brought the proportion of wage-earning workers down to approximately 7% of the total compared with 13% in 1962, and this represents an improvement in output. There has, on the other hand, been a 36% increase in the number of farmers, bringing their percentage in total farm labour from 38% to 51% and indicating an accentuated parcelling of farm lands.

Despite these contrasting developments, the agricultural sector continues to offer employment opportunities which alleviate pressure on the labour market. Seasonal labour for harvesting provides an average 22 million days of work, of which 30% are accounted for by the oil-producing sector, 25% by market gardening and 29% by tree-farming. Farm gate priees for strategie produce are sometimes revised in conjunction with the strategy to encourage farm production and promote farm revenues. Similarly, the priees of other farm products have been deregulated and distribution channels reinforced.

From the standpoint of marketing, there has been a distinct improvement in the food balance, notwithstanding massive recourse to importation during the four years of drought that occurred in 1988, 1989, 1994 and 1995, and despite a rise in international priees. The rate of coverage reached approximately 75% during the 1987-96 decade, against only 47% during the decade before.

Among the more important measures taken in 1997 to benefit the agriculture and fisheries sector was the granting of facilities to reactivate restructuring of state-owned lands and encourage livestock farming. As an element in th~ ten-year strategy designed to double cereals production, a cereals technical centre has been created to ensure that scientific research in agriculture is appropriate to the natural conditions on farms and to disseminate new production techniques. Concurrently with this, and in the aim of providing cereal- farmers with greater incentive and ensuring more stable revenues, the rate of coverage of farm risks has been improved through revitalization and reinforcement of the intervention of the mutual societies for compensation in this sector.

AGRICULTURE & FISHERIES: GROWTH lN VALUE ADDED AND CONTRIBUTION TO ECONOMIC GROWTH (constant 1990 60

40

20 ~ 0 0 .5 -20

-40

-60 1989

I-·-G~~th rate in agricultureand fisheries -Contribution to economicgrowth ln early September of 1997, the decision was taken to grant loans to 4,000 farmers on advantageous terms, another highly beneficial action of encouragement for farmers who are not eligible for bank credit. Harvests in 1997 were up, in varying degrees, for most crops, with the exception of cereals, which suffered enormously from inadequate rainfall during the 1996-97 crop year. As a result, value added in farming and fisheries, expressed in real terms, increased by only 3%, compared with a 29.5% increase in 1996, and the contribution made by this sector to ove rail economic growth fell from its 1996 figure of more than 50% to only 8% in 1997.

The food balance was marked essentially by recovery in olive oil exports, an advantage which was, however, offset by stepped-up cereals imports. ln ail, the deficit was reduced by approximately T079 million to a figure of T0172.4 million. Gross fixed capital formation represented T0736 million, up 2.5% compared with a 20.3% increase in 1996. The share of capital investment in overall investments thus fell back from 16.4% to 14.3%. The private-sector contribution continued to rise, going from around 42% in 1996 to 50% in 1997. The public sector is pursuing its interventions, related essentially to farm watering, forestry work and water and soil conservation.

Although sorne objectives in agriculture and fisheries have been achieved, the sector continues to suffer from weaknesses which are hindering development. Foremost among these are a delay in execution of the plan for water resource mobilization, low and highly variable yields, parcelling of lands, larger numbers of farm owners and increased absenteeism among them, and weak technical guidance compared with other countries whose degree of agricultural development is similar to Tunisia's ..

Fishing continues to be practised in a relatively traditional manner, with rudimentary and frequently obsolete production means. Sm ail fishermen continue to predominate in this sector, using small boats which cannot reach ail fish-bearing waters.

To remedy the weaknesses in the agriculture and fisheries sector and assure its sustainable development, it is urgent that measures be taken to achieve, among other things, the following:

- increase irrigation, to reduce the negative effects of undependable weather conditions have on overall results in the sector;

- improve competitiveness in the sector by strengthening professional guidance and ensuring optimum allocation of technical capabilities; this can be achieved by encouraging agricultural enterprises to recruit young graduates (technicians and engineers);

- pursue execution of the strategy to promote staple farm products, especially cereals, meat, and milk, in order rapidly to achieve self-sufficiency in these strategic foodstuffs;

- make up for delay in carrying out the strategy for water resource mobilization and water and soil conservation;

- finish the plan for the restructuring of state-owned lands that are suitable for farming;

- strengthen private-sector investment in the areas of outreach, livestock health protection, forestry, and water and soil conservation. A shortage of rainfall du ring the 1996-97 crop year brought about a decline in the areas sown with cereals and pulses, as weil as those devoted to both irrigated and unirrigated vegetable crops. As a result, harvests of almost ail crops were down somewhat, resulting in increased imports, especially of cereals, and to lower exportable surpluses of certain products.

1 . Large-scale cropping

Cereals were grown on only 1.126 million hectares during the 1996-97 season, representing a 28% drop from the average for the 8th Plan and a 44% decline compared with the figure for the plan before that. Coupled with a decline in yields, which also continue to be lower than world levels, this brought cereals production in 1997 down to 10.5 million quintals, compared with 26.5 million quintals in 1996. The Cereals Board and the approved cooperatives collected 6 million quintals, or around 57% of production, where they had gathered 13.2 million quintals (51%) a year earlier. Farm-gate prices for the 1997-98 selling season remained unchanged from the previous season at 28.5 dinars per quintal of hard wheat, 25 dinars for soft wheat, and 17 dinars for barley and triticale.

Insufficient production, joined to increased consumer needs, led to an upswing in cereals imports in 1997, and nearly 20 million quintals were brought in for a value of TD347 million, against 12.4 million quintals for TD256 million in 1996. Because of increased world supply, however, priees at import, expressed in dollars, fell by an average of 20.5% for soft wheat, 14.4% for hard wheat, 22.7% for maize and 11.9% for barley.

Cereals were sown on scarcely more than 1.4 million hectares during the 1997-98 cereals season, against an initial programme of 1.7 million hectares for an estimated production of 17 million quintals.

Areas sowed with cereals Production Yields Season (in thousands of hectares) (in millions of quintals) (in quintals per ha)

Hard Soft Hard Soft Hard Soft wheat wheat Barleyl Total wheat wheat Barleyl Total wheat wheat Barley1

1991-92 836 145 518 1,499 13.3 2.6 6.1 22.0 15.9 17.9 11.8 1992-93 909 178 575 1,662 11.3 2.8 5.0 19.1 12.4 15.7 8.7 1993-94 810 139 531 1,480 4.4 0.7 1.4 6.5 5.4 5.0 2.6 1994-95 774 139 427 1,340 4.7 0.6 0.9 6.2 6.1 4.3 2.1 1995-96 1,109 167 736 2,012 17.1 3.1 8.5 28.72 15.4 18.6 11.5 1996-97 673 142 311 1,126 7.2 1.6 1.7 10.5 10.7 11.3 5.5

1 Including triticale. 2 Figure updated by the Ministry of Economie Development to 26.5 million quintals. 10,000

] 8,000 .§ ...••• 6,000 0 ."

[---Production -Imports 1

(in dinars per Quintal) 1989 1990 1991 1992 1993 1994 1995 1996 1997

Hard wheat 22.5 24.5 24.5 26.0 26.0 26.0 27.5 28.5 28.5 Soft wheat 19.9 20.9 20.9 22.5 22.5 22.5 24.0 25.0 25.0 Barley 14.5 1 5 15 1 5 15 15 1 5 17 17 Triticale 1 7 1 7 1 7 1 7 1 7 1 7 1 7 17 1 7

(in dollars par ton Variations in % 1994 1995 1996 1997 1996/95 1997/96

Hard wheat 233.12 242.94 265.56 227.25 9.3 -14.4 Soft wheat 110.64 170.22 203.46 161.80 19.5 -20.5 Maize 127.55 145.87 182.42 140.99 25.1 -22.7 Barley 81.68 118.91 159.70 140.62 34.3 -11 .9

Pulses, like cereals, telt the effects ot inadequate raintall during the 1996-97 season, and areas devoted to these crops tell by 32% trom the previous year, covering approximately 58,000 hectares, ot which 42,000 hectares were planted with winter pulses (broad beans, horse beans, peas and lentils). Land planted with spring pulses (chick peas and beans) declined trom 23,500 to 16,000 hectares. The decline in cultivated areas was accompanied by a decrease in per-hectare yields for most varieties, leading to a drop of some 38% in production, which totalled 27,400 tons for winter pulses and 8,600 tons for spring pulses. After a recovery registered during the 1995-96 season, market gardening land areas dropped again by 5% during the following season, to a total of 139,000 hectares. Per- hectare yields improved, however, except in the case of tomatoes, which were affected by high June temperatures. Market garden production thus developed favourably for potatoes, melons and watermelons, onions and artichokes, while there was a decline in peppers and, above ail, tomatoes.

Potato-growing areas for the 1996-97 season were up 2.3% from the previous season. Of the total 22,400 hectares devoted to potatoes, 2,200 were planted with early potatoes and 10,200 with seasonal varieties. The harvest increased from 315,000 to 327,000 tons, an advance which was accounted for by seasonal potatoes and which offset a slight drop in the production of both late and early varieties. Yields per hectare averaged 14.6 tons, compared with 14.4 tons a year earlier. These yields are still insufficient in relation to the objectives of the national potato strategy launched in 1995, which postulates an average improvement in yield of 3 tons per hectare.

Increased production made it possible to reduce table potato imports to around 3,000 tons in 1997, compared with 16,400 tons in 1996 and 36,100 in 1995. These imports were required for domestic market supply during the tide-over periods between seasons and to maintain normal priees in the interest of protecting consumer purchasing power. Exports fell from 3,500 tons to 1,800 tons between 1996 and 1997, and remained below the 9th Plan objectives of 8,000 tons in 1997 and 10,000 tons in 1998. ln the framework of intervention by the Fund to Promote Competitiveness in the Agriculture and Fisheries Sector, the Interprofessional Vegetable Group (GIL) collected and stored only 1,400 tons of potatoes from the late harvest, against an initial programme of 4,000 tons, at priees which varied from 250 to 400 dinars per ton. The stock accumulated in 1996 was approximately 3,000 tons at 250 dinars per ton. For seasonal potatoes, the GIL accumulated a regulatory stock of 10.000 tons during the autumn tide-over period (October and early November). National strategy for seed potatoes is to achieve self-sufficiency by the year 1999, but the strategy has been slow in getting off the ground. The creation of the Technical Potato Centre should favour increased production of seed potatoes. and of potatoes in general.

After reaching a record level in 1996, the tomato harvest declined by 27% in 1997, falling to 550,000 tons. There were two reasons for this. Land devoted to seasonal tomatoes was reduced intentionally because of large stocks of tomato paste remaining from the 1995-96 season, and the tomato crop was compromised by parasitic diseases that appeared following high temperatures in June. ln addition, average yield per hectare, which in 1996 exceeded the 30-ton goal set for the year 2000, fell sorne 16% to 28.2 tons in 1997.

(in thousands of tons 1990 1991 1992 1993 1994 1995 1996 1997

Tomatoes 530 580 550 420 480 580 750 550 Peppers 175 180 190 180 165 150 190 180 Melons & watermelons 450 350 380 330 375 300 370 420 Potatoes 217 220 218 200 210 233 315 327 Onions 100 220 250 255 262 254 233 246 Artichokes 12 9 12 13 17 22 21 23 Sorne 353,000 tons of fresh tomatoes were processed to produce around 64,000 tons of tomato paste, compared with production of 105,000 tons in 1996. This, combined with a carry-over stock of 17,000 tons, brought total available canned tomatoes to 81,000 tons. To cover the needs of domestic consumption, estimated at 77,000 tons, and honour commitments to export 18,000 tons to Libya and Europe, imports were required. Fresh tomatoes were sold to the industry at between 90 and 100 millimes per kilogram, compared with 90 millimes the year before.

The pepper harvest, too, was down from 190,000 to 180,000 tons, due to a 6% reduction in areas devoted to this crop, which totalled 15,300 hectares. The processing of fresh peppers began in early September 1997, yielding 14,000 tons of harissa (hot pepper paste), compared with 10,000 tons in 1996.

Despite a 19% decline in the area devoted to melons and watermelons, which was 28,400 hectares in 1997, production increased 13.5% to a total of 420,000 tons, a figure which did not reach the record 450,000-ton level of 1990. The increase can be attributed to improved yields averaging 14.8 tons per hectare, compared with 10.6 tons the year before.

Artichoke production, at 23,000 tons, was 10% over its 1996 level, but remained beneath the potential for this crop. Greater effort should be made to master techniques and contain production costs, in order to increase output, foster processing, and promote export of artichokes.

anion production was up by a modest 5.6% at 246,000 tons, an increase which is attributable to larger growing areas, which went from 14,500 to 14,900 hectares, rather than to yields, which have remained practically steady at an average of 16.5 tons per hectare.

Results in this agricultural branch were generally satisfactory in 1997, particularly for olives for olive oil, dates, grapes, and spring fruits. The domestic market enjoyed a regular supply and there was a considerable upswing in exports, providing an improvement in the food balance.

The 1996-97 olive season provided a record olive harvest of 1.55 million tons, compared with 300,000 tons during the previous season, and 350,000 tons in 1994-95. At pressing, this quantity provided 310,000 tons of oil, compared with only 60,000 a year earlier. A total of 230,000 tons of olives were collected, 177,000 by the National ail Board (ONH) and 53,000 by private operators, at an average price of 1,668 dinars per ton, compared with 1,530 dinars during the previous year.

(in thousands of tons 1990/91 1991/92 1992/93 1993/94 1994/95 1995/96 1996/97 1997/98

Production 165 285 135 210 70 60 310 90 Exports 154 96 110 184 105 27 115 1071 350 ,., c 300 Olive 011produdion Q c:=:J .... 250 ~ Olive oUexports -Q ,., --Vegetable 011imports '0 200 1: •,., 150 :1 .s:Q 100 .5- 50 0

There was distinct recovery in olive oil exports during the 1996-97 season, amounting to 115,000 tons, compared with 27,000 tons the year before. Private operators accounted for the sale of 57,000 tons, approximately the same amount as was sold by the ONH. Local consumption of olive oil continues to gain ground as the priee differential separating it from imported vegetable oils decreases, a phenomenon favoured by the selling priees charged by the oil presses, which were between 1.8 and 2.2 dinars per kilogram.

Forecasts of the olive harvest for oil production during the 1997-98 season estimate it at 500,000 tons, which could provide 90,000 tons of olive oil. Production in 1996 declined as a result of a cyclic phenomenon characteristic of olive trees, combined with inadequate rainfall during the 1996-97 season. With a carry-over stock of 118,000 tons as of late October 1997 and a national collection estimated at 50,000 tons, exports are expected to reach 107,000 tons.

Cin dinars oer kilooramme\ 1990/91 1991/92 1992/93 1993/94 1994/95 1995/96 1996/97 1997/98

Minimum advanee 1.390 1.390 1.390 1.055 1.055 2.330 1.420 1.420 Maximum advanee (Extra high quality ail) 1.750 1.750 1.750 1.315 1.315 2.730 1.800 1.800 Priee eomplement1 - - - - 0.300 0.150 N/A2 N/A2

Citrus fruit production for the 1996-97 season was 211,000 tons, compared with 221,000 during the previous season. Oranges of the maltaise variety and by lemons were responsible for this drop, which was due primarily to bad weather conditions. Overall, however, production quality was good, with large fruit representing 25% of this year's crop, compared with 15% the year before. Medium- and small-diameter fruit accounted for 45% and 30% respectively.

1 The priee complement. whieh was reintrodueed during the 1993-94 season. is determined at the end of the marketing season. 2 Not available. The smaller harvest, joined with a steady domestic demand and with stagnation on the French market, which consumes some 80% of Tunisian orange exports, meant that citrus fruit shipments totalled only 16,100 tons for the 1996-97 season, against 21,700 tons the preceding season. Citrus fruit production for the 1997-98 season rose 9% to approximately 229,000 tons. Of the estimated 25,000 tons that would be exported, 22,800 were actually exported during the marketing season, a level which was 6,700 tons over that of the previous season.

(in thousands of tons) 1990/91 1991/92 1992/93 1993/94 1994/95 1995/96 1996/97 1997/98

Production 226.3 185.3 281.0 210.0 194.0 221.0 211.0 229.2 Exports 26.5 20.3 23.5 21.0 25.2 21.7 16.1 22.8

Date production has been moving upward at an average of 1.6% since 1990, accompanied by a sustained average increase of 2% in exports. Foreign currency revenue from dates represents approximately 9% of such income from total foodstuff exports for 1997, making this crop a niche with potential that calls for encouragement.

The date harvest (taking the total for ail varieties) was 95,000 tons in 1997, representing a 28% increase over 1996, compared with a 12% decline the year before. This trend concerned primarily the "deglet noUf" (premium) variety (+33%), and is explained partly by the phenomenon of "saisonnement," and even more by the use of a new method to estimate production, particularly in the governorate of Kebili.

Date exports showed some recovery during the 1996-97 season, reaching 20,600 tons for a value of TD53.4 million. The current season is expected to provide total exports of 22,000 tons, and date quality has been improved by better protection of dates from bad weather and by better conservation.

(in thousands of tons) 1990/91 1991/92 1992/93 1993/94 1994/95 1995/96 1996/97 1997/98

Production 81 75 75 86 74 84 74 95 of which: def}/et-nour 56 46 41 52 46 52 49 65 Exports 19.2 19.0 18.5 21.0 21.1 18.0 20.6 22.01

The production of wine grapes was up considerably in 1997 at 46,000 tons, compared with 33,000 the year before. Wine production from these grapes totalled approximately 372,000 hectolitres, a 68.3% improvement over 1996. With a carry-over stock of approximately 28,000 hectolitres at the end of August 1997, available wines totalled 400,000 hectolitres. Exports should amount to 77,000 hectolitres, compared with 64,000 during the 1996-97 marketing season. The table grape harvest increased as weil, reaching 63,000 tons, as opposed to 55,000 in 1996 and 60,000 in 1995. As a result of abundant supply and encouraging priees accorded by the industry, some 3,000 tons of these grapes were shifted to wine production.

(in thousands of hectolitres 1990/91 1991/92 1992/93 1993/94 1994/95 1995/96 1996/97 1997/98

Production 267 429 333 344 294 292 221 372 Exports 92 85 81 130 60 83 64 771

Spring fruit production was good in 1997. Dry-shell almonds were particularly successful, with an almond harvest of 51,000 tons, compared with 42,000 in 1996, providing a good supply for the domestic market. A drop in priees on the French market in May, however, meant that only 55 tons were exported to France, against 141 tons a year earlier.

(in thousands of tons 1991 1992 1993 1994 1995 1996 1997

Production 40 45 47 52 35 42 51 Exports 1.9 0.8 1.2 0.8 0.6 0.2 0.1

Apricot production, a large share of which (38%) comes from the governorate of Kairouan, increased from 25,000 to 26,000 tons because of a 4% increase in in-season fruit, which totalled 12,000 tons. Early varieties, which represent the major share of production, have been levelling off at around 14,000 tons, after a record 16,500-ton harvest in 1994. Apricot quality is generafly good, with regular maturity and good size, especially on new orchards in irrigated areas, and fresh apricot exports thus went from 86.5 to 232 tons, 63 tons of which were exported to the countries of the Arab Gulf, and 22 tons to the French market.

(in thousands of tons' 1991 1992 1993 1994 1995 1996 1997

Production 20.0 20.0 24.0 26.5 26.0 25.0 26.0 Exports 0.7 0.4 0.3 0.2 0.3 0.1 0.2 Most summer fruit harvests increased relatively substantially in 1997, particularly those of apples and peaches. An abundant supply made it possible to satisfy domestic demand at normally-evolving prices, and even to show an exportable surplus for certain fruits, especially pomegranates.

Industrial crops, grown primarily in the northern part of the country, continue to consist primarily of sugar beets and smoking tobacco. They provide an adequate supply for local factories, and assure a certain degree of self-sufficiency.

Land devoted to sugar beets during the 1996-97 season totalled 6,000 hectares, against nearly 6,200 hectares during the previous season, bringing production down by about 13% for crude beets and 14% for clean beetroot, which totalled 266,000 and 224,000 tons respectively. Average yield per hectare also declined, falling to 44.5 tons for crude beets and 37.5 tons for clean beetroot, against 50 and 42.8 tons in 1996.

Processing of the beet harvest by the factories belonging to the Tunisian Sugar Complex and the Tunisian Sugar Company provided a white sugar production which is nearly stationary at 26,000 tons. This is scarcely 10% of the domestic demand, explaining why imports continue, totalling 246,800 tons in 1997, for a value of TD92.2 million, up 1.9% and 5.5% respectively in comparison with the previous year's levels.

1991 1992 1993 1994 1995 1996 1997

Production of c1ean roots (in thousands of tons) 182.6 258.7 207.6 201.7 234.4 261.0 224.0 Maximum factory priee (in dinars per ton) 38.7 41.5 44.0 47.0 47.0 47.0 ..

There was a considerable increase in land devoted to tobacco in 1997, which went from 3,300 to !:?,600 hectares, and tobacco production rose by approximately 22% to a total of 3,300 tons. The increase concerns smoking tobacco, where a 30% increase in volume led to production of over 2,900 tons. Snuff production, on the other hand, fell back 18.3% to 348 tons, since the land devoted to this crop has been reduced intentionally, and continues to be so in 1998, because of the magnitude of accumulated stocks.

Domestic production of leaf tobacco is not yet sufficient to satisfy demand, leading to increased recourse to crude tobacco importation, which totalled 7,800 tons in 1997 for an amount on the order of TD25 million, compared with 6,200 tons and TD18 million the year before. The livestock sector continued to benefit from measures taken under the national strategy for self-sufficiency in milk and red meats, as weil as trom efforts being made to protect the health of livestock. Growh in the sector continued in 1997, despite unfavourable weather conditions during the first half of the year which caused a drop in feed. To palliate the situation, the authorities set the selling prices of barley and bran at 17 and 11 dinars per quintal respectively, giving priority in the distribution of these grains to the regions most greatly affected by drought, Le., the centre and the south. ln addition, 32,000 tons of alfalfa were imported and imports of maize and soya bean cake increased, with approximately 446,000 tons of the former and 212,000 of the latter being brought in, compared with 315,000 and 154,000 tons respectively in 1996.

The numbers of Iivestock for reproduction continued to increase for the three main species, reaching 4.02 million sheep, 855,000 goats and 427,000 cows. The increased number of cows is explained by renewed imports of pure-race pregnant heifers, after an interruption in these imports between March and October 1997 following the appearance of bovine spongiform encephalopathy in some European countries.

(in thousands of head' 1988 1989 1990 1991 1992 1993 1994 1995 1996 1997

Cows 346 344 348 356 362 381 386 385 409 427 Sheep 3,199 3,126 3,266 3,310 3,364 3,540 3,528 3,776 3,980 4,020 Goats 618 652 672 692 712 762 725 757 834 855

Red meat and offal production dropped by 2.2% from 105,600 to 103,300 tons. As a result, market supply was insufficient, and prices rose somewhat.

(ln thousands of tons) Structure in % 1991 1992 1993 1994 1995 1996 1997 1996 1997

Meat1 86.6 90.1 97.9 99.2 102.3 105.6 103.3 100.0 100.0 beef 40.9 43.4 47.9 49.0 50.4 52.2 50.4 49.4 48.8 lamb 39.0 39.8 42.6 42.4 43.4 44.9 44.4 42.5 43.0 goat 6.7 6.9 7.4 7.8 8.5 8.5 8.5 8.1 8.2 Fresh milk 420 450 486 523 565 615 650

The deficit in red meat production was offset by increased poultry production, which totalled 58,500 tons against 55,500 in 1996. Egg production increased by 15% to total 1.3 billion eggs, weil exceeding the needs of local consumption. To maintain a balance between supply and demand, the Interprofessional Poultry Group (GIPA) began laying eggs aside in March 1997, reserving 41 million eggs for the month of Ramadan 1998, compared with 51.2 million that were stocked the previous year for the same purpose. 1988 1989 1990 1991 1992 1993 1994 1995 1996 1997 Poultry meat (in thousands of tons) 44.5 47.6 46.5 47.5 51.3 63.4 52.3 54.8 55.5 58.5

Eggs (millions) 1,129 1,029 1,000 1,106 1,078 966 1,041 1,096 1,130 1,300

~

fJ ...~ 100 •• 80 ~c :l 60 .s" 40 .5 20 • _. o •, • • • .- • • - 1 , 1988 1994 1997

[-Production -·-Imports 1

Fresh milk production continued to increase steadily, and went from 615,000 tons in 1996 to 650,000 tons in 1997, providing a 90% coverage rate of domestic needs. This result was favoured, among other things, by continued implementation of a strategy to promote dairy production, including the creation of the Interprofessional Milk Group and improvement and expansion of the network for collection and refrigerated transport. There are now 220 collection centres with a total capacity of some 1,300 tons per day. The volume of milk collected is estimated at 300,000 tons, or around 46% of production, compared with 252,000 and 41% in 1996.

Only half of milk production results from the industrial processing of fresh milk, which explains why there is continued recourse to imported milk and other dairy products. These imports increased in both quantity and value in 1997, and totalled some 30,000 tons for a value of TD42.5 million, compared with slightly less than 15,000 tons and TD27.9 million the previous year. 700 600 c., ...2 500 0 400 ~c 1ll 300 0 '5" .: 200 100 0

[lilI Milk production - Dairy product imports 1

Fishery production of ail forms rose by a slight 5.7% in 1997 to 89,000 tons, compared with 84,200 tons the previous year. Somewhat below the average annual production objective of î 00,000 ~ons set for the 9th Plan, this level was achieved primarily by an improvement in trawling, lampaïC f!shing (sardines and mackerel) and fish culture. At the same time, fish imports increased, having risen :~C!Tl5.600 to 5,800 tons.

Despite the relatively minor increase in production, seafood exports continue~ ~~ rise: from 13,300 tons in 1996 for a value of TD90.8 million, they progressed to 15,600 tons Tor TD107.4 million in 1997, fuelled by sustained foreign demand and improved export priees for shellfish and molluscs.

It might be noted that average national consumption of fresh fish is estimated at 7.8 kilograms per person per year, while the world average is 13 kilograms.

(in thousands of tons Variations 1990 1991 1992 1993 1994 1995 1996 1997 in % 1997196

Coastal fishing 40.5 38.6 39.6 36.0 31.5 27.6 31.6 32.0 1.3 Lamp fishing 26.8 27.6 28.8 25.3 33.3 33.8 29.7 30.8 3.7 Trawling 17.5 16.7 15.9 17.8 16.8 17.5 18.3 21.7 18.6 Miscellaneous 3.8 4.7 4.2 4.7 5.5 4.7 4.6 4.5 -2.2

1 Tot., 88.6 87.6 88.5 83.8 87.1 83.6 84.2 89.0 5.7 1 A number of economic reforms have been effected in the industrial sector, especially the manufacturing industries, since the beginning of this decade, with a new investment incentives code, a national programme to promote quality, development and improvement of industrial zones and, beginning in 1996, a programme to modernize and upgrade the industrial fabric. This last element is a response to the graduai establishment of a free- trade zone by the year 2007, requiring that the sector improve competitiveness in order to strengthen exports and increase the inflow of foreign direct investment.

The strategy of the Ninth Plan for developing the industrial sector is an extension of this orientation, and emphasizes reform, particularly continuation of the upgrading programme and accelerated privatization of public enterprises to reinforce such reform by strengthening the role of the private sector in the economy. This new industrial policy situation provided generally positive results in 1997, with increased growth, improved investment levels and an acceleration of exports. Value added for industrial activity rose 5.6% in real terms, compared with 3.6% in 1996, a higher rise than the overall GDP increase of 5.4%. Nonetheless, the contribution of industry to GDP stabilized at 29.6%.

It was the manufacturing industries that accounted for this development, with growth in value added growth amounting to 6.9% in real terms, compared with 3.4% in 1996. Results were good in most branches with the exception of chemicals and rubber, where growth fell off somewhat. The agri-food sector showed substantial growth, stimulated in particular by record olive oil production; excluding this sector, the manufacturing industries registered a growth rate of 4.2% in constant terms, compared with 3.7% in 1996.

(in %\

Sector 1993 1994 1995 1996 1997

Mines -18.1 9.3 24.1 6.2 -14.6 Energy -4.4 -2.4 -0.6 5.1 3.3 of which: Hydrocarbons -8.1 -5.2 -3.2 6.1 2.2 Manufacturing industries 4.9 8.6 -4.3 3.4 6.9 Building & civil engineering 12.1 7.3 1.4 1.7 8.0

Entire industrial sector 2.8 5.7 3.2 3.6 5.6

Firmer activity in the manufacturing industries resulted from distinctly improved exports, where the rate of increase went from 1.9% to 17% in only one year. Even excluding agri- food products, manufactured exports showed an appreciable advance at 11.8% in 1997, against 4.4% a year earlier. The non-manufacturing industries grew at a rate of 3.7% in real terms, comparable to the 1996 level of 3.9%, due mainly to stronger activity in the construction and civil engineering sector, which offset a decline in mining production and slackened hydrocarbons production. Cin %

Sector 1993 1994 1995 1996 1997

Non-manufacturing industries 10.9 10.8 10.3 10.0 10.0 Mines 0.5 0.5 0.5 0.7 0.8 Energy 5.5 5.3 5.1 5.0 4.8 - Hydrocarbons 3.6 3.4 3.1 3.1 3.0 - Electricity 1.3 1.3 1.5 1.4 1.4 - Water 0.6 0.6 0.5 0.5 0.4 Building & civil engineering 4.9 5.0 4.7 4.3 4.4 Man ufactu ring industries 17.2 18.4 19.0 18.3 18.5 Food industry 3.3 3.5 3.2 3.1 3.4 Non-food manufacturing industries 13.9 14.9 15.8 15.2 15.1 - Building materials, ceramics & glass 2.0 2.0 2.1 1.9 1.8 - Mechanical & electrical industries 2.4 2.5 2.5 2.4 2.4 - Chemicals & rubber 1.5 1.9 2.1 2.1 2.1 - Textiles, leather & footwear 5.7 6.2 6.6 6.4 6.4 - Miscellaneous industries 2.3 2.3 2.5 2.4 2.4

Total industry 28.1 29.2 29.3 28.3 28.5

Investment in industry 1 which had fallen off by 6.8% in 1996, advanced 34.7% in 1997 to total approximately TD1.468 billion, or 28.6% of total gross fixed capital formation, compared with 24.9% the previous year. This brought the investment rate up 4.3 percentage points over 1996 to a figure of 24.5%. Among the reasons for this rise were progress in the upgrading programme, reinforcement of technical centres, and industrial zone expansion. Investment in the non-manufacturing industries also picked up, rising 66.3%, against the previous year's 23.2% decline, as a result of projects undertaken in the electrical branch, increased exploitation of existing oil fields and increased storage capacity for refined petroleum products.

uu_1

te.s 2 o -2

-4

-6 1990

---ToUl ••••••••.••Rdor 1 Steady growth and investment recovery increased job creation in the industrial sector by 12.4% in 1997, bringing the total to over 19,000 jobs, or approximately one-third of those in the entire economy excluding agriculture. ln 1996 and 1997, a total of 201 companies had received approval from the steering committee (COPIL), for a total investment of T0506 million; 136 of these received approval during 1997, representing an investment of some T0303 million during this second year of the programme.

Following three years of growth in mining activity, 1997 was marked by a decline in value added of about 14.6% in real terms, against a 6.2% increase the preceding year. This resulted from a decline in the production of most ores, particularly lead and zinc, which dropped when the Bougrine mine was closed down in October 1996. It should be noted that this mine was opened again in April 1998 by a Canadian mining group.

Variations Product ln thousands of tons in % 1997/96 1993 1994 1995 1996 1997

Calcium phosphate 5,476 5,565 6,302 7,151 7,241 1.3 Iron ore 354 288 226 239 252 5.4 Lead ore 1 3 1 1 8 2 -75.0 Zinc ore 2 23 80 58 5 -91.4 Barytes 15 16 8 16 14 -12.5 Fluorite 1 1 2 1 2 100.0 Aluminium fluoride 26 29 28 30 29 -3.3 Sea salt 435 528 319 557 437 -21.5

Approximately 11 million tons of crude phosphate were mined in 1997, slightly less than the 1996 figure. Quarrying accounted for 83% of this quantity, with the remainder coming from underground mines and recourse to sub-contracting, accounting for 0.8 and 1.1 million tons respectively. Mention may be made here of the fact that the programme of improvement of the phosphate branch calls for ail underground mines to be closed between 1993 and 2000. Average yields improved, going from 63.7% to 65.2%, with a 1.3% increase in market grade phosphate that brought production to 7.2 million tons. The processing plants in the Metlaoui, M'dhilla and Kef Eddour mines continued to account for most of production, or approximately 77% of the total.

Total phosphate sales remained relatively unchanged in 1997 at 7.3 million tons, 6.1 million of which went to plants operated by the Groupe Chimique Tunisien (GCT). Exports remained nearly stationary in volume, at 1.2 million tons, but a 24% average improvement in dinar selling priees brought about an increase of approximately 28% in revenues, which were up from T035.7 million in 1996 to T045.6 million in 1997. Iron ore production of 252,000 tons in 1997 marked a 5.4% increase over 1996 as a result of growth of over 11% in production by the Ojerissa Iode, which thus totalled approximately 212,000 tons. The Tamera mine provided 40,000 tons, compared with 48,300 in 1996. -

Iron ore is sold on the domestic market, chiefly to supply the El Fouladh steel mill, and total sales in 1997 were 284,000 tons, against 316,000 the year before. Exports, which are only marginal in quantity, decreased by some 58% to 7,000 tons. The deficit in production gave rise to increased iron ore imports in 1997, which totalled 111,000 tons for a value of T05.2 million, against 73,000 tons and T02.6 million a year previously. Added to these were approximately 636,000 tons of cast iron, iron, steel and finished product imports for T0369.4 million.

Lead and zinc production continued to decline in 1997, joined by a 12.5% drop in baryte production and a 3.3% fall in aluminium fluoride output, resulting from difficulties in selling on foreign markets.

The production of sea salt fell 21.5% in 1997 to 437,000 tons, a reversai of the marked recovery noted in 1996. Oomestic sales steadied at around 67,000 tons, but exports were down by about 21% to a total of 326,000 tons, because of competition from certain countries of the Middle East.

There was a primary energy surplus of approximately 8% in 1997, with production amounting to 541,600 tons of oil equivalent (tOE), resulting from a faster increase in resources than in consumption. Even so, growth in the sector fell back to total 3.3% in real terms, against 5.1% in 1996. ln addition, the balance of trade was adversely affected by increased imports of refined products, and showed a deficit of T0103.9 million, compared with T028.2 million in 1996.

Electricity production, accounted for almost exclusively by the Tunisian Electricity and Gas Company (STEG), rose 7% in 1997, compared with a 3.4% increase the previous year, to total over 8 billion kWh. The rise is attributable to thermal energy produced by STEG, while the contribution made by those producing their own energy remained stationary at around 700 million kWh.

Electricity production by thermal power plants, which represents approximately 90% of domestic production, continued to be fuelled mainly by natural gas, which accounted for 93% of this production, compared with 95.2% in 1996. The remainder is produced using fuel oil and, to a very smail extent, diesel oil.

Hydraulically produced electricity, which is of marginal importance, decreased by 34.3%, since low rainfall failed to fill the dams, thus preventing normal turbine operation. This heading accounted for only 44 million kWh, compared with 67 million in 1996. Variations Item ln millions of kWh in % 1997/96 1993 1994 1995 1996 1997

STEG production 5,705 6,031 6,625 6,852 7,387 7.8 Thermal 5,641 5,991 6,586 6,785 7,343 8.2 Hydraulic 64 40 39 67 44 -34.3 Self-producing 608 683 680 701 695 -0.9 Domestic production 6,313 6,714 7,305 7,553 8,082 7.0 Net exchanges with Aigeria 215 331 31 15 7 -53.3 Total energy produced in Tunisia 6,528 7,045 7,336 7,568 8,099 6.9 High- and medium-voltage consumption 3,904 4,192 4,312 4,396 4,611 4.9 Mining industries 356 382 413 413 405 -1.9 Iron, steel & metallurgical plants 170 177 190 193 194 0.5 Chemical and petroleum industries 497 553 567 575 596 3.7 Building materials 877 884 879 886 893 0.8 Paper industry & publishing 109 11 1 108 116 109 -6.0 Textiles, leather and footwear 291 324 341 328 347 5.8 Food industries 259 284 299 321 342 6.5 Miscellaneous industries 240 260 276 292 313 7.2 Other sectors 1,105 1,217 1,239 1,272 1,412 11.0 Low-voltage consumption 1,943 2,137 2,2q5 2,376 2,596 9.3 Total domestic consumption 5,847 6,329 6,577 6,772 7,207 6.4 Losses in transit 681 716 759 796 892 12.1

NATIONAL ELECTRICITY PRODUCTION AND CONSUMPTION 9.000 8.000 ~ 7.000 ~... 6.000 : 5.000 c ~ 4.000 Ê 3.000 c .- 2.000 1.000 o

1 ~ Production a Consomption 1 High- and medium-voltage electricity consumption increased by 4.9% in 1997, against a 1.9% rise in 1996, reaching 4.6 billion kWh, approximately 57% of ail electricity produced. The most notable increases came from the miscellaneous industries and the agri- food sector, and more than compensated for a decline in consumption by the mining industries, paper production and publishing. Electrical energy consumption by the other sectors of the economy such as farm pumping and services grew considerably, totalling 1.4 billion kWh, an 11% increase for 1997 compared with a rise of only 2.7% in 1996. The same trend characterized low-voltage consumption, which advanced by 9.3% in 1997 against 4.9% the year before, to total 2.6 billion kWh, a level which represents approximately 32% of ail energy produced in Tunisia, compared with 31.4% in 1996.

Crude oil production declined for the fifth consecutive year because of graduai exhaustion of reserves in the main fields. Of a total of 3.8 million tons, 1.2 million came from the El Borma field and 0.9 million from Ashtart. These figures represent draps of 9.3% (total production), 12% (El Borma) and 4.8% (Ashtart) from 1996 production. For the other, smaller fields, production fell from sorne 1.8 million tons to 1.6 million, but notwithstanding this fall, the share of crude oil in total primary energy production remained preponderant at over 60%.

Crude oil provided for the Bizerte refinery remained stationary at 1.8 million tons, while exports decreased by about 11%, falling back from 3.1 million tons in 1996 to 2.8 million in 1997, for respective values of TD449.8 million and TD416 million. At the same time, crude oil imports rose by 23.4% to approximately 935,000 tons. It should be noted here that sorne 62,000 tons were purchased on site from foreign partners, and that 43,000 tons of this were payable in foreign currency; the corresponding figures for 1996 were 56,000 and 44,000 respectively. To compensate for the decline in oil production, prospecting and drilling work continued at a steady rate, with 11 exploratory and sampling drillings, a level comparable to that of 1996. Two small new discoveries were made (Ras El Bech 2 and Chergui 5), and one old discovery was confirmed (Hasdrubal 3).

Variations Field ln thousands of tons in % 1997/96 1993 1994 1995 1996 1997

El Borma 1,830 1,686 1,535 1,396 1,229 -12.0 Ashtart 1,070 997 923 962 916 -4.8 Other fields (Sidi El Kilani, Ezzaouia, Tazarka, etc.) 1,741 1,681 1,757 1,825 1,648 -9.7

Total 4,641 4,364 4,215 4,183 3,793 -9.3

The beginning of production on the Miskar gas field in 1996 led to a considerable rise in domestic natural gas production, which more than doubled in 1997 to reach 1.653 billion cubic metres. The contribution of the Miskar deposit went from 660 million to 1.499 billion cubic metres, bringing it from 81% to 91% of total gas production, while the El Borma field, which has become marginal, nonetheless showed a 34.2% increase which brought it to a total of 153 million cubic metres.

Domestic consumption developed at a moderate 3.5%, compared with 3% in 1996, to total 2.3 billion cubic metres, or 76% of available gas, against 79% the previous year. Of this total, nearly 1.8 billion cubic metres were taken by STEG. The remainder went to industrial customers and to the residential and services sectors. Exports to Italy increased considerably in 1997, for the second consecutive year, going from 589 to 722 million cubic metres.

Variations Origin/Destination ln millions of cubic metres in % 1997/96 1993 1994 1995 1996 1997

Production 178 165 127 813 1,653 103.3 El Borma 178 165 121 114 153 34.2 Miskar - - 2 660 1,499 127.1 Zinia - - 4 39 1 -97.4 Royalties in kind 645 660 893 957 911 -4.8 Imports 672 1,390 1,383 1,032 448 -56.6 Total available gas 1,495 2,215 2,403 2,802 3,012 7.5 Consumption 1,310 1,858 2,148 2,213 2,290 3.5 STEG 880 1,403 1,635 1,693 1,757 3.8 Other industrial customers; residential and tertiary sectors 430 455 513 520 533 2.5 Exports 185 357 255 589 722 22.6

Motor fuel production advanced by 9.7% in 1997, compared with only 0.6% in 1996, reaching 2.085 million tons. There was no change in the structure of this production, with a continued predominance of fuel oil and diesel oil, which represented approximately 31% and 28% of the total, against 34% and 30% in 1996. Liquefied petroleum gas production fell back by 8.2% and paraffin oil production by 18.3%, but there were production increases in ail other .petroleum products. There was, in particular, a four-fold increase in the production of virgin naphtha, which is produced exclusively for export and amounted to 234,000 tons.

Motor fuel consumption was also up, increasing by 6.2% from 3.2 to 3.4 million tons, a development which concerned ail fuels but was particularly perceptible for kerosene, diesel oil and unleaded petrol. Note should be taken of the moderate increase in fuel oil consumption, which rose by only 2.5% despite a 51% increase in quantities consumed by STEG to run its electrical power plants; this consumption totalled 157,000 tons in 1997, or 18.5% of ail consumption of this fuel. Variations Product ln thousands of tons in % 1997/96 1994 1995 1996 1997

Liquefied petroleum gas 133 130 134 123 -8.2 Super + unleaded petrol 202 198 222 228 2.7 Standard petrol 108 105 103 108 4.9 Paraffin oil 137 134 131 107 -18.3 Diesel oil 539 576 571 594 4.0 Fueloil 581 645 644 650 0.9 Virgin naphtha 49 63 59 234 296.6 Gasolene 32 32 31 35 12.9 White spirit 6 6 6 6 0.0

Total 1,787 1,889 1,901 2,085 9.7 ln % of consumption 55.6 60.8 58.8 60.7 1.9 ots

To make up for the deficit in production, which is sufficient to coyer only slightly more than 60% of the country's needs, imports of refined products continued to increase in both quantity and value, and in 1997 totalled 2.4 million tons for TD434.9 million. Petrol consumption is covered entirely by domestic production, and virgin naphtha is produced exclusively for export; ail the other petroleum products provide relatively high rates of coverage, particularly liquid petroleum gas (36%), diesel oil (41%) and fuel oil (approximately 77%). Consumer needs in kerosene continue to be supplied entirely from imports.

Variations Product ln thousands of tons in % 1997/96 1994 1995 1996 1997

Liquefied petroleum gas 291 302 322 339 5.3 Super petrol 200 201 206 209 1.5 Unleaded petrol 4 7 13 22 69.2 Standard petrol 104 103 104 107 2.9 Paraffin oil 154 165 169 178 5.3 Kerozene 251 242 249 283 13.7 Gas oil 1,238 1,273 1,342 1,446 7.7 Total not including Fuel ail 2,242 2,293 2,405 2,584 7.4 Fueloil 999 813 828 849 2.5 Of which: STEG NIA 124 104 157 51.0 Ove rail total 3,241 3,106 3,233 3,433 6.2 As a result of stepped-up activity in the agri-food sector, mechanical and electrical engineering, and the manufacturing industries, value added in these branches rose in 1997 by 6.9% in real terms, compared with a 3.4% rise the year before. The contribution of these industries to GDP in current prices went up 0.2 percentage points to 18.5%. Excluding agri-foods, this share remained at 15.1%. The contribution of the manufacturing industries to exports also rose, totalling approximately 87% compared with 85.2% in 1996, and their share in imports remained steady at around 86.4%. Not counting food industry products, foreign trade in the manufacturing sector represented 80.2%, against 81.4% in 1996.

Industrial sector 1993 1994 1995 1996 1997

Ali manufacturing industries 4.9 8.6 4.3 3.4 6.9 Food industries 0.3 10.1 -4.0 2.2 19.2 Non-food manufacturing industries 6.1 8.3 6.3 3.7 4.2 Building materials, ceramics & glass 6.2 3.0 5.6 0.5 1.3 Mechanical and electrical industries 5.4 4.9 4.5 1.0 7.0 Chemicals and rubber 7.4 10.7 6.5 5.6 2.4 Textiles, leather and footwear 5.9 11.7 7.3 4.7 4.8 Miscellaneous industries 5.8 6.5 5.9 5.0 3.9

Stimulated essentially by good cereals harvests during the 1995-96 growing season and by record olive oil production during the 1996-97 season, growth in the food industries was appreciable in 1997, at 19.2% in real terms, compared with 2.2% the previous year.

Olive oil production rose by a factor of more than five, from 60,000 to 310,000 tons, while production of processed seed oils went up around 52% to 73,000 tons.

ln canned foods, there was increased production of harissa (hot pepper paste), canned vegetables and fruits, and especially fish, contrasting with a decline in tomato paste production resulting from a drop in the supply of fresh tomatoes to the canneries.

The dairy' industry continued to advance, due in large part to improvements in the collection and refrigerated transport network, and there was a steady increase in the production of industrially packaged milk, yogurt and cheese.

Production growth in 1997 was only moderate for baking flour, semolina, pasta and couscous, with cattle feed production no more than stagnating, with a 2.5% rise compared with 2% in 1996.

ln the sugar industry, production of granulated sugar fell back somewhat from 92,000 to 90,000 tons, including approximately 26,000 tons of white sugar from sugar-beets. Production figures were better for other products in this branch, with a 10.3% increase in confectionery and a rise of 5.8% for chocolates, compared with respective figures of 3.6% and 13% a year earlier. ln the beverage branch, growth was rapid in minerai water and wine production in 1997, more moderate in the case of carbonated beverages.

(in thousands of tons unless otherwise indicated) Var'ns Product 1993 1994 1995 1996 1997 in % 1997/96 Cereal products Baker's f10ur 621 666 669 680 690 1.5 Semolina 497 566 601 625 650 4.0 Pasta 94 101 108 112 117 4.5 Couscous 33 35 41 43 45 4.7 Cattle feed (concentrate) 680 760 847 864 886 2.5 Dairy products Industrially produced milk (thousands of hectolitres) 2,090 2,150 2,340 2,450 2,634 7.5 Yoghurt (millions of containers) 620 555 531 540 620 14.8 Cheese 6.1 6.0 4.8 6.0 7.1 18.3 Canned goods Tomato paste 49.6 56.6 77.7 105.0 64.0 -39.0 Harissa 9.8 8.4 6.9 10.0 14.0 40.0 Canned vegetables & fruits 20.0 17.3 14.9 18.2 18.5 1.6 Canned fish 2.4 3.6 3.3 1.8 4.6 155.6 Sugar and confectionery Granulated sugar 87 90 90 92 90 -2.2 Lump sugar 12.5 12.7 13.0 13.2 NIA NIA Confectionery 26 27 28 29 32 10.3 Chocolates 4.3 4.4 4.6 5.2 5.5 5.8 Oils and fats Olive oil 135 210 70 60 310 416.7 Margarine 11.5 14.7 17.5 18.0 11.3 -37.2 Processed seed oils 44.0 51.3 55.0 48.0 73.0 52.1 Beverages Mineral water (millions of litres) 110 132 106 107 152 42.1 Carbonated beverages (thousands of hectol itres) 2,800 2,600 2,630 2,660 2,900 9.0 Beer (thousands of hectolitres) 601 689 659 660 670 1.5 Wine lthousands of hectolitres) 344 294 292 221 372 68.3

Activity picked Up in this sector during 1997, with value added advancing by 1.3% in real terms, compared with 0.5% in 1996.

Despite recovery in investment, which includes a building component, and despite continued expansion in the housing sector, cement production fell 3% to 4.4 million tons, or approximately 70% of installed capacity. This decline was much more perceptible in the case of white cement (-7.7%) than for grey cement (-2.8%). Even 50, cement and clinker exports rose 19.6% in quantity and 9.8% in value, totalling 1.3 million tons and bringing in TD47.2 million, following a decrease of sorne 39% in both volume and proceeds in 1996.

Lime and plaster production stagnated, at 466,000 and 65,000 tons respectively, while the output of clay products continued to grow, going from 3.15 to 3.30 million tons. The production of tiles went up more than 3% to reach 14.2 million square metres of mosaic tiles and 8 million square metre of ceramic tiles.

(in thousands of tons unless otherwise indicated) Variations Product 1993 1994 1995 1996 1997 in % 1997/96

Cement 4,508 4,605 4,997 4,560 4,424 -3.0 of which: white cement 241 230 239 168 155 -7.7 Lime 551 508 412 464 466 0.4 Clay ware 2,800 2,840 2,980 3,150 3,300 4.8 Mosaic tiles (thousands of m2) 12,500 12,550 13,200 13,800 14,200 2.9 Earthenware tiles (thousands of m2) 6,980 7,145 7,400 7,700 8,000 3.9 Botties and drinking glasses 28 30 25 26 28 7.7

Sources: National Statistics Institute for binding materials; Ministry of Economie Development for the other products

Ceramics exports advanced perceptibly, totalling 58,700 tons for a value of TD36.8 million, against 37,300 tons and TD27.4 million in 1996. Imports, consisting primarily of luxury products, declined slightly from their 1996 level, going from 32,400 tons for TD23.9 million to 31,800 tons for TD24.1 million.

ln the glass industry, 28,000 tons of bottles and drinking glasses were produced in 1997 against 26,000 tons in 1996, a result which not only covered demand on the domestic market but gave rise to a firming up of the export current.

1 IIICement • Lime IIIOay ware 1

Following two years of decline, activity in the mechanical and electrical industries picked up again in 1997, with a 7% increase in value added in real terms, compared with 1% the year before and 4.5% in 1995, a rate higher than average growth in the non agri-food manufacturing industries (4.2%).

Improved quality and higher output of intermediate products resulted in increased iron and steel production by the El Fouladh Company, which showed 4.8% growth in cast iron, 4.3% ln Iron rods and 12.6% in round iron bars for concrete. There was, on the other hand, a 13% drop in the production of extruded wire because of lower domestic demand from farmers, and metal structures fell 20% due to lower consumption on the part of STEG. Even the increased production of round bars for concrete did not provide enough to satisfy internai demand, and El Fouladh sales through importation totalled 113,000 tons in 1997, or approximately one-third of total requirements, against 123,000 tons and 37.5% in 1996.

Over the past ten years or so, automobile industry activity has been limited to the assembly of trucks, buses and coaches. Production of trucks manufactured by STIA was up in 1997 by 6.2%, totalling slightly more than a thousand vehicles. Production of 309 buses and coaches, which are assembled by the same company and by SETCAR, marked a decrease of approximately 18% from the 1996 figure of 379. As an element in diversification of its activity, SETCAR also began production on a new category of vehicle, putting out 72 road- going tractors.

Overall,electrical, electronic and electrical appliance manufacture improved in 1997, with a particularly high increase in the production of television sets, going from 82,500 sets in 1996 to over 100,000 in 1997. The same trend held for most other products in this sector, and exports of the se goods, Iike those of electrical wiring and cables and miscellaneous electrical items, advanced. This trend did not, however, forestall a distinct increase in imports, because of needs on the domestic market and the effects of liberalization of imports. Thus even with exports advancing more sharply than imports, at 29.3% against 24.7%, the trade deficit in this sector rose by nearly 10% to TD276.2 million, with a coverage rate of approximately 66%.

Variations Product ln thousands of tons in % 1997/96 1993 1994 1995 1996 1997

Cast iron 154 144 152 145 152 4.8 Iron rods 182 183 201 187 195 4.3 Round iron bars for concrete 207 207 212 206 232 12.6 Drawn wire 22 21 19 23 20 -13.0 Metal structures 10 9 9 10 8 -20.0

The general drop in production ail across the phosphate by-products branch because of lower demand from certain foreign customers caused slackened growth in the chemicals industries, which advanced by 2.4% in real terms in 1997 compared with 5.6% the year before.

The phosphate processing industry, which is the chief activity in this sector, showed varying trends depending on the product considered. Increased production of phosphoric acid, dicalcium phosphate (DCP), and sodium tripolyphosphate (STPP) contrasted with a drop in production of other phosphate by-products, especially triple superphosphate, diammonium phosphate (DAP) and ammonium nitrate, resulting from unfavourable external conditions. The drop in the last of those three products was attributable to lower domestic demand resulting from the reduction in cereal-growing land during the 1996-97 farm season. The decline in production of phosphate by-products was c10sely Iinked to a slackened rate of exports, which increased by only 11.3% in 1997, compared with 19.2% the year before, in reaction to the existence of stocks on the world market and unfavourable priees for certain products such as DAP. Exports totalled TD614.8 million, or 10% of the total (compared with 10.3% in 1996).

Variations Product ln thousands of tons in % 1997/96 1993 1994 1995 1996 1997

Phosphoric acid, 54% 858 973 1,017 1,063 1 ,11 9 5.3 Triple superphosphate, 46% 642 821 780 790 748 -5.3 Diammonium phosphate DAP 751 746 831 927 765 -17.5 Ammonium nitrate 182 113 193 186 165 -11 .3 Simple superphosphate, 16% 14 20 16 1 9 1 7 -10.5 Hyperphosphate granules 27 27 23 35 33 -5.7 Compound fertilizers 9 21 28 20 20 0.0 Dicalcium phosphate DCP 74 80 72 86 101 17.4 Sodium tripolyphosphate STPP 36 41 56 64 68 6.3

1,200

1,000 2 .s 800 "-co ~c 600 = co" '5 400 .5 200

0 1988 1989 1990 1991

\18Phosphoric acld • Triple superphosphate Il)D APl

Increases in the production of textile threads and yarns, fabrics, clothing and shoes and in finishing operations, joined with a firming of foreign demand following resumed activity in most of the partner countries of the European Union, made it possible to maintain growth in this sector in 1997, which advanced by 4.8% in real terms, against 4.7% the previous year and 7.3% in 1995. The share accounted for by this sector in manufacturing industry value added in current priees was 34.5%. ln the spinning, weaving and finishing branch, production grew more rapidly in 1997 than in 1996 except for fabrics, where growth turned somewhat sluggish. Fabric finishing, on the other hand, increased by a notable 12%, after stagnating in 1996, to total 48 million metres.

Clothing manufacture continued to expand in 1997, with wearing apparel production rising 5.7% and hosiery 3.7%, against 6.7% and 2.4% respectively in 1996.

Textile exports also picked up, going from 5.8% in 1996 to 8% in 1997. Domestic content is very low in this sector, meaning increased imports of threads, yarns and fabrics, with thread and yarn imports reaching a value of TD152.5 million and fa bric imports totalling TD1.1637 billion. Together these represent approximately 65% of total textile imports, not counting raw cotton purchases, which amounted to TD46.9 million, compared with TD52.2 million in 1996.

There was a considerable advance in exports of leather and footwear (18.8% against 11.6% in 1996), which represented 5.8% of ail manufacturing industry exports. Shoe production rose by 14.2%, compared with near-stagnation in 1996.

Carpet production, which continues to be a craft activity, increased by 3.8% to total 2,700 tons.

(in thousands of tons unless otherwise indicated

Variations Article 1993 1994 1995 19961 19972 in % 1997/96

Cotton yarn 26.1 26.6 27.4 28.2 29.6 5.0 Woollen yarn 7.4 7.5 7.7 7.9 8.3 5.1 Fabric (millions of metres) 125.4 130.5 133.3 141.6 143.6 1.4 Fabric finishing (millions of metres) 39.8 40.8 42.8 42.8 48.0 12.1 Wearing apparel (millions of items) 140.4 161.4 173.2 184.8 195.3 5.7 Hosiery 18.2 19.1 21.0 21.5 22.3 3.7 Carpets 2.2 2.3 2.5 2.6 2.7 3.8 Footwear (millions of pairs) 23.7 26.5 30.8 31.0 35.4 14.2

The miscellaneous manufacturing industries registered lower growth in 1997 than in 1996, with 3.9% in real terms against 5% the year before. The contribution of these industries to GDP in current priees remained at 2.4%. ln the paper industry, however, production of esparto-grass paper pulp ,fell back 5% and printer's paper 2%, bringing the figures for these products down to 15,100 and 26,700 tons.

1 Provisional results. 2 Estimates. (in thousands of tons

Variations Article 1993 1994 1995 1996 1997 in % 1997/96

Esparto-grass paper pulp 13.2 11 .7 13.8 15.9 15.1 -5.0 Printer's paper pulp 23.2 25.5 28.0 27.2 26.7 -1.8

Investment and value added in this sector advanced more steeply in 1997 than the previous year, and growth, fuelled by renewed investment and expansion of the housing sector, went from 1.7% to 8% in real terms between the two years, a level comparable to the development observed at the beginning of the decade. Favourable results in building contributed to improving equilibrium on the labour market. offering job opportunities to a generally unskilled labour force, despite a trend towards mechanization in this sector. Market services activity firmed up in 1997, with 6.7% growth in value added in real terms, compared with a 5.9% rise in 1996. Sustained growth was also observed in investments, which went up 14.4%, against 6.7% in 1996. Services continued, in 1997, to account for over half the jobs created in fisheries and the non-agricultural activities, a total of sorne 30,000 positions.

Reform in this sector continued in 1997, to arm it for international competition and to strengthen economic competitiveness through containment of service costs. The major reforms involved improvement, restructuring, and the continued Iiberalization of most transport means, and the legal framework surrounding transport activities was recast.

Reform was supported by a number of actions related to privatization, especially in the sector of road merchandise transport, which is now handled entirely by private operators. The transport sector was also strengthened in 1997 by the creation of two new maritime transport companies, Gaz Marine and the Compagnie Générale Maritime (COGEMA). A new private air transport company also appeared in 1997, Mediterranean Air Service (MAS), specializing in air freight.

The programme to modernize airport infrastructure continued in 1997, its major activity being extension of the Tunis-Carthage international airport to improve air traffic fluidity.

Accelerated trade abroad and favourable trends in tourist activity in 1997 provided the transport sector with 8.5% growth in real terms compared with 10.3% the year before, and the contribution made by the sector to GDP in current prices also improved slightly, going from 5.6% to 5.8%.

Investment in transport was up 34% to a total of T0730 million; this increase was related to the purchase of two new vessels by the Compagnie Tunisienne de Navigation (CTN) and by the commitment of Tunisair to a large programme of aircraft replacement and modernization.

Following two years of decline, the number of ships entering Tunisia's commerical ports increased, going from 5,675 in 1996 to 6,027 in 1997, partly because of larger imports of cereals, refined petroleum products and sulphur, and a rise in exports of olive oil, phosphoric acid, mechanical and electrical products, and cement. The increase in shipping traffic was felt primarily in the ports of La Goulette, Sfax and Zarzis.

The structure of ship traffic was changed somewhat by the nature of the goods transported. The share accounted for by so-called "classical" ships dropped 3.4 percentage points to 26.9%, while the share occupied by solid and liquid bulk carriers, including oil and gas vessels, increased slightly from 27.8% to 28.7%, primarily because of stepped-up cereals purchases.

The accelerated increase in foreign trade brought about an 8.2% rise in maritime goods traffic, which totalled 23.5 million tons in 1997 where it had fallen by 4% in 1996. Increased quantities were loaded and unloaded in ail ports except Zarzis, where exported tonnages of crude petroleum have been declining for several years now. Port 1994 1995 1996 1997 Variations in % 1996/95 1997/96

Tunis-Goulette-Radès 2,422 2,563 2,602 2,723 1.5 4.7 of which : Radès 1,273 1,321 1,367 1,361 3.5 -0.4 Sfax 1,813 1,689 1,367 1,487 -1 9. 1 8.8 Bizerte 617 649 640 641 1.4 0.2 Gabès 672 627 565 564 -9.9 -0.2 Sousse 490 392 384 394 -2.0 2.6 Zarzis 20 18 11 7 218 550.0 86.3

Total 6,034 5,938 5,675 6,027 -4.4 6.2

International merchandise unloaded in Tunisia went up from 9.7 million tons in 1996 to 11.1 million tons in 1997, due in particular to increased imports of cereals, raw materials, semi-finished products, and capital goods. The tonnage loaded in the country advanced by only 1.2% to a total of 9.4 million tons, despite increased outbound shipments of olive oil.

There was an increase in national coastal traffic in 1997, which totalled 1.507 million tons against 1.347 million the year before. Most of the merchandise entering the ports consists of crude petroleum carried from the port of Skhira to Bizerte, while exiting goods consist primarily of refined petroleum products going to the ports of Sfax and Rades.

At the end of 1997, the national fleet comprised a total of 20 vessels, half of which belonged to the CTN and the other half to eight private companies. The CTN purchased two new merchandise-carrying ships of the transhipping carrier type, each with a carrying capacity of 6,000 tons. One, the Ulysses, was put into service in July 1997 on Italian runs, and the other, the Salambo 7, has been working French and Spanish routes since October.

The CTN is being restructured, and merchandise tonnage declined in 1997 for the third consecutive year, falling to 1.3 million tons from 1.6 million in 1996 and 2.8 million in 1995. This was due primarily to the cancellation of unprofitable Iines such as those serving West Africa and the Middle East. The volume carried on regular routes connecting Tunisia with the countries of the Mediterranean and northern Europe grew 11.4% to total 1.043 million tons, approximately 55% of which was handled through the freighting of foreign ships. Tramping was down in 1997, falling from its 1996 figure of 625,000 tons to only 298,000' tons. This brought CTN participation in Tunisia's commercial maritime traffic down slightly to 6.1 %, against declines of 6.5% in 1996 and 10.6% in 1995. There was, on the other hand, a slight improvement in CTN market share on regular routes, which went from 27% to 27.5% between 1996 and 1997.

Goods traffic carried by private companies remained at its 1996 level of approximately 2 million tons. Nearly 1.5 million tons of this, including 850,000 tons of crude oil, were carried by the Société Tunisienne de Navigation Pétrolière (PETRONAV). Tonnage transported by that company on its own two vessels went from 391,000 tons in 1996 to 563,000 in 1997. The three phosphoric acid vessels belonging to the Société Gabès Marine Tankers (GMT), which specializes in transporting that product, carried 349,000 tons to India and Europe in 1997, against 405,000 in 1996. (in thousands of tons)

Variations in % 1996 1997 Port 1997/96

Entries Exits Entries Exits Entries Exits

International traffie 9,703 9,324 11,051 9,432 13.9 1.2 Port of Tunis-Goulette-Radès 3,289 585 3,722 694 13.2 18.6 of whieh : Radès 2,384 538 2,628 645 10.2 19.9 Port of Sfax 2,056 2,357 2,347 2,418 14.2 2.6 Port of Bizerte 2,629 1,364 2,886 1,524 9.8 11.7 Port of Gabès 1,406 1,779 1,743 1,833 24.0 3.0 Port of Sousse 322 89 348 155 8.1 74.2 Port of Zarzis 1 228 5 174 400.0 -23.7 Port of Skhira and 1 offshore platforms 0 2,922 0 2,634 -9.9 2 Coastal traffie 1,347 1,347 1,507 1,507 11.9 11.9 Port of Tunis-Goulette-Radès 139 0 178 0 28.1 of whieh: Radès 133 0 178 0 33.8 Port of Sfax 283 16 367 16 29.7 0 Port of Bizerte 925 405 955 542 3.2 33.8 Port of Gabès 0 6 0 0 -100.0 Port of Sousse 0 1 7 1 0.0 Port of Skhira and seeondary ports 0 919 0 948 3.2

Total 11,050 10,671 12,558 10,939 13.6 2.5 1 1

216% CDTunis-Goul.-Radès C Sfax CBizerte "' ...... •....•...... •.•...... ",:,>:-::->:.::.::-;':<-:-:-:.:'.' ' '' ' .. , ,.. ''" ~ 1:\1Gabès •••. • Others 176% "'-' 17.4% 21.5%

1 This concerns solely crude oil traffic. 2 Coastal activity here concerns solely the country's trade ports. However, since merchandise entries exceed exits, the discrepancy is included under the heading ·Port of Skhira and secondary ports·. Maritime passenger traffic ente ring and leaving Tu nisia increased substantially in 1997, registering 27,000 more passengers than in 1996 to total 318,000 individuals, 311,000 of whom passed through the port of Tunis-Goulette. The ports outside the Tunis area contributed 7,000 passengers to this traffic, accounting for approximately 2% of the total. More than half of these went through the port of Sousse, where 1997 traffic was more than twice the 1996 figure, thanks to the entry into service of a new passenger hovercraft connecting that port with the southern coast of Italy.

Automobile-passenger ferry traffic was up 7.5% in 1997 at a total of 121,337 vehicles, 69,533 entering the country and 51,804 leaving. Thus the number of automobiles remaining in Tunisia, which corresponds to permanent imports, was 17,729 in 1997, against 16,940 in 1996. The CTN carried 156,044 passengers and 65,370 vehicles, with the "Habib" car ferry alone transporting 60,319 passengers and 31,401 automobiles. CTN traffic accounted for 49% of passenger traffic and 53.9% of the vehicles transported, compared with respective figures of 53.2% and 58% a year earlier.

Tourist cruise traffic also grew by a substantial 32.6% in 1997. Tunisia received a total of 132,713 cruise passengers, due to better integration of the port of La Goulette into Mediterranean cruise itineraries, and the Tunisian National Port Authority (OPNT) promoted this activity by improving arrivai conditions for this category of tourist. Given the advantages enjoyed by certain port cities, the OPNT is considering promoting this activity in the ports of Bizerte, Sousse and Zarzis as weil.

(in thousands of individuals)

Variations in %

Heading 1994 1995 1996 1997 1996/95 1997/96

Passenger entries 163 151 156 170 3.3 9.0 Passenger exits 120 125 129 141 3.2 9.3

Total 283 276 285 311 3.3 9.1

Air transport was strengthened in 1997 by sustained expansion in the tourism sector. Commercial aircraft entering and leaving the country's international airports increased by 6.7% to total 80,700 planes, while passenger numbers rose 12.6% to total 8.3 million. This advance was felt by ail the country's airports except Tabarka 7th November and Sfax- Thyna, where aircratt traffic fell by 56.3% and 3.2% respectively, although passenger numbers did increase. Tunisia's two main airports, Tunis-Carthage and Monastir-Skanes, serve large tourist regions and carried more than 75% of ail traffic, with 3.3 million and 3 million passengers respectively, levels which were up 9.8% and 13.8% from those of 1996. Improvement was even more marked in the case of Jerba-Zarzis, where aircratt traffic was up 15.4% and passenger traffic 16.5%.

Air passenger traffic continued to be carried primarily on international lines, which accounted for approximately 90% of the total. Passengers flying on unscheduled international f1ights (charters) totalled 51.8% of ail traffic, or 4.3 million passengers, a international f1ights (charters) totalled 51.8% of ail traffic, or 4.3 million passengers, a 13.6% increase over 1996. Passenger traffic on scheduled international flights rose by 12.3% to total 3.2 million.

(in thousands

1996 1997 Variations in % Port 1997/96 Planes1 Pass.2 Planes1 Pass.2 Planes1 Pass.2

Tunis-Carthage 33.0 2,988.6 34.6 3,282.6 4.8 9.8 Monastir-Skanès 20.8 2,637.7 22.8 3,002.3 9.6 13.8 Jerba-Zarzis 15.6 1,584.8 18.0 1,846.6 15.4 16.5 Sfax- Thyna 3.1 69.1 3.0 71.9 -3.2 4.1 Tozeur-Nefta 1.5 76.0 1.6 85.0 6.7 11 .8 Tabarka 7 Novembre 1.6 43.7 0.7 45.0 -56.3 3.0

Total 75.6 7,399.9 80.7 8,333.4 6.7 12.6

The activity of the airline Tunisair was up in 1997 as a result of increased demand from the tourism sector. Passenger traffic on that line increased by 19.8% to a total of 3.2 million passengers, a development which is explained by exceptional results in July and August, recovery of some of the traffic previously carried by the former Air Liberté Tunisia on the French market, and stronger supply on certain high-densitylines, particularly with the introduction of new schedules. Scheduled traffic, in particular, was up 14.7% to total 1.6 million travelers, representing 50% of ail Tunisair activity. This advance resulted primarily from growth in traditional markets (France, Italy and Germany), development of eastern European markets, particularly those of Hungary and the Czech Republic, and the introduction of new Iines serving Siovakia and Austria. As a result, Tunisair's market share in international passenger traffic went up 3 percentage points to 44.7%.

STunis-Carthage 36.0% D Monastir-Skanès E:IJerba-Zarzis .Others W ••

1 The number of planes recorded upon arrivai and departure. 2 The number of passengers recorded upon entry and exit and in transit. Traffic on scheduled flights was up 3.9 points and that on charter flights rose 2.7%, totalling 58.8% and 34.3% respectively. This development resulted from a 2-point improvement in market share in Europe and a 1-point improvement in the Middle East, gains which brought the respective shares to 57.7% and 51.6%. It may be mentioned here that in 1989, Tunisair began drawing up fleet plans which are updated every five years. The first of these, for the period 1990-1995, enabled the company to increase its aircraft fleet from 13 to 24 planes. The second, covering 1998-2003, provides for the purchase of 15 aircraft, most of which will replace old planes to respond to the demands of international traHie and meet standards with respect to noise pollution.

Activity also improved for the Nouvelair and Tuninter companies in 1997. Nouvelair, which specializes in charter flights and which replaced the former Air Liberté in 1995, raised its traffic by approximately 52%, carrying 679,000 passengers. Tuninter, which runs three scheduled domestic routes and flies two nearby international routes, transported some 478,000 passengers, nearly 85% of them on domestic flights, representing a 13.7% increase over 1996. This company is contributing to the revitalization of tourist activity, and to ensure that it is able to operate according to standards of profitability and economic efficiency, a study has been undertaken for its restructuring, identifying how to improve services and increase output.

Commercial freight traffic rose slightly in 1997, with 29.4 million tons transported, more than 82% of which went through the Tunis-Carthage international airport, compared with 28.2 million tons and 85% in 1996. Tunisair carried 16,100 tons, or approximately 55% of this traHie, compared with 14,700 tons a year before. ln addition, a new company specializing in air freight was created in late 1997 to promote exports, Mediterranean Air Service (MAS), which has signed agreements with Tunisair ,for joint cargo flights on scheduled routes.

Rail transport of merchandise handled by the Tunisian National Railway Company, the SNCFT, remained virtually stationary in 1997 for the third consecutive year, totalling 2.3 billion ton-kilometres or 12.4 million tons. Trends were not identical with those of the previous year for ail products, however.

Phosphate trattic, which represents approximately two-thirds of ail merchandise handled by rail, moved very liUle, totalling 1.576 billion ton-kilometres or 8 million tons. Handling of energy-related products and ores was down, especially for lead and zinc because of the closing of the Bougrine mine. A decline in iron ore traffic resulted from a move from rail to road transport.

Transport of cereals and building materials, on the other hand, was up considerably over 1996. Increased cereals volume is explained by three factors: the remainder of the 1996 harvest was sent from the centres of production to those of consumption; seeds were moved, particularly to Kalaa Sghira, to replenish butter stocks; and new storage silos contiguous with the railway were put into service in the region of Sfax. Increased handling of building materials resulted from renewed c1inker traffic starting in April 1997, an activity which had been suspended since March 1995. (in millions of ton-kilometres\

Variations in % Product transported 1994 1995 1996 1997 1996/95 1997/96

Phosphate 1,398 1,515 1,578 1,576 4.2 - 0.1 Iron ore 84 85 74 59 -12.9 -20.3 Building materials 263 237 233 260 -1 .7 11.6 Fertilizers and sulphur 291 295 298 301 1.0 1.0 Cereals 11 0 92 67 84 -27.2 25.4 Energy-related products 24 19 17 16 -10.5 -5.9 Other 55 74 62 42 -16.2 -32.3

Total 2,225 2,317 2,329 2,338 0.5 0.4

SNCFT passenger traffic advanced more rapidly than in 1996, at 9.4% against 4%, to reach a total of 31.5 million travelers. This was the result of distinct recovery on long-distance Iines in response to efforts to attract passengers, beginning with fare adjustments in August 1995. A number of new services have been introduced, such as a "yellow card" for students, a frequent-traveler card, a "blue card", and commuter tickets for longer routes. ln July 1996 these measures were reinforced by a 15% reduction in return ticket fares and a reduction in first-class and comfort-class fares.

Passenger traffic on short-distance Iines covering the southern suburbs of Tunis and the Sahel region also continued to rise, and totalled 26.4 million travelers in 1997, or 83.8% of the total, compared with 24.4 million and 84.7% in 1996. Passenger traffic on the Tunis Rapid Transit Company (SML T) increased little in 1997, rising by 1.4% compared with 4.9% in 1996. The SMLT carried a total of 110.7 million passengers, 91.4 million of whom were served by the five "Métro" lines. Traffic on the Tunis-Goulette-Marsa line (TGM) stagnated in 1997 at 19.3 million, and its share in the company's total activity fell from 17.7% to 17.4%.

(in millions of passenqers)

Variations in % Transport means 1994 1995 1996 1997 1996/95 1997196

National Railway Company (SNCFT) 28.3 27.7 28.8 31.5 4.0 9.4 Long-distance routes 5.0 4.7 4.4 5.1 -6.4 15.9 Short routes 23.3 23.0 24.4 26.4 6.1 8.2 Tunis Rapid Transit Company (SMLT) 95.0 104.1 109.2 110.7 4.9 1.4 "Métro" Iines 75.5 85.0 89.9 91.4 5.8 1.7 Tunis-Goulette-Marsa rapid transit line 19.5 19.1 19.3 19.3 1.0 0.0 Road passenger traffic handled by public companies increased in 1997 by approximately 6% for the Société Nationale des Transports (SNT) and 3.9% for the Société Nationale de Transport Interurbain (SNTRI), but taking ail twelve regional companies together, the drop totalled 9%. ln ail, passenger traffic handled by public road transportation companies in 1997 is estimated at close to 566 million, against 589 million in 1996. Among companies operating on the regional level, particular improvements were noted for those of the Sahel, Sfax and Bizerte, which together logged over 60% of regional transport company traffic. There was also a sharp increase in school transport, which accounted for more than 50% of most regional company traffic, for example in Kairouan, Jendouba, and Gabes.

Private passenger transportation in Greater Tunis is handled by the Société du Transport en Commun de Voyageurs (TCV) and the Société de Transport Urbain de Tunis (TUT). These two companies work 9 urban routes and their rolling stock totals 60 vehicles. ln ail, they transported 4.2 million passengers in 1997, some 67% of whom were carried by the TCV, compared with 3.7 million passengers and 76% in 1996, an improvement which indicates the success of these companies among the passenger category they serve. Il should be noted, however, that the private sector is supposed to reach the objective of 10% of ail urban road passengers by the year 2000.

Private transport company activity remains very limited, given the small number of routes and the exclusive use of large buses, which are not cost-effective, especially outside rush hour. This situation is hindering profitable use of private companies' vehicles. Passenger transport by other private operators continued to grow in 1997, as is shown by the figures for new vehicle purchase: 2,867 taxis, 674 long-distance multiple-passenger taxis ("louages'1, and 936 rural transportation vehicles.

Road merchandise transport, which is handled entirely by the private sector, had rolling stock totalling 3,013 vehicles at the end of 1997, against 2,554 a year before. The corresponding carrying capacity is approximately 45,000 tons, compared with 32,000 in 1996.

World tourism continued to grow in 1997, although at a slower pace than during the previous year. Foreign-currency tourism revenues exceeded $448 billion, up 3% compared with a 7.8% increase in 1996. This slackening was due to a drop in the number of tourists leaving their home countries; such travellers represented 3.8% in 1997 compared with 5.5% in 1996, totalling around 617 million individuals. ln fact, the decline in tourist traffic concerned only East Asia and the Pacifie (1%, compared with 10% in 1996), a fact which is attributable to the financial crisis in the region. There was a steady increase in tourist flux in other regions, particularly Africa (7.4%), America (5.4%) and Europe (3.6%).

Despite increasingly stiff competition, Tunisia succeeded in improving its position on the Mediterranean and African markets. Entries of non-residents were up 9.7% over 1996, raising tourist bednights by 14.7% and improving foreign-currency revenues by about 11% to a total of TD1.565 billion. The favourable development of these important indicators promoted growth in the sector for the second consecutive year, following a decline in 1995. Value added increased more than two-fold in real terms, going from 3.7% in 1996 to 7.5% in 1997. As a result, the contribution of tourism ta overall GDP at current prices marked a sm ail increase that took it to 6.1%, concurrently with sustained improvement in the manufacturing industries (6.9% in real terms, against 3.4% in 1996).

Tourism picked up in response to a relative improvement in economic activity in the European Union countries, Tunisia's main tourist source. Aiso responsible was progress in diversifying and enriching the supply of tourism products and improved service quality. Commercial promotion in most source countries contributed to recovery on sorne markets and to an improvement of the situation on others. Promotional aetivities in 1997 were allotted a budget of TD21 million, equivalent to 1.3% of tourist revenues, compared with TD20 million and 1.4% in 1996. The choice of Tunis as cultural capital for the year 1997 also attracted a new tourist elientele.

As part of the strategy to develop this sector, reforms were effected and promoters were granted additional ineentives in 1997. Choices and orientations in seetoral policy and the coordination of promotional activities were made the responsibility of the National Tourism Council, created by deeree no. 97-1215 of June 23, 1997.

To ensure normal conditions for the functioning of the new tourism product, time-sharing, and to proteet the interests of those concerned by it, law no. 97-46 of July 14, 1997 was enacted to organize this aetivity.

Item Unit 1995 1996 1997 Variations in % 1996/95 1997/96

Real growth rate % 1.7 3.7 7.0 Value added, in current prices/GOP % 6.2 6.0 6.1 Investments in value 106TO 306.0 310.8 315.0 1.6 1.4 in % of overall GFCF 7.4 7.0 6.1 Available capacity end of the period 103 beds 161.5 169.9 178.2 5.2 4.9 monthly average 103 beds 156.8 165.6 174.2 5.6 5.2 Capacity operated (monthly average) 103 beds 142.5 148.6 154.8 4.3 4.2 Non-resident entries 103 4.120 3,885 4.263 -5.7 14.7 Non-resident bednights 103 23,514 24,130 27,684 2.6 2.6 Resident bednights 103 1,832 1,995 2,112 8.9 5.9 Occupancy rate 1 absolute % 44.3 43.1 46.9 relative % 48.7 48.0 52.7 Average length of stay days 5.7 6.2 6.5 8.8 4.8 Gross foreign currency earnings in value 106 TO 1,322.9 1,413.2 1,565.3 6.8 10.8 ln % of current income 15.7 16.0 15.6 Expend iture/to uri st/bed ni9ht TD 56.3 58.6 56.5 4.1 -3.6

Sources: Tunisian National Tourism Board; Ministry of Economie Development; BeT

The absolute occupancy rate is calculated with reference to ove rail bednights and to available accommodations, while the relative occupancy rate is determined in relation to the same bednights and the accommodations actually offered. New measures were also taken at the end of December 1997 to favour Saharan tourism, in order to increase its profit-making potential and surmount difficulties that had been encountered-essentially by new investors. These include rescheduling of debts over 20 years with a 5-year grace period, waiving of owners' contributions to the national social security scheme for 5 additional years, and reinforcement of internai connections between the Tozeur airport and the country's other airports. Measures were also taken to encourage investment in the organization of tourist activities and in the construction of a golf course by private promoters.

Investment in tourism was down somewhat, increasing by only 1.4% in 1997, as opposed to 1.6% the year before. Investments totalled TD315 million, representing 6.1% of gross fixed capital formation, against 7.1% in 1996.

ln accordance with the strategy to improve integration and increase diversification in this sector, a share of invested monies was devoted to tourism-oriented activities, especially casinos. As a result of continued hotel construction, available accommodations in December 1997 totalled approximately 178,000 beds, an increase of 8,231 beds or 4.9%, compared with a 5.2% increase in 1996. This capacity is distributed among 662 hotels, mainly of the three- and four-star categories. Most of the new accommodations were built in the regions of Jerba-Zarzis (2,170 beds), Monastir-Sfax (1,626 beds), and Sousse-Kairouan (1,426 beds).

Accommodation capacity put into operation increased by 6,262 beds, giving a monthly average of 154,800 beds, an increase which concerr.ed especially the sub-regions of Jerba (1,403 beds), Tunis-Nord (1,097 beds) and Mahdia (900 beds). This raised the shares of Monastir-Sfax and Tunis-Zaghouan in the total from 14.5% and 10.2% respectively in 1996 to 15% and 10.4% in 1997. The shares of Nabeul-Hammamet and Sousse-Kairouan, on the other hand, fell from 24.3% and 22% respectively to 23.9% and 21.6%, although these regions still occupy the top two positions.

b. Employment and training

Increased tourism activity accounted for the creation of 3,400 direct jobs in 1997, compared with 3,200 the previous year, bringing the total number of jobs assured directly by the sector to approximately 72,000. Indirect employment is estimated at 220,000 jobs.

A five-year vocation al training plan for tourism and the hotel trade was set up in 1997 to improve cesource management in the sector, based especially on developing the further training system, creating new profession al specialities, reinforcing existing training programmes, and restructuring the Sidi Dhrif Higher Institute of Hotel Training.

Following a 5.7% decline in 1996, the number of tourists, excluding Tunisians working abroad, travelling to Tunisia improved by 9.7% in 1997 to reach a total of 4.3 million. This growth was accounted for primarily by increased entries of Europeans, which rose 12.8%, compared with a 7% increase the previous year, to total over 2.8 million individuals. Their share in the total thus rose from approximately 65% in 1996 to 66.8% in 1997. Ali European nationalities participated in the increase with the exception of the Scandinavians and the Dutch, whose entries declined by 9.1% and 6.9% respectively following the 1996 bankruptcy of a large tour operator (Toursem) operating on those two markets. (in thousandsl

Variations Country of Entries Bednights in % origin 1997/96

1995 1996 1997 1995 1996 1997 Entries Bedniahts

Europe 2,357 2,523 2,846 22,208 22,810 26,236 12.8 15.0 of which : Germany 837 808 858 10,283 9,626 10,373 6.2 7.8 France 465 542 620 3,546 4,038 4,796 14.4 18.8 Great Britain 240 206 248 2,304 1,914 2,246 20.4 17.3 Italy 246 270 314 1,861 1,946 2,302 16.3 18.3 Scandinavia 60 88 80 479 704 703 -9.1 -0.1 Belgium 74 87 103 655 772 984 18.4 27.5 Holland 71 72 67 640 615 575 -6.9 -6.5 Switzerland 75 75 87 700 700 819 16.0 17.0 Austria 65 90 114 480 638 898 26.7 40.8 Spain 33 43 54 232 306 417 25.6 36.3 Czech Republic 33 43 55 323 404 579 27.9 43.3

Maghreb 1,640 1,233 1,281 823 808 836 3.9 3.5 of which : Aigeria 989 670 605 592 543 515 -9.7 -5.2 Libya 619 526 626 180 211 254 19.0 20.4 Morroco 27 31 43 51 54 67 38.7 24.1

Middle East 42 45 49 96 103 132 8.9 28.2 North America (USA and Canada) 25 27 27 152 151 142 0.0 -6.0 Africa other than the Maghreb 13 13 17 39 35 49 30.8 40.0

Miscellaneous 43 44 43 196 223 289 -2.3 29.6

Total 4,120 3,885 4,263 23,514 24,130 27,684 9.7 14.7

There were particularly large increases in German and British tourist entries, which went up 6.2% and 20.4% respectively, compared with declines of 3.5% and 14.2% in 1996. Entries were also up for Italians (16.3% compared with 9.8% in 1996), Belgians (18.4% against 17.6%) and Swiss (16%, following a year of stagnation). French tourists increased by 14.4%, contrasting with the previous year's figure of 16.6%. Their share in the total rose from approximately 14% to 14.5%, consolidating their second-place position after the Germans (20.1 % in 1997 against 20.8% in 1996).

The new tourist source markets, comprising essentially the Eastern and Central European Countries (ECEC), continue to provide Tunisia with growing numbers of tourists, and their share in the total went from 3% in 1996 to 3.6% in 1997.

Following a 24.8% decrease in 1996, entries of Maghreb tourists rose 3.9% to total approximately 1.3 million, a situation which is explained by the growing number of Libyan and Moroccan tourists (who accounted for respective increases of 19% and 38.7%), and which more than offset the second consecutive year of falling Aigerian entries (-9.7%). The number of non-Maghreb African tourists rose 30.8% in 1997, compared with the previous year's stagnation, to total 17,000, still quite a low level. Tourists from the Middle East are steadily increasing in numbers, and rose by 8.9% in 1997 against 7.1 % in 1996. The influx of North Americans, on the other hand, has steadied at 27,000, after an 8% rise in 1996. Their share in the total fell slightly from 0.7% to 0.6%.

Analyzed as a function of tourist season, entries of non-residents improved substantially in the middle and high seasons, rising respectively by 10.6% and 16.6%, against a drop of some 10% for each of those seasons a year earlier. The flow of tourists continued to grow during the 1997 low season, rising 4% over 1996 figures as a result of a substantial increase in November and December entries, which were up 17.9% and 21 % respectively, compared with declines of 6.8% and 7.4% for the same months in 1996.

This increase offset falling tourist entries in January and February of 1997 (-17.7% and -6.7% respectively, as an annual rate). Nevertheless, the share of non-resident entries during the low season, which had improved in recent years, levelled off somewhat in 1997, going from 33.5% to approximately 32%.

Night stays by non-residents followed the trend in tourist entries, increasing 14.7% in 1997 compared with a 2.6% rise in 1996. This increase was accounted for chiefly by European tourists, who provided a 15% total increase in bednights, compared with a rise of only 2.7% in 1996, strengthening the preponderance of their share in the total (95%). The increase in bednights concernea ail Europeans except the Scandinavians and the Dutch, whose entries declined. It varied from 7.8% for Germans to 43.3% for Czechs.

Bednights for Maghreb tourists also increased, rising by 3.5% compared with a 1.8% decline in 1996. Respective increases of 24.1% and 20.4% in night stays by Moroccans and Libyans were strongly offset by a decline in Aigerian bednights (-5.2%), although Aigerians do continue to account for more than 60% of total bednights for tourists from the region.

Bednights of Middle Easterners and non-Maghreb Africans rose by 28.2% and 40% respectively, compared with a 7.3% increase for the first in 1996 and a 10.3% drop for the second. Night stays by North American tourists were down 6% in 1997, compared with a very small 0.7% drop in 1996.

Taken by season,1 bednights spent by non-residents advanced by a very high 23.4% during the high season (July and August), compared with 3.1 % growth a year earlier. For the middle season (April, May, June, September and October), there was a respectable 12.5% increase compared with a decline of around 2% in 1996, while bednights during the low season (January, February, March, November and December) advanced by 11%, approximalely the same rate as in 1996. Analyzed in terms of distribution of non-resident bednights by tourist season, night stays during the middle season predominated (46.3%), the remaining 53.7% being distributed equally between the other two periods.

Hotel stays by residents continued to increase, totalling 2.1 million bednights, although the share of these in the total dropped from 7.6% to 7.1 %, falling short of the 10% objective. Overall bednights in 1997 thus rose by 14.1 %, compared with 3.1 % the previous year, to total 29.8 million. Ali tourist regions marked an increase in bednights, varying from 9.4% in the Bizerte-Beja region to 21.4% in the Monastir-Sfax area (Monastir, Skanes, Mahdia

1 The high season is normally considered as ending on September 15, and the middle season begins in the second haIt ot March. and Sfax). The Nabeul-Hammamet and Tabarka-Ain Draham regions showed sorne recovery, rising 13.9% and 13.2% respectively, compared with declines of 1.8% and 10.3% in 1996.

It was the sub-regions of Monastir and Mahdia that, for the second consecutive year, showed the greatest increases in bednights, with respective rises of 22.3% and 40.7%, compared with increases of 16.6% and 36.3% the previous year. Mahdia, in particular, has shown considerable development in recent years, with its share in the total rising from 2.3% in 1995 to 3.8% in 1997.

First place in 1997 was, for the second consecutive year, occupied by the Sousse-Kairouan region, which accounted for 23.7% of total bednights, compared with a 24.5% contribution in 1996. Next came Nabeul-Hammamet and Jerba-Zarzis, with 23.6% and 22.6% respectively, followed by Monastir-Sfax, totalling 17%, against 16% in 1996.

Non-resident entries Non-resident bednights (in thousands) (in thousands)

4,263 4,500 4,120 30,000 27,684 4,000 25,000 3,500 3,000 20,000 2,500 15,000 2,000 1,500 10,000 1,000 5,000 500 0 0 1992 1993 1994 1995 1996 1997 1992 1993 1994 1995 1996 1997

The average relative occupancy rate was another factor in the favourable trend in tourist activity, gaining 4.7 percentage points over its 1996 level to reach 52.7%. This improvement is related to a rise in overall bednights which exceeded the increase in beds made available, and it touched ail tourist regions with the exception of Bizerte-Beja, where the occupancy rate fell back slightly from 36.2% to 35.7%.

The Monastir-Sfax, Sousse-Kairouan and Jerba-Zarzis regions continued to show the best results, with occupancy rates above the general average. The sub-regions of Skanes and Jerba broke the record, with respective percentages of 66.9% and 64.3%. Gafsa-Tozeur, on the other hand, a region of Saharan tourism, showed the lowest occupancy rate, although it was up slightly from 1996 (31.7% from 29.1 %).

Taken by tourist season, the average relative occupancy rate gained 2.1 percentage points during the 1997 low season, against a 1A-point rise in 1996, bringing it to 36.9%, despite a relatively low occupancy figure of 27.5% for January. The same trend was more pronounced for the middle s,eason, with a 3.8 percentage-point gain, compared with a 3.1- point drop in 1996. This brought the occupancy rate to 54.7%, a rate which is above the annual average.

Progress in 1997 over the preceding year was even greater in the high season, with a gain of 11.3 percentage points, compared with only 004 points in 1996. The average rate reached 79.3%, thanks to record occupancy during the month of August (88.7%), when most hotels were full.

Overall bednights Occupancy rate in % Region 1996 1997 Variations in % ln thou- ln % of ln thou- ln % of sands the sands the 96/95 97/96 1996 1997 total total

Nabeul-Hammamet 6,159 23.6 7,018 23.6 -1 .8 13.9 46.5 52.0 Sousse-Kairouan 6,388 24.5 7,053 23.7 4.8 10.4 53.7 57.8 Jerba-Zarzis 5,932 22.7 6,750 22.6 5.2 13.8 52.7 58.0 Monastir & Skanès 3,118 11.9 3,661 12.3 6.6 17.4 57.9 63.2 Tunis & suburbs 1,996 7.6 2,253 7.6 -5.0 12.9 36.8 39.0 Gafsa & Tozeur 887 3.4 1,01 1 3.4 7.5 14.0 29.1 31.7 Mahdia 808 3.1 1,137 3.8 36.3 40.7 53.8 62.3 Tabarka-Ain Draham 356 1.4 403 1.3 -10.3 13.2 34.3 37.4 Bizerte-Beja 181 0.7 198 0.7 2.3 9.4 36.2 35.7 Other regions1 300 1.1 312 1.0 -6.5 4.0 28.2 32.2

Total 26,125 100.0 29,796 100.0 3.1 14.1 48.0 52.7

Average length of stay rose more slowly in 1997 than did the other important parameters of activity, totalling 6.5 days compared with 6.2 in 1996, despite an appreciable increase in night-stays by European travellers. This is accounted for by low hotel use by Maghreb tourists, whose stays continue to average less than one day.

The average length of stay for Europeans improved slightly from 9 to 9.2 days, an increase which concerned nearly ail nationalities. The length of stay for individual European countries was above the general average, but the Germans continue to stay longest, with an average of 12.1 days in 1997 against 11.9 in 1996. Next come the Czechs (10.5 days against 9.4). The average 1997 stays for French and English visitors were 7.7 and 9.1 days respectively, compared with 7.5 and 9.3 days the year before. There was sorne increase in length of stay for nationalities other than those of Europe and the Maghreb, with the exception of tourists from North America, but these figures continue to be weil below the overall average.

The improvement in the parameters of tourist activity in 1997 acted favourably on foreign- currency revenue in this sector, which totalled TD1.565 billion representing an increase of approximately 11%, compared with a 6.8% rise in 1996. They accounted for a share of 15.6% in total current revenue in the balance of payments, slightly below the 16% registered in 1996. Foreign-currency expenditures per bednight thus dropped back 3.6% to an average of TD56.5.

1,600 1,400 1,200 1,000 SOO 600 400 200 o

The sustained improvement in tourism had a positive effect on economic activities related to the sector. Handicratts, transport-air transport in particular-building and trade ail grew more quickly in 1997 than in 1996. Although results are encouraging and are bound to continue improving, the tourism sector still suffers from certain weaknesses. Its share in the Mediterranean tourism market is scarcely more than 2%, and the orientation towards mass tourism does not maximize the potential for proceeds in foreign currency. Foreign- currency yield in the tourism sector continues to fall short of the efforts that are being made, particularly in comparison with results in competitor countries such as Morocco and Egypt. Foreign-currency expenditures per tourist in those two countries in 1996 were $482 and $945 respectively, compared with $334 in 1997 for Tunisia.

Similarly, and despite the mass tourism that characterizes the sector, the average length of stay remains short; at between 5 and 6.5 days, it has scarcely changed since 1988, and in the case of some countries it does not exceed 5 days. According to a survey made in September 1997 by the Tunisian National Tourism Board, sorne 62% of tourist stays do not exceed two weeks. The same survey showed that the rate of tourist return to Tunisia is actually declining for the high season. According to the survey, 27.8% of tourists have visited Tunisia at least twice during the past ten years, compared with 29.1 % according to the 1994 survey. ln addition, 72.2% of the tourists who now come to Tunisia are doing 50 for the first time. Of those returning at least twice, the Maltese come first, with a 71.4% rate of return, followed by Norwegians (50%), Swiss (35.2%), Yugoslavs and Luxemburgers (33.3%). The proportion of Germans returning at least twice is 33%, the same level as in 1994.

The tourism product offer has increased in diversity in recent years, but diversification continues to be an obstacle to real qualitative improvement in the sector. Saharan tourism, in particular, is in need of a specifie global strategy to ensure it of profitability. The promotion of cultural tourism should be stepped up, and appropriate actions should be taken to improve tourist flows and increase foreign-currency revenues.

Above ail, improved quality of services is still the best means for improving Tunisia's image as a tourist country. It will improve the rate of traveller return and will attract new categories of tourists seeking new products and demanding better conditions. ln 1997 the trade sector continued to benefit from reforms and other measures that enabled it to meet the objectives of the Ninth Plan and to play fully the role assigned it in an economy which is open to the outside and in the midst of integration into the global economy.

Against this background, firms producing entirely for export were authorized to sell 20% of their export-destined production on the domestic market. Similarly, great efforts were made with respect to economic control to protect con sumers from fraud and speculation. Actions were also taken to improve distribution channels, particularly for farm products, so as to strengthen the transparence of transactions and protect the rights of ail parties.

Added to reforms already made in distribution trade, particularly freedom for residents to engage in the profession, adjustment of the sector and improvement of storage capacities, these reforms made it possible to revitalize the commercial sector perceptibly.

During the last ten years (1988-1997), factor cost value added expressed in 1990 constant priees progressed by an annual average of 2.6%, compared with a drop of 5.4% in 1987, while investments went up by an approximate average of 11%, rising considerably between 1991 and 1994 before dropping back to a normal level. During the decade under consideration, their share in total gross fixed capital formation was slightly above 2%.

The balance between supply and demand improved steadily throughout the country. Shortages have become rare, and if certain tensions did arise, they were limited to specific farm products during tide-over periods. ln this respect, liberalization of imports was a .fundamental tool in domestic market regulation.

After slowing down in 1996, the trade sector showed distinct recovery in 1997. Value added, expressed in real terms, advanced more quickly than in 1996, at 5.5% compared with 2.3%, although its share in total GDP remained steady at 8.8% in current prices and 8.6% in constant terms. Stronger activity in this sector was favoured, in particular, by high production in the manufacturing industries, joined with considerable increases in foodstuff imports-to coyer the production deficit-and in consumer goods, for which imports were deregulated as an element in the policy to reinforce competition on the domestic market. It was also supported by an increase in consumption, especially household consumption, related to continued containment of price rises, rising wages and easy payment terms. Investments in the trade sector in 1997 were estimated at TD85 million, up about 9%, compared with an 11% increase in 1996. Their share in total gross fixed capital formation steadied at around 2%.

The supplying of markets in various products reflected the sustained increase in domestic demand, which continues to show an absorption capacity in excess of GDP; conditions for supply continued to be satisfactory throughout 1997.

Market supply in foodstuffs, particularly staples, was characterized by availability, making it possible to satisfy consumer needs and keep priee increases within acceptable limits. Inadequate rainfall in the spring of 1997 did not affect the supply of vegetables and fruits; harvests were generally satisfactory, and in some cases even provided exportable surpluses, especially for certain fresh fruits. As a result, the increase in the volume of imports was limited, except for cereals, dairy products and red meat, and there were sharp drops in petato and vegetable oil purchases. Under these conditions, vegetable priees remained practically the same as in 1996, against a drop of 2.1% that year. Fruit priees, on the other hand, showed an average 5.7% increase, compared with 4.1% the previous year, because of increased demand and a drop-off in certain harvests, particularly those of citrus fruits and dates, du ring the 1996-97 growing year. The quantities of fruit passing through the Bir El Kassaa wholesale market in 1997 were down 4.3% from 1996, whereas in that year they had risen by 12.9% over 1995.

Increased production also meant good market supply of seafoods, despite a steady, strong domestic demand, making it possible to limit the rise in fish priees to an average of 3.9%, compared with 8.4% in 1996. Supplies of other foods products were sufficient to coyer consumer needs, especially in the cases of fresh milk, eggs and chicken.

Thus despite a relatively difficult farm season the average increase in food priees was kept within moderate Iimits, representing 4.3% in 1997 compared with 3.8% in 1996. This slight increase was due to foodstuffs which had not been deregulated; these markéd a 7.1% increase as a result of the adjustment of subsidized priees (compared with 3.8% a year earlier). The priees of deregulated products, on the other hand, rose more moderately, at a rate of increase which fell back from 3.8% to 3.3%.

Products other than foodstuffs developed favourably, helped along by a steadily increasing domestic demand which continues to stimulate domestic production and to result in recourse to imports. This was, in particular, the case for furniture, household appliances and clothing, where sustained growth undoubtedly benefited from attractive incentives to consumption such as advertising and deferred payment schemes.

Overall consumption, expressed in constant priees, increased more rapidly in 1997 then during the previous two years, rising by 4.8%, compared with 4.1 % in 1996 and 2.9% in 1995. This trend resulted primarily from private eonsumption, whieh advanced by 4.9%, against a 4.3% increase in public eonsumption.

It cannot be denied that consumption plays an important role in strengthening economic activity, and hence in promoting growth. Nonetheless, accelerated consumption could threaten certain macroeconomic equilibria, particularly in the areas of savings, balance of trade, and priee trends. Given the stabilization of inflation at 3.7% for the second consecutive year, overall consumption, expressed in current priees, increased in 1997 at a rate very close to that of the previous year: 8.8%, against 8%. This rate is, nevertheless, below the nominal GDP growth rate (10.2%).

This fact lowered the average propensity towards consumption, which is the ratio of overall consumption to gross available national income, bringing it down to 76.2%, compared with 77.4% in 1996 and 79.8% in 1995. Against this background, national savings continued to develop favourably, amounting to TD4.947 billion, a figure whieh represented 24.7% of GNP in 1997 compared with 23.6% the preceding year. The major goal of the priee policy followed by Tunisia as a part of the economic and financial reforms initiated more th an twelve years ago is containment of inflation at levels corresponding to the best rates that have been recorded in partner and competitor countries, so as to strengthen ove rail equilibria, preserve purchasing power and improve competitiveness of the economy. This last criterion is, indeed, an essential condition for increasing exports and reinforcing the country's position abroad.

During 1997, the first year of the 9th Five-Year Plan, consumer priees were maintained at the 3.7% level that characterized 1996, contrasting with the 1995 figure of 6.3%. Also, and for the second consecutive year, there was a decline in the overall industrial selling priee index, which fell back from 4.7% in 1995 to 3.8% in 1996 and then to 2.9% in 1997.

The inflation rate, calculated from the annuaf variation in the general consumer priee index, nonetheless remains above that in Tunisia's main partner countries, and even in certain competitor countries. Among the factors favouring continued containment of priee rises in 1997 was a rigorous monetary policy, a satisfactory supply of most domestic farm products, a drop in import priees for a number of staples, reinforced economic control, and tariff dismantling.

It is, indeed, the adjustment of priees of subsidized products and other price-controlled products which was the major factor drawing the consumer priee index upward. Priee increases in products which have not been deregulated, which represent approximately 33% in the general priee index structure, were greater in 1997 than in 1996, averaging 4.7% against 3%. Their share in inflation rose during the same interval from less than one percentage point to 1.5 points, or from 26% to approximately 40%. The upward revision of priees for subsidized products responds to the necessity of gradually reducing the burden on the equalization fund, to alleviate the negative impact of such costs on general government equilibrium and to move towards a situation of real priees by assuring more rigorous management of subsidization and better targeting of the products benefiting from il.

Attention should be called to the fact that a competitive climate has been created on the domestic market by enforcement of structural reforms during the last decade (1988-97), and particularly by priee deregulation at production and distribution and the adoption of a legal framework that is appropriate for commercial activity and importation. Competition will be further reinforced by a reduction of economic protection following graduai lowering of customs duties as one of Tunisia's commitments to the World Trade Organization, and the creation of a free-trade zone with the European Union.

The ove rail industrial selling priee index (base 100 in 1990) has risen more slowly during the last two years, growing by only 2.9% in 1997, compared with 3.8% the year before. The rise in the manufacturing industries index was particularly small, falling back from 4.2% in 1996 to 2.8%, despite priee increases in the building materials, ceramics and glass industries and in miscellaneous industries.

Priee rises in the food industry were less pronounced than in 1996, at 4.6% against 7.3%, although the increase remained higher than that recorded in ail other sectors with the exception of mining. This slackening is attributable to sufficiency of supply and to lower priees for certain imported products such as cereals, milk and cottee. The index in the chemical industries, too, rose at a rate that was slightly above the general average, although it did fall back from 4.2% to 3%. The increase concerned primarily personal hygiene and health products and miscellaneous chemical products.

Price increases were moderate for ail other manufacturing activities. ln the mechanical and electrical industries, the index rose by 1.6% in 1997 compared with 2.2% in 1996, despite a rise in the import prices of inputs for the manufacture of electrical and electronic goods. ln the textile, clothing and leather idustries, price increases were kept down for the second consecutive year by a drop in the import prices of fabric, thread and yarn resulting fram the depreciation of certain European currencies against the Tunisian dinar. The average price rise in this sector was only 1.7%, against 5.5% in 1996 and 6.9% in 1995.

The price index in the building materials, ceramics and glass industries rose sl,ightly in 1997, following three consecutive years of decline. Marking a small average increase of 1%, against decreases of 1.5% in both 1996 and 1995, this trend is explained essentially by a rise in the prices of quarry products, ceramics and glass. ln the miscellaneous manufacturing industries, too, the price index showed some small recovery, rising 1.3% after stagnating in 1996, largely because of increased import prices for wood and plastics, the main inputs in this sector.

The price index in the energy sector, covering hydracarbons, electricity and water, ail of which are subject to price controls, again remained virtually stationary, rising 0.5% against 0.4% in 1996. ln the area of mining products, on the other hand, prices rose steeply in 1997 for the second consecutive year, advancing by 28%, compared with 19% the year before, because of a rise in the export prices of calcium phosphate.

(base 100 in 1990) (in %\

Industry 1993 1994 1995 1996 1997

Entire industrial seetor 3.9 3.4 4.7 3.8 2.9 Manufaeturing industries 4.4 4.0 5.6 4.2 2.8 Food industry 4.3 3.7 4.6 7.3 4.6 Building materials, eeramies & glass 2.4 -0.6 -1 .5 -1.5 1.0 Meehanieal & eleetrieal ind's 3.1 1.7 4.3 2.2 1.6 Chemieal industries 8.5 4.8 4.5 4.2 3.0 Textiles, elothing & leather 7.5 4.4 6.9 5.5 1.7 Mise. manufaeturing ind's 2.6 8.7 12.7 0.0 1.3 Mines -3.2 -7.6 - 4.1 19.1 27.7 Energy 2.2 1.8 1.3 0.4 0.5 Petroleum produets & gas 1.7 0.2 0.2 0.0 0.3 Eleetrieity and water 3.2 4.7 3.3 1. 1 0.8

Monthly variations in the general consumer price index in 1997 (base 100 in 1990) were between 0.2% and 0.4% except in July, when the index rose 0.9% in response to price adjustments in subsidized products. ln terms of monthly averages for the year, the general priee index rose 3.7%, a level identieal with that of the previous year. The priee drift, however, speeded up slightly if the two year ends are compared, going from 3.1% in 1996 to 3.9% in 1997.

A elearly discernible containment of price increases during the last two years has brought the annual inflation rate below the levels registered in certain competitor countries. The rate is actually quite close to those observed in some partner countries such as the United Kingdom. Nonetheless, efforts should continue to bring the inflation differential even lower, since it remains high (by about 2 percentage points) in comparison with the majority of Tunisia's partner countries, particularly those of western Europe, and also in comparison with certain competitor countries in the Euro-Mediterranean area. The country must improve the structural competitiveness of domestic products and conserve, if not improve, foreign market share in an acutely competitive international context.

Taken by product groups, there was an acceleration of price rises for maintenance, personal hygiene and health care, due to increased costs of hospital and clinic care. The same holds true for food, while priees under the other consumer headings, particularly clothing, rose less steeply than in the previous year. Food prices occupy a major place, 41.2%, in the structure of the general index, and increased by an average of 4.3%, compared with 3.8% in 1996. This was due primarily to rises in the priees of subsidized products, although a sustained increase in domestie eonsumption also eontributed. The strongest food priee inereases were for eereals and related produets; meats, offal and poultry; eggs; fruits; dairy produets; and aleoholie beverages. Edible oil priees, on the other hand, fell by 12.4%, eompared with a 6.3% rise in 1996, mainly beeause of a large supply of olive oil.

(base 100 in 1990) (in %

Country 1993 1994 1995 1996 1997

France 2.1 1.7 1.8 2.0 1.2 Germany 4.5 2.7 1.8 1.5 1.8 Italy 4.5 4.0 5.2 3.9 1.7 Belgium 2.8 2.4 1.5 2.1 1.6 Spain 4.6 4.7 4.7 3.6 2.0 United Kingdom 1.6 2.5 3.4 2.4 3.1 United States 3.0 2.6 2.8 2.9 2.3 Japan 1.3 0.7 - 0.1 0.1 1.7 Tunisia 4.0 4.7 6.3 3.7 3.7 Morocco 5.2 5.1 6.1 3.0 1.0 Egypt 12.1 8.2 15.7 7.2 4.6 Jordan 3.3 3.5 2.4 6.5 3.0 Greece 14.4 10.9 8.9 8.2 5.5 Portugal 6.8 4.9 4.1 3.1 2.2 South Africa 9.7 9.0 8.6 7.4 8.6 Excluding food products, the price rise in 1997 was kept down to 3.3%, compared with 3.6% the previous year. The difference becomes even greater if the maintenance, personal hygiene and health care heading is excluded; this brings the inflation rate down to 2.9% against 4% in 1996. It should be pointed out that these two groups made a larger contribution to inflation in 1996, accounting for 2.2 percentage points or approximately 60% in 1997, compared with 1.7 points or 46% in 1996.

Priees under leisure, culture and miscellaneous activities rose more gradually in 1997 than in 1996, by 4.1% as opposed to 5.2%, but their rate of increase remained above that of the general index. This rise was accounted for in particular by the costs of private education and cultural activities, and by meal and beverage priees.

Clothing priees have been rising less steeply for two years now, and increased by an average of 3.7% in 1997, compared with 6.4% in 1996 and 7.4% in 1995, because of a slackening in priee rises for men's and women's clothing, underwear and shoes. The priees of children's clothes have also risen less sharply, going up 3.5% in 1997 against 3.7% in 1996, whereas the costs of second-hand clothing and clothing accessories have increased at approximately the same rates as in 1996, Le., 9.7% and 4.8% respectively. Housing and transportation costs have continued to increase only moderately, growing by 2.3% and 1.2% respectively, compared with 3% and 2% the year before. The increases in 1997 are explained by higher energy and furniture costs in the case of housing, and by higher personal transportation costs.

Taken by price-setting regime, the annual increase was greater, for the second consecutive year, in the case of price-regulated products than in that of fully deregulated products, the former increasing by 4.6%, compared with 4.1% in 1996, and the latter by 3.5% against 2.7%.

Food priees increased more steeply for both unregulated and price-regulated (subsidized) products, which represent 9.8% and 31.4% respectively in the general price index, or approximately 24% and 76% of the base for calculation of the food priee index. Between year-end 1996 and year-end 1997, the rate of increase leapt from 1.7% to 4.1 % for products without priee control, and from 5.7% to 6.4% for those whose prices are controlled.

(base 100 in 1990) (in %) Year's averaqes Sector Dec.96 Mar.97 June 97 8eot.97 Dec.97 ill.2 1.lli Dec.95 Mar.96 ~une 96 Sept.96 Dec.96 1995 1996

Overail index 3.1 3.3 3.7 3.8 3.9 3.7 3.7 Foodstuffs 2.7 2.9 4.3 4.8 4.7 3.8 4.3 Housing 3.1 2.9 2.4 1.6 1.8 3.0 2.3 Household maintenance. hygiene & health care 1.2 6.0 5.8 5.2 4.6 1.5 5.1 Transportation 1.1 0.9 0.6 1.6 1.4 2.0 1.2 Clothing 4.9 3.7 3.2 3.9 3.9 6.4 3.7 Entertainment, culture, mise. 6.2 4.2 4.2 4.2 4.9 5.2 4.1 'if s ..: 4

J 2

o 1991

ln the case of non-food products, the priee rise continued to abate for those whose priees are not controlled, falling back from 6.2% in 1996 to 3.5% in 1996, then to 3% in 1997. For price-regulated goods, on the other hand (public rates, products of state monopolies and a few "sensitive" products), there was, for the second consecutive year, sorne acceleration in the cost increase, which went to 3.7% from the 1996 figure of 3.4% and a 1995 level of 2.2%.

(base 100 in 1990) (in % Variations Contribution System Dec 96 Dec,97 Dec.96 Dec.97 Dec.95 Dec.96 Dec.95 Dec.96

Unregulated products 2.7 3.5 1.8 2.4 · Foodstuffs 1.7 4.1 0.5 1.3 · Non-food products 3.5 3.0 1.3 1. 1 Price-regulated products 4.1 4.6 1.3 1.5 · Foodstuffs 5.7 6.4 0.6 0.7 · Non-food products 3.4 3.7 0.7 0.8 Overall 3.1 3.9 3.1 3.9

Equalization fund (CGC) expenses in 1997 totalled TD371 million, a figure 14.5% below that for 1996, against an increase of 26.5% in that year over the previous one. Between 1996 and 1997 their share in GDP at current priees went from 2.3% to 1.8%, against a 1986 figure of 3%.

The drop in expenses is accounted for primarily by a reduction in the quantities accepted for subsidy, particularly in the cases of cereals and vegetable oils, by lower import priees for cereal products, and by adjustment of subsidized priees. A preponderant share of these costs continues to go to cere ais and cereal products, vegetable oils and milk, which receive respectively about TD262 million, TD57 million and TD25 million, or 70.5%, 15.3% and 6.8% of the total, shares which together account for over 92%.

The expenses of equalization are financed by a budget allocation of TD320 million and by equalization fund resources of TD28 million, compared with respective amounts of TD230 million and TD13 million in 1996. As a result, the deficit was kept down to TD23 million.

From another standpoint, a number of measures were taken in 1997 to improve the management of the system of subsidization. These included, in particular, adoption of the principle of fixed rather than proportional, subsidies for sugar and milk, and reinforcement of inspection regarding the use of subsidized products. These measures have, indeed, been reinforced in 1998, particularly by improving the management of the premium on milk collection by making it the responsibility of the Ministry of Agriculture, by speeding up payment of subsidies for vegetable oils on the basis of the service rendered, and by granting the cereals and oil boards advances to help them meet their cash needs. Employment, a factor of social stability and economic vitality, is one of the strategic objectives in Tunisia's plans for development. It is, however, an objective which must face the necessity of achieving the programmes of public enterprise privatization and economic upgrading, particularly in industry, which in the short term means stabilization of the job offer. Economic globalization has standardized the criteria for project profitability, meaning that a greater effort must be made to identify investments that will create employment and make it possible to meet international competition. A significant increase in the number of university graduates, who are increasingly important in the structure of job demand, is making it possible to raise the rate of ski lied guidance in existing firms and to realize new projects based essentially upon skills.

Against this background, a national conference on employment is planned for July 1998. A National Employment Observatory was set up in May 1997, partly to develop a system of information on employment and vocational training for the various parties involved. This observatory is also responsible for monitoring trends on the labour market and for studying the impact of economic policy on developments there.

ln the area of wages, as far back as 1990 labour and management cqncluded three three-year agreements, the last of which covers the period from 1996 through 1998. ln addition to raising wages, these agreements were an opportunity for revising ail the collective conventions and articles of public enterprises. Wage improvement was accompanied by a sustained effort in the area of welfare payments, which have been oriented towards the most disadvantaged strata of society, both in the field of price compensation for sensitive products and in that of social welfare services. Wage and salary increases were determined according to principles that included the features specific to each sector, encouragement of production, improvement of productivity and containment of company costs through staggered application of the increases decided upon.

The effort to create jobs continued in 1997, favoured by renewed investment in production sectors and market services. Jobs in the non-farming sectors, including fisheries, increased by 4.9% to total 58,000, compared with an initial estimate of 60,000. This figure nonetheless remains below the additional job demand, which in 1997 was around 66,000 for the second consecutive year. The rate of coverage of this demand by job creation improved only slightly, going from 84% to approximately 87%. As a result, unemployment remained nearly unchanged, touching 15.6% of the working-age population, despite a drop in the number of workers affected by the various forms of dismissal, particularly layoff with and without compensation. The sectors most affected by layoff are textiles and clothing, the mechanical, metallurgical and electrical industries, services, and the food industries.

To make up for inadequate job offer and alleviate continuing pressure on the labour market, investment in vocational training was increased to meet the needs of the upgrading programme. At the same time, efforts were oriented towards increasing the private-sector contribution to the creation of training centres and encouraging university and vocation al training graduates to set up in business for themselves.

Efforts to encourage the creation of independent employment were strengthened by the establishment of the Tunisian Solidarity Bank (BTS), which specializes in financing micro- projects, offering borrowers flexible conditions of access to loans and advantageous terms of repayment. At the same time, existing actions to support employment and promote income, both in rural areas and in the cilies, continue to be developed. Programmes of national and regional construction sites, which include projects related to infrastructure, forestry, water and soil conservation and promotion of farm production, received respective budget allocations of TD50.5 million and TD27.8 million, compared with TD40 million and TD28.1 million in 1996. These programmes provided 20 million work days in 1997, against 21 million the previous year.

To provide work for university graduates, in accordance with the requirements of upgrading and improvement of skilled guidance within enterprise, the legal and regulatory framework governing programmes of employment and insertion for young people was revised to facilitate the entry of youth into the working world. The budget allocated for training programmes for initiation into professional Iife (SIVP) increased by some 16% in 1997 to a total of TD6.5 million. The number of young beneficiaries of these programmes was 3,200 for the SIVP1 and 1,500 for the SIVP2, against 2,051 and 1,864 respectively in 1996, providing better coverage of the job demand from new graduates.

in millions of dinars' Variations Year 1994 1995 1996 1997 in % Proqramme 1997/96

Temporary employment in construction 69.6 74.0 68.1 78.3 15.0 National sites 43.8 44.5 40.0 50.5 26.3 Regional sites 25.8 29.5 28.1 27.8 - 1. 1 Regional development programme (PRO) 11.6 12.0 11.9 8.1 -31.9 Regional development construction sites programme (PCRD) 10.0 10.0 10.0 10.0 0.0 Integrated rural dev't programme (PORI) 1.8 5.0 4.9 8.2 67.3 Other worksites 2.4 2.5 1.3 1.5 15.4

Assistance in job creation and consolidation 16.3 27.4 31.6 37.8 19.6 Integrated rural development programme 0.9 4.8 8.8 12.2 38.6 Agriculture & fisheries 0.8 3.6 7.4 10.7 44.6 Small trades 0.1 1.2 1.4 1.5 7.1 Regional development programme 6.0 7.3 5.6 6.5 16.1 Integrated urban development programme 1. 1 3.6 3.0 4.2 40.0 National Solidarity Fund (FSN) 3.9 7.4 10.4 10.9 4.8 Fund to promote handicrafts and small trades (FONAPRA) 4.4 4.3 3.8 4.0 5.3 Programmes of insertion into professional life 8.6 14.5 9.7 12.3 26.8 Training programmes for initiation into professional life (SIVP) 4.6 7.2 5.6 6.5 16.1 SIVP1 3.3 4.8 3.8 4.5 18.4 SIVP2 1.3 2.4 1.8 2.0 11 .1 Fund for professional initiation and adaptation (FIAP) 2.8 6.4 3.2 4.9 53.1 Training-employment contracts (CEF) 1.2 0.9 0.9 0.9 0.0 Total 94.5 115.9 109.4 128.4 17.4

Sources: Ministry of Economie Oevelopment; General Commissionership for Regional Oevelopment Training-employment contracts (CEF), based essentially on the principle of providing practical training for early school drop-outs, provided entry to the work world for 1,200 such young people, against 1,144 in 1996, for a budget allocation which remained at its 1996 level of TDO.9 million.

The allocation for the Fund for Professional Initiation and Adaptation (FIAP), which concerns those with no vocational skills whatsoever, was raised from TD3.2 million in 1996 to TD4.9 million in 1997, and the number of beneficiaries of this fund more than doubled, rising from 3,601 to 8,900.

The integrated rural development programme (PDRI), which covers primarily the farm sector, received a budget allocation of TD12.2 million in 1997 compared with TD8.8 million the previous year, and these funds were used for infrastructure projects and the purchase of farm equipment in rural are as. The employment created in this connection was equivalent to 4,132 full-time jobs. It should be pointed out that the second-generation PDRI, which addresses water mobilization and development of irrigated areas and farm tracks, water and soil conservation works, and general improvement of rural living conditions, also includes production aspects such as the planting of fruit trees, Iivestock farming and fishing. This has strengthened the possibilities for job creation throughout the country.

The integrated urban development programme (PDUI), which aims at facilitating integration of those living in low-income neighbourhoods into the economic sphere, concerned 487 projects, including 458 in handicrafts and 29 in small trades. The budget allocated to this programme was increased by 40% to TD4.2 million, TD2 million of which were earmarked for infrastructure and community facilities, and TD1.7 million for the promotion of production.

ln connection with the fund to promote handicrafts and small trades (FONAPRA), the number of projects approved by the banks in 1997 was up 8.4% from 581 to 630 files. The corresponding investment package was TD16 million, with job creation estimated at 1,912 positions, compared with TD12.4 million and 1,913 positions in 1996. A total of 496 projects were actually funded, for a total investment of TD12.4 million, of which TD4 million took the form of budget allocation. For comparison, the corresponding figures for 1996 were 629 projects, TD11.7 million and TD3.8 million. A breakdown of FONAPRA projects since its inception in January 1982 according to activity shows that over two- thirds of ail projects concern six principal branches, including miscellaneous small trades, woodwork and work on wood products, weaving, and foods. On the regional level, it was the governorates of the eastern part of the country that benefited from over 80% of ail projects.

ln fisheries and non-agricultural activities, there has been progress in job creation in building and civil engineering, the manufacturing industries, tourism and government service. -The creation of employent in the manufacturing industries showed particular recovery, going from 13,000 to 14,000 positions, or approximately 24% of the total, because of new impetus provided by the upgrading programme. The same is true for jobs created by the government, chiefly in teaching, health, and security, which provided 7,900 positions compared with 7,000 in 1996.

Job creation declined somewhat in fisheries, transportation and communications, and other services. Market services other than tourism, transport and communications, although they continue to provide the greatest share (over 40%) of new jobs, nonetheless remained virtually unchanged in 1997, creating 23,720 new positions. JOB CREATION lN FISHERIES AND NON-AGRICULTURAL ACTIVITIES

65

60 ...... 11 55 =..•c.. g= 50 c .; 45 .5 40

35 1988 1989 1990 1991 1992 1993 1994 1995 1996 1'997

(numbers of iobs 1993 1994 1995 1996 1997

Fisheries 1,000 1,400 1,250 1,000 800 Mining & energy 0 0 0 -430 -20 Building & civil engineering 3,000 3,500 4,000 4,500 5,200 Manufacturing industries 15,800 16,000 16,000 13,000 14,000 Transport & communications 2,500 3,000 5,950 3,250 3,000 Tourism 4,200 4,500 3,400 3,200 3,400 Other services 20,000 20,100 20,200 23,780 23,720 Government service 8,000 9,500 10,200 7,000 7,900

Total 54,500 58,000 61,000 55,300 58,000

Wage increases in 1997, representing the second instalment of the 1996-1998 three-year collective convention, contributed to improving the workers' purchasing power. As a result of fluctuations in employment, particularly through recruitment, retire ment and profession al promotion, the wage aggregate rose 8.6% in agriculture and fisheries, 9.7% in the non-agricultural production sectors, and 8.3% in government service, compared with respective figures of 10.5%, 10.3% and 9.1% the preceding year. These rates are considerably higher than the 3.7% inflation rate recorded in both 1996 and 1997. Thus the average monthly wage in these three types of sctor increased by 8.8%, 5.9% and 6% respectively, to total T0123 in farming and fisheries, T0379 in non-agricultural production, and T0609 in state employment. DEVELOPMENT OF THE WAGE AGGREGA TE AND INFLATION 16.0

14.0

12.0

10.0 0~ .5 8.0

6.0

4.0

2.0 1988 1989 1990 1991

700

600

500 Q... 400 .5 300

200

100 o

To offset the impact of price adjustment on subsidized products, guaranteed minimum wages were raised twice in 1997. The first rise occurred in August, and increased the guaranteed minimum interprofessional wage (SMIG) by 10 millimes for the 48-hour work week and 12 millimes for the 40-hour week, or TD2.080 per month for each. The guaranteed minimum agricultural wage (SMAG) was increased on the same date by 100 millimes, to total TD5.0ô1 per day of work.

The second increase in the SMIG was made in November, and brought it to TD6.032 and TD5.026 per month for the 48-hour and the 40-hour work week respectively. This brought monthly wages to TD170.352 and TD149.237, an accrued increase of 5% over September 1996. The SMAG was raised by 148 millimes in November, bringing il to TD5.209 per day of work, also corresponding to a total increase of 5%.

Specialized farm workers such as tractor drivers received a 5% increase in wages, which are in fact equal to the SMAG. The only semi-skilled workers ta receive a wage increase were olive-tree pruners, whose daily wage rose 120 millimes from TD5.089 to TD5.209 per day of work. Other semi-skilled agricultural workers continue to receive TDS.614 per day of work.

(in dinars\ Variations in % May May Sept. Aug. Nov. 1995 1996 1996 1997 1997 Aug 97 Noy 97 Sept. 96 Aue. 97

Guaranteed minimum inter- professional wage (SMIG) Hourly SMIG 48-hr week 0.741 0.770 0.780 0.790 0.819 1.3 3.7 40-hr week 0.779 0.808 0.820 0.832 0.861 1.5 3.5 Monthly SMIG1 48-hr week 154.128 160.160 162.240 164.320 170.352 1.3 3.7 40-hr week 135.024 140.051 142.131 144.211 149.237 1.5 3.5 Guaranteed minimum daily agricultural wage (SMAG) 4.361 4.861 4.961 5.061 5.209 2.0 2.9 Gross fixed capital formation (GFCF) totalled TD5.130 billion in 1997, marking an increase of 17.2% or TD751 million and raising the rate of investment to 24.4% of GDP, compared with 23% in 1996. The increase in investments came from public projects in mining, electricity, hydrocarbons, road infrastructure, communications, and community facilities, and was supported by progress in the upgrading programme in the manufacturing industries. ln 1997, the steering committee (COPIL) approved 136 firms for upgrading, for an investment of approximately TD303 million, compared with 65 companies and TD203 million in 1996.

20.000

Q jDGDP BGFCF 1 .•. Is,ooo '"'0 .1: 0 10.000 ~ .s 5,000

0

The distribution of GFCF by economic agent shows an increase in the government share, which amounted to nearly 25%. The share invested by businesses fell from 63% in 1996 to 59% in 1997, the remaining 16%being accounted for by households, primarily for housing construction, and by individual businesses in the informai sector.

Branch Value in millions of TD Variations Structure in % in % 1995 1996 1997 1997/96 1995 1996 1997

Agriculture & fisheries 597 718 736 2.5 14.5 16.4 14.3 Mines 25 21 42 100.0 0.6 0.5 0.8 Energy (water, electricity & hydrocarbons) 495 358 623 74.0 12.0 8.2 12.1 of which: gas pipeline 2 0 0 0.0 0.0 0.0 Miskar 111 1.4 0 -100.0 2.7 0.0 0.0 Manufacturing industries 586 642 723 12.6 14.2 14.7 14.1 Building & civil engineering 64 70 80 14.3 1.5 1.6 1.6 Market services 1,934 2,064 2,361 14.4 46.9 47.1 46.0 Utilities 423 506 565 11.7 10.3 11.5 11.1

Total 4,124 4,379 5,130 17.2 100.0 100.0 100.0 B Agr. & fisheries o Mfg. industries ~Non-mfg. inds. Il3Services oCornmunity facilities

Investments rose between 1988 and 1997 at an average annual rate of 12.5%, 2.3 percentage points above annual growth in nominal GOP. The average rate of investment during the same period was 24.7%, compared with nearly 30% beween 1980 and 1986, indicating better use of installed production capacities. Nevertheless, given the necessity of providing more jobs to satisfy the entire additional demand and, hopefully, reduce the still relatively high unemployment rate, further increase in the investment effort is desirable, and the 9th Plan posits an average investment growth rate of 26.3% per year, and a rate of 27.5% in the year 2001.

Gross fixed investment in this sector in 1997 rose 2.5% above its 1996 level, to total T0736 million, or 14.3% of the investment package. The government was responsible for some 47% of the total, investing particularly in farm watering, forestry, water and soil conservation, the Integrated Rural Oevelopment Programme (PORI), and the potable water programme, through the National Solidarity Fund (FSN).

Investments in farm watering, more than 70% of which come from the government, were up from T0262 million in 1996 to T0268 million in 1997. They went in particular to build the Barbara water complex in the governorate of Jendouba, the Sidi El Barrak dam in the governorate of Beja, and the Sidi Aïch dam in the governorate of Gafsa, three major projects costing, respectively, T0221 mil!ion, T0287 million and T029 million respectively, for a total of T0537 million. This branch also received investments for the construction of hill reservoirs and water conduits, in accordance with the national strategy of water resource mobilization (1990-2000), which calls for the building of 203 hillside dams; 58 of these have already been completed, and another 40 are weil underway. It should be noted that private firms invested T075 million in the farm watering sector, which represents 28% of the total investments here and bore especially on the drilling of wells and the construction of water conduits.

Almost ail gross fixed investment in tree-farming is made by the private sector, and this heading nearly doubled in 1997, going from T042 million to T081 million. A total of 37,200 hectares of fruit trees were planted, favour being given to species which are in high demand both domestically and at export. Olive trees to provide olives for oil production were planted on 21,400 hectares, 2,300 hectares were devoted to olive trees for table olives, and 5,900 hectares were planted with almond trees. Investments related to the national strategy for forests and for water and soil conservation were down this year, falling to TD82 million from their 1996 level of TD91 million. The same trend was observed for investment in the Integrated Rural Development Programme and in studies, research and outreach, which received respective packages of TD24 million and TD8 million, compared with TD28 million and TD11 million in 1996.

Investments in the fisheries sector rose by some 27% to a total of TD28 million, with TD15 million being invested by private companies to purchase new boats and build refrigerated storage facilities. ln connection with upgrading of this activity, the public sector devoted TD12.5 million to enlarging and modernizing port infrastructure.

Investments in the livestock sector and in farm equipment advanced steadily, reaching TD104 million and TD85 million respectively, compared with TD87 million and TD79 million in 1996.

Heading Value in millions of TD Variations Structure in % in % 1995 1996 1997 1997/96 1995 1996 1997 Agricultural hydraulics 233 262 268 2.3 39.0 36.5 36.4 Agricultural equipment 60 79 85 7.6 10.0 11.0 11 .5 Livestock farming 77 87 104 19.5 12.9 12.1 14.1 Fisheries 25 22 28 27.3 4.2 3.1 3.8 Forestry and water & soil conservation 84 91 82 -9.9 14.1 12.7 11 .1 Tree farming 27 42 81 92.9 4.5 5.8 11.a Studies, research & outreach 13 1 1 8 -27.3 2.2 1.5 1.1 Integrated Rural Development Programme 26 28 24 -14.3 4.4 3.9 3.3 Mise. integrated projects 52 94 94 0.0 8.7 13.1 12.8 Difference a 2 -38 0.3 -5.1 Total 597 718 736 2.5 100.0 100.0 100.0

Following two years of decline, GFCF in the non-manufacturing industries rose to TD745 million in '1997 compared with TD448 million the year before, influenced in part by a net increase in financing of the electricity branch, and to a lesser extent by increased investment in mining and hydrocarbons.

Mining investments jumped from TD21 million in 1996 to over TD42 million in 1997, with some TD32 million going to the phosphates branch. Most of this was capital-intensive investment for new purchases and the replacement of obsolete equipment. Of remaining investments in the mining sector, salt production absorbed TD7.2 million, compared with TD1.2 million the year before.

Gross fixed investment in the water branch was also up in 1997; from TD53 million in 1996 it went to TD55 million, TD18 million of which was devoted to replacement of systems and to major maintenance. Investments in the hydrocarbons sector totalled TD278 million, representing some 84.1 % more than the 1996 ·Ievel. The bulk of these investments went for petroleum research and prospecting and for the expansion of oil fields already being worked. The remainder was used primarily to improve petroleum product storage capacity.

Research and prospecting activities by 44 foreign oil companies in 1997 led to the drilling of 11 wells, exactly the same number as in 1996. Production was stepped up on nearly ail oilfields, particularly Ashtart (for TD23 million), Sidi El Kilani (TD19 million), and El Borma (TD9 million). It should be mentioned that discoveries of two new small fields (Ras El Besh 2 and Chergui 5) were registered in 1997, and one old discovery (Hasdrubal 3) was confirmed.

There was a strong increase in investment in the electricity branch, which rose from TD154 million in 1996 to TD290 million in 1997. Most of this went to increase production capacity, particularly by pursuing work on the construction of a combined gas cycle power plant in Bir M'cherga, in the governorate of Zaghouan, and of an additional generating unit at the Rades power plant. Investments were also made to reinforce the electricity transport and distribution network and to promote gas-related activity by STEG.

Heading Value in millions of TD Variations Structure in % in % 1995 1996 1997 1997/96 1995 1996 1997

Water 50 53 55 3.8 10.1 14.8 8.8 Electricity 129 154 290 88.3 26.1 43.0 46.6 Hyd rocarbons 316 151 278 84.1 63.8 42.2 44.6

Total 495 358 623 74.0 100.0 100.0 100.0

Gross fixed capital formation in this sector increased more rapidly in 1997 than in the previous year, advancing by 12.6%, compared with 9.6% in 1996, to reach TD723 million. This increase concerned ail branches of activity, particularly agri-food and textiles, leather and footwear.

GFCF in the food industries picked up in 1997, advancing by 23.6%, against 7.7% in 1996, to reach TD173 million, more than three-fourths of which was accounted for by private companies, which continued to invest particularly in pasta, canning, edible oils, minerai water and bakeries.

Most public investments were accounted for by the National Tobacco and Match Company (RNTA), the Kairouan Tobacco Manufacturers (MTK), the country's two sugar companies (CST and STS), and the Tunisian Dairies (STIL). Investment also increased in building matrials, ceramics and glass, going from TD112 million to TD120 million between 1996 and 1997. Private companies accounted for 64% of this amount, investing especially in clay bricks, quarrying, crockery, ceramic tiles and marble.

Public enterprises continued their programmes of replacement and maintenance in the country's various cement factories, particularly those of Bizerte, Enfidha and Gabes. Investments in the mechanical and electrical industries rose from TDS5 million in 1996 to TD95 million in 1997. Private companies continued to account for most of this, investing TD76 million in 1997 as opposed to TD72 million a year earlier. The remainder was invested by public companies, particularly for works related to the programme of equipment replacement at the El Fouladh company.

GFCF in the chemical industries went from TD70 million to TDSO million between 1996 and 1997; with investments of TD45 million, public companies continued to account for the major share of this, investing to continue programmes of equipment maintenance and replacement and to carry out projects to optimize production activity, which received TD16.9 million and TD17.9 million respectively, against TD13.3 million and TD10.6 million in 1996. Environmental protection projects in this sector received increased investment, at TD3.S million against TD3.2 million a year earlier. Private investments in the chemicals sector were down slightly from 1996, and totalled TD35 million. Of this amount, TD16 million was invested in pharmaceuticals, TD12 million in chemicals-related activities, and TD6 million in the rubber and tyres branch.

Textiles, leather and footwear play a leading role in the national economy, but the increase in gross fixed investment in these industries in 1997 was 9.7%, down from the 1996 figure of 10.7%. The private sector accounts for nearly ail the se investments, which totalled TD170 million and continued, as in the past, to go particularly to spinning, weaving and finishing (TD66 million), wearing apparel (TD59 million), and leather and footwware (TD25 million). The remainder was invested in the hosiery and carpet-making branches. Following three years of decline before 1995, investments in this sector have been growing since that year, due in part to activities related to the upgrading programme, the purpose of which is to restructure and modernize production plants in order to promote and increase exports, which will have to face stiff international competition following the graduai dismantling of the multifibre agreements, which will come to an end in 2005.

GFCF in the miscellaneous manufacturing industries was TD85 million in 1997, marking a contined but slackening increase of 6.3%, compared with 14.3% a year earlier. Most of these investments-approximately SO% of the total-were made by private firms, and the branches which benefited most were plastics, carpentry, building, furniture, printing, and paper packaging and wrappings. Public investments in these industries were made primarily by the National Cellulose and Esparto-Grass Company (SNCPA), which invested TD15 million to expand and modernize its production equipment.

Industry Value in millions of TD Variations Structure in 0/0 in % 1995 1996 1997 1997/96 1995 1996 1997

Food industries 130 140 173 23.6 22.2 21.8 23.9 Construction materials, ceramics and glass 104 112 120 7.1 17.7 17.5 16.6 Mechanical & electrical ind. 77 85 95 11.8 13.1 13.2 13.1 Chemical industries 65 70 80 14.3 11. 1 10.9 11 .1 Textiles, leather & footwear 140 155 170 9.7 23.9 24.1 23.5 Miscellaneous industries 70 80 85 6.3 12.0 12.5 11.8

Total 586 642 723 12.6 100.0 100.0 100.0 Opportunities for development in this sector confirm the sustained increase in GFCF, which rose 14.4% in 1997 compared with 6.7% the year before. These investments represented 46% of total investments, compared with 47.1% in 1996 and 40.6% in 1987. The increase concerned primarily transport, communications, and to a lesser extent housing construction. Investments in transport and communications increased by approximately 26.3%, against 13.1% in 1996, to total TD928 million. Their share in total market services was 39.3%, against 35.6% a year earlier. GFCF increased most markedly in shipping, rail transport, communications and broadcasting.

Service Value in millions of TD Variations Structure in % in % 1995 1996 1997 1997/96 1995 1996 1997

Transport & communications 650 735 928 26.3 33.6 35.6 39.3 Tourism 306 311 315 1.3 15.8 15.1 13.3 Housing 675 703 765 8.8 34.9 34.1 32.4 Trade & other services 303 315 353 12.1 15.7 15.2 15.0

Total 1,934 2,064 2,361 14.4 100.0 100.0 100.0

Investments in rail transport rose some 52% to TD102 million, of which TD53 million was invested by the Tunisian National Railway Company (SNCFT), which built TD38 million worth of infrastructure in 1997, against TD35 million in 1996, particularly to double the Bordj Cedria-Sousse railway line, provide the southern system with flood protection, and strengthen infrastructure on the Tunis-Gabes line. Investments in the purchase of rolling stock and computer and other equipment also increased, going from TD9 million in 1996 to TD15 million in 1997. Investment expenditures by the Tunis Rapid Transit Company (SMLT) totalled TD49 million, compared with TD23 million the previous year, and were used to increase equipment and rolling stock and to carry out infrastructure work related to expansion of the Ariana depot and to repair and maintenance shops.

Road transport, on the other hand, showed a decline of 10.6% in GFCF, which dropped to TD330 million, TD238 million of which was devoted to developing infrastructure, primarily by the Ministry of Public Works and Housing, local government, and the regional development programmes. Such work is part of the programmes to build roads and farm tracks, and to renew and modernize some existing roads and tracks. One important element here is the development of large civil engineering projects in Tunis; in 1997, the Société Autoroute-Tunisie invested TD4.7 million in such works, compared with TD14.7 million the previous year. Road transport companies invested TD92 million in 1997 in improving their rolling stock, against TD93 million in 1996.

Shipping benefited from a considerable increase in investment volume: TD190 million compared with TD37 million in 1996. Much of this went for partial replacement of the fleet of the Tunisian Navigation Company (CTN), which made investments of TD140 million, mainly to purchase two goods vessels. The Tunisian National Port Authority (OPNT) also stepped up its investments, taking them from TD9 million in 1996 to around TD26 million in 1997, primarily to improve the country's commercial ports. Heading Value in millions of TD Variations Structure in % in % 1995 1996 1997 1997/96 1995 1996 1997

Rai 1 transport 45 67 102 52.2 6.9 9.1 11.0 SNCFT 34 44 53 20.5 5.2 6.0 5.7 Infrastructure 33 35 38 8.6 5.1 4.8 4.1 . Transportation means 1 9 15 66.7 0.1 1.2 1.6 Tunis Rapid Transit (SMLT) 1 1 23 49 113.0 1.7 3.1 5.3 Road transport 313 369 330 -1 0.6 48.1 50.2 35.6 Infrastructure 207 276 238 -13.8 31.8 37.6 25.7 . Transportation means 106 93 92 -1. 1 16.3 12.6 9.9 Shipping 29 37 190 413.5 4.5 5.0 20.5 Air transport 113 67 68 1.5 17.4 9.1 7.3 Pipeline transport 4 5 5 0.0 0.6 0.7 0.5 Post, telephone & telegraph 128 175 194 10.9 19.7 23.8 20.9 Broadcasting 20 15 22 46.7 3.1 2.1 2.4 Difference - 2 0 17 -0.3 0.0 1.8

Total 650 735 928 26.3 100.0 100.0 100.0

Gross fixed investment in air transport remained high, at T068 million, T040 million of which was allocated by the Tunisian Airport Authority (OPAT) for the expansion of the Tunis-Carthage airport (for T025 million) and the Jerba airport (T05.3 million). Most of the remainder represented TunisAir investments, as the company put T023 million into the first stage of a new programme to replace and expand its fleet.

The communications sector has received continuing impetus from improvement of the telephone system and the equipping of post offices. GFCF here totalled T0216 million in 1997, compared with T0190 million the previous year and T0148 million in 1995.

After advancing substantially during the 8th Plan, GFCF in tourism has progressed at a slower rate recently, and the 1997 total of T0315 million represented a 1.3% increase over 1996, compared with a 1.6% rise the year before. Almost ail of this was invested by the private sector to increase accommodations, with 8,231 additional beds in 1997 bringing the total to 178,176 beds.

The housillg sector plays an important role in economic growth, and mobilized housing construction investments totalling T0765 million in 1997, approximately T0560 million of which was accounted for by households. The remaining T0205 million was invested by public companies in the construction of low-cost and public housing.

GFCF in this field amounted to T0565 million in 1997, compared with T0506 million the previous year, and continued to go especially to the education sector for the construction of new schools, in order to increase capacity and prevent overcrowding of educational facilities by the increased numbers of schoolchildren and students. The health sector also received a large share of investment, which was devoted to rearranging, enlarging and improving hospitals and to purchasing and modernizing equipment. Investments in the environmental field continued to rise in 1997, in accordance with the national strategy to improve the quality of Iife, which has been designed to promote sustainable human development, and includes a social component.

A substantial 17.2% increase in investments called for increased financing resources. National savings continued to grow rapidly for the second consecutive year, rising by 16.1% in 1997, compared with 25% in 1996 and 7% in 1995. Efforts continued to assure inward financing of investments, which remained near their 1996 level of approximately 87%, and recourse to foreign capital advanced by 18.3%, compared with a decline of some 8% in 1996.

Oomestic savings totalled approximately T04.947 billion, and continued to develop favourably, raising the savings rate to 24.7% of GNP, compared with 23.6% in 1996 and 21% in 1995. The growth rate for savings in 1997 was 7.3 percentage points higher than that for overall consumption in current priees, and 5.9 points higher than growth in nominal GOP. This trend was also reflected in the average propensity to consume, which fell from 77.4% of gross available national revenue in 1996 to 76.2% in 1997.

Following a year of decline in 1996, gross inflow of foreign capital rose in 1997 to total T01.9977 billion, compared with T01.6884 billion in 1996 and T01.8343 billion in 1995. A preponderant 75% of these resources took the form of medium- and long-term borrowings.

Capital outflow increased more steeply than did inflow, at 8.4% against 18.3%, reaching T01.1386 billion, T01.1025 billion of which went to repay principal on the foreign debt. Thus in comparison with 1996 there was a considerable 34.7% increase in net foreign capital inflow, which totalled T0859.1 million. This made it possible to finance the current deficit and to realize a substantial surplus in the general balance of payments, which in turn raised the lever of foreign currency holdings.

Heading Value in millions of TO Variations Structure in % in % 1995 1996 1997 1997/96 1995 1996 1997

Loans 1,480.9 1,347.8 1,490.0 10.5 80.7 79.8 74.6 Foreign shareholding 353.4 340.6 507.7 49.1 19.3 20.2 25.4 Gross foreign investments 1,834.3 1,688.4 1,997.7 18.3 100.0 100.0 100.0 Export of capital 1,042.1 1,050.4 1,138.6 8.4 56.8 62.2 57.0 Net foreign investments 792.2 638.0 859.1 34.7 43.2 37.8 43.0 Measures and incentives adopted in 1997 for foreign trade were intended particularly to give new impetus to exportation as part of the national strategy to strengthen the economy's competitiveness so as to confront the new context of trade globalization and increased international competition, a context which will intensif y with the advancement of protection removal and dismantling of tariffs which Tunisia has undertaken in the framework of its commitments to the WTO and of the association agreement with the European Union for the establishment of a free-trade zone. ln addition, the decision to create a free-trade zone with the Arab countries overa ten-year period beginning in 1998 and of similar zones with certain individual countries, particularly Egypt, will further expose Tunisian products to foreign competition. Liberalization of imports was completed in 1996, in the proportion of 96% of purchases abroad, or 94% in terms of similar domestic production. This formed the general background for some twenty measures decided upon during the last meeting of the Higher Council for Exportation on Jury 12, 1997, to revitalize exports. Most of these measures have already come into effect, particularly those providing for increased flexibility in customs procedures for partially exporting companies; reinforcement of structures to provide exporters with guidance and assistance; doubling of the authorized ceiling for the establishment of export company offices (or desks) abroad; improvement of information techniques and networks, particularly connection to the Internet; increased participation of international trading companies in foreign trade; and encouragement of exports to new markets, particularly in Africa.

Tunisian exports rose by a substantial 14.4% in 1997 against 3.8% the year before, as a result of increased external demand illustrated by a 7% increase in world trade volume, compared with 5% in 1996. This trend was, however, accompanied by substantial acceleration of import growth (17.3% against 0.5% in 1996) due to a relatively difficult farm season, revitalization of industrial activity, and confirmed investment recovery, which brought about a perceptible increase in food purchases, especially cereals, and in purchases of raw materials, semi-finished products and capital goods. ln ail, the balance of trade showed a TD519 million increase in the commercial deficit, compared with a TD164 million reduction in the deficit in 1996, bringing the rate of coverage down from 71.6% to 69.9%.

(in millions of dinars' Coverage of Exports Imports Year Deficit imports by (FOS) (CIF) eXDorts (in %) 1987 1,771 2,509 738 71 1988 2,055 3,167 1 , 11 2 65 1989 2,782 4,164 1,382 67 1990 3,087 4,826 1,739 64 1991 3,417 4,789 1,372 71 1992 3,574 5,689 2,115 63 1993 3,760 6,171 2,411 61 1994 4,696 6,647 1 ,951 71 1995 5,173 7,464 2,291 69 1996 5,372 7,499 2,127 72 1997 6 148 8 794 2 646 70 9,000

Q 7,500 ...f-o C> 6,000

C>e 4,500 ~ 3,000 .s 1,500

0 1993

The currency effect on foreign payments was negative because of strong appreciation of the US dollar and the pound sterling, which rose against the dinar by respective averages of 13% and 18.6%. This rise was partially offset by depreciation in the other chief currencies of payment, particularly the French franc (-0.9%), the Deutschmark (-1.9%), and the Belgian franc (-2.1%).

An overall analysis of the foreign trade ratios shows that the economy had difficulty even conserving, let alone improving, the record coverage rate attained in 1996. The penetration ratio increase of more than two percentage points between 1996 and 1997 is explained by two factors, a renewed increase in purchases of foodstuffs, raw materials and semi-finished products, and accelerated growth in capital goods and ultimate consumer goods purchases. The effect of this development was to raise the dependency ratio, determined by the ratio of imports to GDP, by 2.5 points to a level of 41.8%. At the same time, economic openness continued to advance, going from 67.5% of GDP in 1996 to 71.1% in 1997 and thereby demonstrating the economy's irreversible rooting in the world economy. The affordability ratio at export also firmed up, at 29.3% of GDP against 28.2% the previous year, although it did not reach the record level of 30.4% registered in 1995.

(in % Affordability Rate of Rate Rate of Year ratio at export dependence ofopenness penetration 1987 22.1 31.4 53.5 31.1 1988 23.7 36.5 60.2 36.6 1989 29.0 43.4 72.4 41.7 1990 28.6 44.6 73.2 41.7 1991 28.4 39.8 68.2 37.9 1992 26.1 41.5 67.6 38.8 1993 25.6 42.1 67.7 39.1 1994 29.7 42.0 71.7 40.8 1995 30.4 43.8 74.2 42.2 1996 28.2 39.3 67.5 38.7 1997 29.3 41.8 71.1 40.8 A sectoral analysis of trade shows a strengthening of the role played by the agriculture, fisheries and agri-food industries sector, despite unfavourable weather and pressure from unpredictable external priees. Among the factors contributing to this situation is a distinct increase in sales of olive oil and purchases of cereals. Export growth in this sector far outstripped import increases. Exports rose by 68.4% in 1997, and imports by 31.3%, against declines of 21.5% and 22.4% in 1996. This brought the trade balance deficit for the sector down from TD337.5 million to TD293.3 million, and improved the coverage rate by 15.4 percentage points to 69.9%. Excluding this sector, the increase in foreign trade was generally less rapid than that in the ove rail balance of trade, at 10% for exports and 15.7% for imports, compared with 6.6% and 3.8% in 1996.

1996 1997 Heading Value in Share in Value in Share in Change Change millions total millions total in % in % of TD (%) of TD (%) Exports 5,372.0 3.8 100.0 6,147.9 14.4 100.0 - Agriculture, fisheries & food ind's 404.8 -21.5 7.5 681.7 68.4 11. 1 Agriculture & fisheries 169.9 -6.5 3.1 181.4 6.8 3.0 Food industries 234.9 -29.6 4.4 500.3 113.0 8.1 - Energy 563.0 28.9 10.5 555.9 -1 .3 9.0 - Mining products 62.5 1.5 1.2 55.1 -11 .8 0.9 - Non-food manufacturing industries 4.4 4,341.7 80.8 4,855.2 11.8 79.0 Textiles, leather & footwear 2,747.7 6.4 51.1 2,996.4 9.1 48.8 Mechanical & electrical industries 669.6 -5.8 12.5 830.3 24.0 13.5 Phosphate by-products 552.4 19.2 10.3 614.8 11.3 10.0 Other manufactured products 372.0 -7.3 6.9 413.7 11.2 6.7 of which: building materials, ceramics & glass 82.9 -25.0 1.5 99.7 20.3 1.6 Imports 7498.8 0.5 100.0 8,793.5 17.3 100.0 - Agriculture, fisheries, & food ind's 742.3 -22.4 9.9 975.0 31.3 11 .1 Agriculture & fisheries 350.9 -36.8 4.7 502.5 43.2 5.7 Food industries 391.4 -2.4 5.2 472.5 20.7 5.4 - Energy 591.2 15.6 7.9 659.8 11.6 7.5 - Mining products 29.6 36.4 0.4 32.1 8.4 0.4 - Non-food manufacturing industries 6,135.7 2.7 81.8 7,126.6 16.1 81.0 Text,iles, leather & footwear 1,996.1 6.0 26.6 2,221.6 11.3 25.2 Mechanical & electrical industries 2,717.2 4.0 36.2 3,332.9 22.7 37.9 Phosphate by-products 163.1 3.6 2.2 175.0 7.3 2.0 Other manufactured products 1,259.3 -4.8 16.8 1,397.1 10.9 15.9 of which: chemical products 709.4 0.6 9.5 761.4 7.3 8.7

If transactions in energy, mmmg, phosphates and phosphate by-products (tradition al sectors) are also excluded, export trade advanced in 1997 by 11.9% and imports by 16.4%, compared with respective advances of 2.5% and 2.7% the year before. Even at that, the export increase rate remained below the 15% average recorded during the Eighth Plan (1992-96). One reason for this deceleration was a slackening of export growth in the textile industry (8% in 1997 against an average 17% for the period of the Eighth Plan). Sales advanced weil in the mechanical and electrical industries and the leather and footwear sector, on the other hand, growing by 24% and 18.8% respectively, compared with average annual increases of approximately 12% and 18% during the Eighth Plan.

On the whole, non-traditional activities continued to account for a preponderant share of overall exports, although the 1997 figure of 69% was something of a drop from the record 71.4% recorded in 1995. Excluding agri-business, the manufacturing industries, which account for around 80% of the total, showed a rise of 11.8% for exports and 16.1% for imports, compared with respective figures of 4.4% and 2.7% in 1996. This represents a 26.6% widening of the deficit here to a total of TD2.2714 billion, or sorne 86% of the total deficit, against 84% the previous year. This situation resulted from sustained foreign demand, which imparted considerable vitality to the manufacturing industries' activity, joined with a confirmed renewal of investments.

Leather& Mining, Energy Clothing& Textileinputs Textile taotwear phosph. & by- 9.0% aeees. 15.5% prod's. 7.5% 2.2"k prod'S_10.9% 34.6% Other mfg. ind.6.7% '>" ~:~·::;:t Agr.,fisheries\ prod's.2.4% ~ & agri-food Othertextile Electr.ind. ind. Mech.& Leather& prod's. Othermfg. Agr.,fisheries 11.1% electr. ind. footwear 9.1% ind.15.9% & agri-food 13.5% 5.1% ind. 11.1%

Through stepped-up exports in agriculture, fisheries and the food industries, these activities contributed appreciably to the increase in ove rail exports, accounting for 35% or 5.1 percentage points. This was due in part to clear recovery in olive oil sales, favoured by a record production of 310,000 tons for the 1996-97 season. Olive oïl sales totalled 126,000 tons for a value of TD288.4 million, compared with 28,900 tons and TD117.1 million in 1996. Prices expressed in dinars fell by an average 43.5%. Excluding olive oil, the increase in exports in this sector was 36.7%, against a 3.7% decline a year earlier.

There were also clear increases in sales of seafoods, dates, cere al flours, and wine and other alcoholic beverages; these resulted from the export of increased volumes, except in the case of the last product, for which exported quantities decreased but were more than offset by substantially higher prices. Exports of other foodstuffs were down, on the whole, particularly in the case of citrus fruits, because of lower production and stiff competition on European markets. Exports of fresh vegetables and harissa also declined. Quantity in thousands Value in millions Variations in % Heading of tons of dinars 1997/96

1995 1996 1997 1995 1996 1997 puantity Value Exports 515.4 404.8 681.7 68.4 Human food 302.0 188.4 353.8 462.0 354.1 591.2 87.8 67.0 of which: · Olive oil 90.2 28.9 126.0 216.6 11 7.1 288.4 336.0 146.3 · Seafood 10.0 13.3 15.6 74.1 90.8 107.4 17.3 18.3 · Dates 20.9 18.2 21.3 58.3 46.7 52.1 17.0 11.6 · Wine and alcoholic beverages 9.8 9.5 5.3 14.9 13.7 22.8 -44.2 66.4 · Citrus fruits 25.2 21.8 15.1 10.6 9.0 6.5 -30.7 -27.8 · Cereal-based preparations 6.2 6.4 13.0 14.1 16.6 27.9 103.1 68.1 · Harissa 2.1 1.8 1.6 5.1 4.9 4.4 -1 1 . 1 -1 0.2 · Poultry 2.8 0.5 - 14.1 3.1 0.3 -90.3 · Fresh vegetabes 3.4 5.3 3.5 1.5 4.9 1.8 -34.0 -63.3 · Cereal flour 102.8 56.9 114.1 25.9 18.1 37.4 100.5 106.6 Other products 53.4 50.7 90.5 78.5 Imports 956.5 742.3 975.0 31.3 Human food 3,175.4 1,817.7 2,571.8 823.9 605.6 763.6 41.5 26.1 of which: · Cereals 2,579.3 1,236.2 1,985.9 410.7 256.0 347.0 60.6 35.5 Soft wheat 910.6 663.8 1,020.8 147.1 131.5 176.6 53.8 34.3 Hard wheat 668.0 205.9 238.8 137.9 53.5 54.6 16.0 2.1 Barley1 668.7 29.1 273.5 75.2 4.6 43.6 839.9 847.8 Maize1 310.8 315.2 445.7 42.7 58.1 69.2 41.4 19.1 Other 21.2 22.2 7.1 7.8 8.3 3.0 -68.0 -63.9 · Sugar 187.4 242.1 246.8 68.7 87.4 92.2 1 .9 5.5 · Vegetable oils 176.5 196.6 159.8 111.0 112.6 99.6 -18.7 -1 1 .5 · Dairy products 25.0 14.9 30.1 50.6 27.9 42.5 102.0 52.3 · Meat 6.0 3.5 12.2 11.7 9.9 26.9 248.6 171.7 · Tea 7.3 10.7 12.0 10.7 16.6 23.3 12.1 40.4 · Coffee 8.0 7.1 24.4 10.5 16.1 22.7 47.9 41.0 · Bananas 37.5 16.3 6.4 16.5 13.1 9.4 1.2 46.9 · Potatoes 64.0 31.3 26.2 24.9 12.7 13.6 -16.3 7.1 Other products 132.6 136.7 211.4 54.6 of which: · Soya bean cake 154.3 153.9 211.9 28.8 40.4 72.5 37.7 79.5 · Raw tobacco 6.4 6.2 7.8 16.1 18.0 24.8 25.8 37.8 Food balance -361 .9 -251.5 -172.4 -31.5 Rate of coverage (%) 56.1 58.5 77.4 18.9 pts Overall balance -441.1 -337.5 -293.3 -13.1 Rate of coveraQe (%) 53.9 54.5 69.9 15.4 pts Imports of agricultural products and foodstuffs also recovered weil following a year of decline, rising by 31.3% in 1997. With the exception of vegetable oils, where imports were down in both quantity and value because of increased domestic olive oil consumption, imports of most other products increased considerably in volume because of a decline in domestic production during the 1996-97 season, or because that production was inadequate to satisfy internai demand. This was particularly true for cereals, dairy products, meat, raw tobacco and soya bean cake. Purchase priees, expressed in dinars, fell for cereals, dairy products, meats, coffee and miscellaneous food preparations, contrasting with a rise for other products, especially tea and vegetable oils.

This overall situation led to a distinct improvement in the food balance deficit, which came down from TD251.5 million in 1996 to TD172.4 million in 1997. ln correlation with this, coverage improved by approximately 19 points to reach a rate of 77.4%. Nevertheless, the equilibrium of the balance remains unduly vulnerable, since it depends on weather conditions and, more particularly, cereal production. The country's food balance is also greatly affected by wide variations in olive oil production and by the situation on the world market, which dictates priee levels for Tunisian exports.

The energy balance, which has been showing a deficit since 1993, was marked in 1997 by a slight decline in exports (-1.3%) and a distinct increase in imports (11.6%), further widening the deficit, which went from TD28.2 mill!on in 1996 to approximately TD104 million in 1997-figures which, moreover, do not include purchases of gas made by STEG in foreign currency from Miskar gas field production. The coverage rate thus fell from 95.2% to 84.3%. This situation is attributable to a continued drop in crude oil production, which reduced the volume of exports, combined with an average drop of around 10% in the dollar priee, which was $18.6 per barre!. On the other hand, crude oil and refined petroleum product imports increased in bath quantity and value due to a sustained increase in domestic market needs. Thus notwithstanding the contribution of the Miskar gas field, the deficit in the energy balance will continue to grow, and this will exert pressure on the equilibrium of the ove rail balance of trade.

Ouantity in thousands Value in millions Variations in % Heading of tons of dinars 1997/96

1995 1996 1997 1995 1996 1997 Ouantity Value

Exports 436.9 563.0 555.9 -1.3 Crude oil 3,124.0 3,147.7 2,795.5 357.0 449.8 416.0 -11.2 -7.5 Other refined prod's 626.3 807.1 883.1 79.9 113.2 139.9 9.4 23.6

Imports 511.3 591.2 659.8 11.6 Crude oil 807.1 758.0 935.2 114.5 115.7 153.1 23.4 32.3 Refined products 1,684.5 2,081.5 2,401.2 240.1 353.9 434.9 15.4 22.9 Natural gas 1,971.7 1,871.3 763.8 145.0 106.7 58.2 -59.2 -45.5 Coal & coke 100.2 112.4 92.0 11.7 14.9 13.6 -18.1 -8.7

Balance -74.4 -28.2 -103.9 268.4 Rate of coverage (in %) 85.4 95.2 84.3 10.9 pts 3. Mining, phosphate and phosphate by-products

A slump in external demand for triple superphosphate and diammonium phosphate (DAP), particularly in the Asian countries, brought phosphate by-product sales down, but the situation was offset by an almost universal rise in the selling prices of these products, and by some recovery in the volume of lime phosphate exported. Imports in this sector increased at approximately the same rate as in the previous year, 7.5%. The greater part of this increase was accounted for by an 18.5% rise in value in unrefined sulphur purchases, offset by a decline in purchases of ammonia and minerai substances. Despite the slackening of exports (8.9%, against 17.1% in 1996), the balance of trade in this sector continued to show a surplus, and this year was approximately TD463 million.

Quantity in thousands Value in millions Variations in % Heading of tons of dinars 1997/96

1995 1996 1997 1995 1996 1997 Quantity Value

Exports 525.2 614.9 669.9 8.9 Fertilizers 1,619.1 1,628.1 1,487.8 281.6 318.7 309.3 -8.6 -2.9 Triple 743.7 704.7 672.8 110.5 119.7 122.1 -4.5 2.0 superphosphate DAP 748.0 844.7 766.7 154.8 188.5 180.3 -9.2 -4.4 Ammonium nitrate 63.3 27.9 0.0 8.7 4.5 0.0 -100.0 -100.0 Other chemical fertilizers 64.1 50.8 48.3 7.6 6.0 6.9 -4.9 15.0 Phosphoric acid 1,128.4 1,198.5 1,345.3 190.8 218.2 281.3 12.2 28.9 Calcium phosphate 1,308.2 1,205.7 1,247.0 32.0 35.7 45.6 3.4 27.7 Other products 20.8 42.3 33.7 -20.3

Imports 179.1 192.7 207.1 7.5 Umefined sulphur 1,419.2 1,443.4 1,693.0 95.1 78.4 92.9 17.3 18.5 Ammonia 266.0 298.3 270.1 51.5 57.0 48.8 -9.5 -14.4 Fertilizers 37.7 28.1 26.9 7.0 6.2 6.5 -4.3 4.8 Minerais 89.3 109.3 99.6 16.9 19.1 17.7 -8.9 -7.3 Other products 8.6 32.0 41.2 28.8

Balance 346.1 422.2 462.8 9.6 Rate of coverage (in %) 293.2 319.1 323.5 4.4 points

Trade in the textile industry benefited from increased demand in the industrialized countries, particularly those of the European Union, and rose more steeply in 1997 than in 1996, despite lively foreign competition. This, however, did not provide more than a slight improvement in the trade surplus, which rose from TD653.6 million to TD661 million.

The offshore system continues to predominate in this sector, where exports represent 44% of production, and these industries showed growth of 8.1% in in 1997, compared with 6.1% in 1996, with offshore activity accounting for approximately 97% of sales. But while this system does account for considerable foreign trade, job creation and economic growth, its contribution to foreign currency earnings is weakened by low domestic mate rials content: almost ail raw materials, semi-finished products and capital goods used in this sector are imported. . Exports in the general system showed sorne recovery (5.6%, compared with -0.9% in 1996), but nonetheless remained very slight, at TD90 million. The slight improvement in export growth of ail systems taken together was due primarily to an advance of sorne 9% in clothing, accessories, and hosiery, which together represent 94% of sales in the sector. Exports of fabric continued to decline (-0.2% in 1996 and -11.9% in 1997), affected by the difficulties sorne companies, particularly the Société Industrielle des Textiles (SITEX), encountered in the area of sales.

Imports rose, despite decreased purchases of raw cotton, wearing apparel and second-hand clothing. This increase applied both to intermediate products, Le., threads, yarns and fabrics, which are imported primarily for the needs of the export industry, and to final consumer products, chiefly clothing and accessories (20.4% in 1997 against 15.8% in 1996).

BALANCEOF TRADE lN THE TEXTILESECTOR

Quantity in thousands Value in millions Variations in % Heading of tons of dinars 1997/96

1995 1996 1997 1995 1996 1997 Quantity Value Exports 2,347.2 2,484.3 2,683.5 8.0 Clothing & accessories 82.2 87.0 92.7 1,831.9 1,954.8 2,125.6 6.6 8.7 Hosiery 15.7 16.5 18.7 342.4 361.3 393.5 13.3 8.9 Yardgoods 16.4 19.2 13.5 114.1 113.9 100.3 -17.7 -11.9 Ready-to-wear articles and second-hand c10thes 18.5 23.9 27.6 31.5· 44.4 46.3 15.5 Other products 4.3 27.3 9.9 17.8 79.8 Imports 1,742.5 1,830.7 2,022.5 10.5 Yardgoods 85.5 87.8 96.7 1,018.5 1,066.1 1,163.7 10.1 9.2 Yarn and threads 30.4 27.3 31.6 146.9 137.0 152.5 15.8 11.3 Cotton in bulk 33.2 28.3 24.2 64.3 52.2 46.9 -14.5 Ready-to-wear articles -10.2 and second-hand clothes 44.7 59.6 45.9 41.9 59.2 50.3 -23.0 -15.0 Clothing and accessories 14.2 16.1 19.1 270.7 313.4 377.4 18.6 20.4 Hosiery 12.0 13.6 14.6 168.4 185.1 210.4 7.4 13.7 Other products 31.8 17.7 21.3 20.3 Balance 604.7 653.6 661.0 Rate of coverage (%) 1.1 134.7 135.7 132.7 -3.0 1 points

Trade in this sector grew at a distinctly higher rate in 1997 than during the preceding year, bringing the trade surplus up by more than 16% to approximately TD114 million. The share of this sector in total exports also improved, going from 4.9% in 1996 to 5.1% in 1997. Exports were improv~d by recovery in leather product sales, and especially by a sustained rise in sales of shoes and shoe parts, which account for sorne 82% of the total. Imports continued to increase sharply, rising by 20.4% in 1997 compared with 18.1% in 1996. This increase was accounted for particularly by skins, leather, and shoe uppers, inputs in this sector which represent over 91% of the total. Ouantity in thousands Value in millions Variations in % Heading of tons of dinars 1997/96

1995 1996 1997 1995 1996 1997 Ouantity Value Exports 236.0 263.4 312.9 Skins and leather 1.2 18.8 0.6 0.5 8.6 12.2 11.7 -16.7 Leather goods 1.2 -4.1 1.0 1.1 36.5 31.6 36.6 Footwear 10.0 15.8 10.0 10.5 12.3 186.8 214.4 256.8 Shoe uppers and parts 17.1 19.8 3.0 3.2 3.8 93.1 107.5 131.0 Shoes 18.8 21.9 7.0 7.3 8.5 93.7 106.9 125.8 16.4 Other products 17.7 4.1 5.2 7.8 50.0 Imports 140.1 165.4 199.1 Skins and leather 20.4 7.2 8.5 9.1 95.6 111.9 131.2 Leather goods 7.1 17.2 0.4 0.5 0.7 7.8 7.3 9.0 Footwear 40.0 23.3 3.8 4.8 5.5 30.9 39.3 52.1 Shoe uppers and parts 14.6 32.6 3.7 4.7 5.4 28.7 37.9 50.3 Shoes 14.9 32.7 0.1 0.1 0.1 2.2 1.4 1.8 Other products 0.0 28.6 5.8 6.9 6.8 -1.4 Balance 95.9 98.0 113.8 Rate of coverage (%) 16.1 168.5 159.3 157.2 -2.1 points

Clear recovery in exports and an acceleration of imports in this sector raised its share in total trade from 12.5% of sales in 1996 to 13.5% in 1997, and from 36.2% of purchases to 37.9%. The sector thus remains the second largest exporting activity, after textiles. Nevertheless, exports cover scarcely 25% of imports in this sector, creating an enormous trade deficit which widened by TD455 million, or 22.2% in 1997, against a 7.7% increase in 1996. The total deficit was TD2.503 billion, or 95% of the global trade deficit.

Exports in the mechanical industries rose by 18%, contrasting with a 25% drop in 1996, an improvement which nonetheless did not bring them back to their 1995 level. The increase was attributable to improved sales in transport equipment (55.7% against -25.8% in 1996), particularly automobiles, cycles and tractors, and in production from the other mechanical industries (13% against -24.9%), such as section al irons, iron bars and machinery.

There was, nevertheless, a worsening of the trade balance in the mechanical industries, with the deficit 'rising 24% as a result of strongly stepped-up imports (23.3%, against 2.7% in 1996). There was a substantial 25.5% increase in capital goods purchases, compared with a 3.9% rise the previous year, due to the commitment to execute certain large public projects and to renewed private investment. An important share of capital goods purchases was accounted for by turbines; engines and turbojets; pumps and compressors; lifting, drillingand handling devices; machinery for the food, paper and textile industries; computer equipment; public transportation vehicles; trucks and pick-up trucks; and navigation and railway equipment. Ouantity in thousands Value in millions Variations in % Heading of tons of dinars 1997/96 1995 1996 1997 1995 1996 1997 Ouantity Value Exports 329.5 247.0 291.5 18.0 Cast iron, iron, steel & finished pieces 155.7 118.6 138.9 142.9 79.0 93.7 17.1 18.6 of which: Iron sections and bars 93.9 86.8 100.2 36.3 36.2 49.6 15.4 37.0 Tubes, pipes & access. 18.2 14.2 14.7 13.2 13.6 11.6 3.5 -14.7 Machines and mechanical devices 27.9 11.9 12.8 81.2 81.4 87.7 7.6 7.7 Transport equipment 39.2 29.1 45.3 55.7 of which: Automobiles, motor- cycles & tractors 4.7 3.2 3.7 32.4 27.7 36.1 15.6 30.3 Other products 66.2 57.5 64.8 12.7 Imports 1,988.2 2,042.7 2,517.9 23.3 Cast iron, iron, steel & finished pieces 639.1 573.1 636.1 363.0 340.1 369.4 11.0 8.6 of which: Iron sections and bars 507.4 443.1 513.6 201.2 177.8 205.8 15.9 15.7 Tubes, pipes and accessories 24.0 28.5 34.9 39.0 47.5 53.2 22.5 Tools 12.0 2.0 2.2 2.5 24.2 27.4 29.7 13.6 8.4 Machines and mechanical devices 107.7 88.5 94.2 864.3 956.9 1,089.3 6.4 of which: 13.8 Pumps & compressors 16.3 6.5 7.0 74.4 75.7 93.5 7.7 23.5 Computer equipment 0.9 1.0 1.4 57.9 64.5 77.6 40.0 20.3 Sewing stations & machines 1.8 2.0 2.3 46.0 49.0 53.6 15.0 9.4 Textile machines 2.3 2.2 2.8 24.8 31.6 35.0 27.3 Agricultural machines 10.8 2.1 3.5 3.2 10.9 18.5 20.0 -8.6 Transport equipment 8.1 533.7 509.3 794.3 of which: 56.0 Air navigation 0.1 0.0 0.0 74.6 3.2 4.0 25.0 Sea navigation 2.8 5.4 15.5 6.9 8.3 148.1 187.0 1,684.3 Automobiles, motor- cycles & tractors 75.2 55.3 66.8 446.4 494.2 611.7 20.8 of which: 23.8 Private automobiles 21.5 18.8 25.3 201.1 221.8 274.5 34.6 23.8 Trucks and light trucks 15.6 11.9 11.4 60.4 82.7 97.1 -4.2 17.4 Public transp. vehicles 3.2 5.4 2.2 26.7 17.9 42.9 145.5 Tractors 139.7 5.7 6.0 5.1 27.2 35.7 31.5 -15.0 Other products -11.8 203.0 209.0 235.2 12.5 Balance -1,658.7 -1,795.7 -2,226.4 24.0 Rate of coverage (%) 16.6 12.1 11.6 -0.5 pts

Trade in the electrical industries picked up sharply, particularly on the export side, which showed an improvement of 27.5% in 1997 compared with 10.8% in 1996, due principally to sales of electrical wire and cables, generators and transformers, telephone and telegraph sets, and miscellaneous electrical items. Purchases of most of these same products rose as weil, increasing the deficit by nearly 10%, but the rate of coverage nevertheless continued to improve, going from 62.7% in 1996 to 66.1% in 1997. Ouantity in thousands Value in millions Variations in % Heading of tons of dinars 1997/96

1995 1996 1997 1995 1996 1997 Ouantity Value

Exports 381.5 422.6 538.8 27.5 Electrieal machines & applianees 22.7 27.3 34.6 367.3 415.6 537.5 26.2 29.3 of whieh: Eleetrical wire & eables 9.1 13.4 16.4 142.1 178.0 241.7 22.4 35.8 Genarators & transformers 4.5 4.1 5.3 56.1 50.1 62.9 29.3 25.5 Telephone sets 1.4 1.7 2.8 28.8 32.2 57.8 64.7 79.5 Mise. eleetrical items 4.5 4.5 6.3 126.8 141.7 161.4 40.0 13.9 Other eleetrical produets 14.2 7.0 1.3 -81.4

Imports 623.8 674.5 815.0 20.8 Eleetrical machines and applianees 36.1 37.3 58.3 516.1 569.4 710.3 56.3 24.7 of which: Eleetrical wire & eablers 8.6 10.3 19.0 72.6 98.4 121.9 84.5 23.9 Genarators & transformers 5.4 5.1 9.2 57.0 57.1 106.1 80.4 85.8 Telephone sets 3.7 3.7 5.2 96.4 109.4 87.0 40.5 -20.5 Mise. electrieal items 11.9 12.3 17.1 208.7 222.2 293.5 39.0 32.1 Other eleetrieal produets 107.7 105.1 104.7 -0.4

Balance -242.3 -251.9 -276.2 9.6 Rate of eoverage (in %) 61.2 62.7 66.1 3.4 pts

Trade increased perceptibly in the other manufacturing industries, Le., building materials, ceramics and glass; chemicals not including phosphate by-products; and products of the miscellaneous industries. Exports rose 11.2% and imports 10.9%, compared with respective declines of 7.3% and 4.8% in 1996, representing shares in total trade of 6.7% for exports and 15.9% for imports (compared with 6.9% and 16.8% respectively in 1996), raising the deficit by about 11% and stabilizing the rate of coverage at 29.6%.

Trade was more active in the building materials, ceramics and glass industries, particularly on the exports side, following substantial recovery in sales of cement, glass and finished products.

The chemicals field showed an enormous deficit, with a coverage rate of approximately 24%. Trade in 1997 was characterized by good sales of pharmaceuticals, essential oils and perfumes, soaps, and household maintenance products, and by a clear increase in imports of medicines, tanning products, paints, essential oils, cosmetics and perfumes. There was a decline, however, in exports and imports of rubber and rubber products, and in purchases of products for photography and cinema and miscellaneous chemical products.

Trade in goods produced by the miscellaneous industries grew distinctly faster in 1997 than during the previous year, particularly in the case of wood and finished wood articles, furniture, bedding and light fixtures, books and stationery. Exports of plastics and plastic articles stagnated in value, while imports increased by approximately 15% to total TD295.1 million, or 54.5% of total purchases in this sector. Ouantity in thousands Value in millions Variations in "10 Heading of tons of dinars 1997/96

1995 1996 1997 1995 1996 1997 Ouantity Value Exports 401.2 372.0 413.7 11.2 Building materials, eeramies & glass ind's 110.5 82.9 99.7 of whieh: 20.3 Cement 1,723.4 1,048.0 1,253.1 70.1 43,0 47.2 19.6 9.8 Ceramie produets 31.5 37.3 58.7 27.4 27.4 36.8 57.4 Chemical produets 34.3 179.0 173.6 182.2 of whieh: 5.0 Pharmaeeutieals 0.1 0.2 0.6 12.0 5.8 15.9 200.0 174.1 Rubber & rubber prod's 9.1 11.5 5.9 34.2 43.8 25.2 -48.7 Soap & mmaintenance 7.4 -42.5 8.6 16.3 8.7 9.0 14.4 89.5 Mise. mfg. industries 60.0 111.7 115.5 131.8 of whieh: 14.1 Plastics & plastic items 10.1 9.5 7.6 26.9 27.0 27.0 -20.0 0.0 Wood & earpentry 4.8 5.7 8.1 5.7 6.6 8.9 42.1 34.8 Imports 1,322.6 1,259.3 ,1,397.1 Building materials, 10.9 ceramies & glass ind's 101.1 93.8 94.2 of whieh: 0.4 Ceramie produets 37.8 32.4 31.8 25.5 23.9 24.1 -1.9 Glass & glassware 0.8 34.0 31.1 30.1 35.1 31.6 33.4 Chemical produets -3.2 5.7 705.0 709.4 761.4 of whieh: 7.3 Pharmaeeutieals 7.0 4.7 5.6 136.1 140.7 164.1 19.1 16.6 Organie ehem. prod's 30.2 47.2 37.2 79.8 77.6 91.7 -21.2 18.2 Rubber & rubber prod's 18.7 23.9 18.9 77.1 85.2 71.4 -20.9 -16.2 Tanning agents & paint 20.7 19.2 23.4 50.4 48.0 54.6 21.9 13.8 Essential oils & parfumes 1.4 1.1 1.5 21.2 18.9 21.8 36.4 15.3 Mise. ehemical produets 28.2 39.4 29.7 59.0 71.7 68.6 -24.6 Mise. mfg. industries -4.3 516.5 456.1 541.5 of whieh: 18.7 Plastics & plastic items 139.4 157.6 169.9 267.7 256.9 295.1 7.8 14.9 Wood & earpentry 246.5 219.8 284.3 121.4 99.3 134.6 29.3 35.5 Balance -921.4 -887.3 -983.4 Rate of eoverage (in "10) 10.8 30.3 29.5 29.6 0.1 pts

The structure of foreign trade continued to be dominated by a strong concentration in Europe, particularly the countries of the European Union, despite efforts to diversify markets by reaching Asia, the African continent and Latin America. Attempts at diversification were much more successful in the case of imports than in that of exports, due to real needs on the domestic market and lack of experience on the part of some companies in penetrating new markets. Most of the new markets reached were those of the American continent and Japan, while there was a continuing relative decline in the markets of central and eastern Europe. Exports Imports Balances Region ln millions of Share in the ln millions of Share in the ln millions of dinars total (%) dinars total (%) dinars 1996 1997 1996 1997 1996 1997 1996 1997 1996 1997 ~ ~ ~ ~ ~ ~ ~ ~ Ia..Q -1.468.1 -1.871.7 E.U.of which: 4,300.2 4,817.1 80.0 78.3 5,425.5 6,414.1 72.3 72.9 -1,125.3 -1,597.0 France 1,379.9 1,564.4 25.4 25.7 1,831.2 2,091.6 24.4 23.8 -451.3 -527.2 Italy 1,113.1 1,312.3 20.7 21.3 1,413.6 1,698.2 18.9 19.3 -300.5 -385.9 Germany 839.6 893.4 15.6 14.5 950.9 1,187.7 12.7 13.5 -111.3 -294.3 Belgium 384.0 373.7 7.1 6.1 332.6 343.3 4.4 3.9 51.4 30.4 Spain 194.1 221.2 3.6 3.6 295.5 366.0 3.9 4.2 -101.4 -144.8 U,K 103.6 178.8 1.9 2.9 140.6 230.2 1.9 2.6 -37.0 -51.4 EH A of which: 30.9 59.3 0.6 1.0 109.0 110.4 1.5 1.3 -78.1 -51.1 Switzerland 26.5 56.7 0.5 0.9 100.9 103.5 1.3 1.2 -74.4 -46.8 Other European Countries 89.1 109.2 1.7 1.8 353.8 332.8 4.7 3.8 -264.7 -223.6 ex-USSR 9.4 5.1 0.2 0.1 95.9 145.9 1.3 1.7 -86.5 -140.8 ECEC 24.1 21.7 0.4 0.3 149.8 78.7 2.0 0.9 -125.7 -57.0 ê1Jka of whieh 1..2 l..SJ. ~ ~ ~ ~ lU ~ ~ :ll.1 Arab eountries 347.5 390.9 6.5 6.4 447.6 457.0 6.0 5.2 -100.1 of whieh: -66.1 UMA of which: 321.4 363.6 6.0 5.9 411.7 407.8 5.5 4.6 -90.3 -44.3 Aigeria 93.6 41.8 1.7 0.7 123.8 84.5 1.7 1.0 -30.2 -42.7 Libya 190.7 284.3 3.5 4.6 228.5 268.6 3.0 3.0 -37.8 15.7 Morocco 36.5 36.5 0.7 0.6 57.1 53.7 0.8 0.6 -20.6 -17.2 Egypt 26.1 26.6 0.5 0.4 29.9 44.4 0.4 0.5 -3.8 America 1..1U 2,Z -17.8 1QU 12 ~ ~ L.Q il -407.7 ~ NAFTA 43.9 45.3 0.8 0.7 360.3 449.1 4.8 5.1 -316.4 of whieh: -403.8 USA 42.8 41.4 0.8 0.6 312.0 377.7 4.2 4.3 -269.2 Canada 1.1 3.4 -336.3 0.0 0.1 36.4 66.4 0.5 0.7 -35.3 -63.0 Latin America 75.3 1.0 56.9 1.4 166.6 239.6 2.2 2.7 -91.3 of whieh: -182.7 Brazil 18.2 23.9 0.3 0.4 57.5 70.0 0.8 0.8 -39.3 -46.1 Argentina 7.4 13.6 82.4 0.1 0.2 141.0 1.1 1.6 -75.0 -127.4 &iâ J.alU .6.Q ~ ~ ~ ~ a..9. U ~ :2Z.U Arab eountries 63.5 1.2 74.5 1.2 103.2 98.6 1.4 1.1 -39.7 of whieh: -24.1 Gulf Coop. Cne!. 49.3 45.5 0.9 0.7 60.1 78.8 0.8 0.9 -10.8 of whieh: -33.3 Saudi Arabia 22.5 23.7 0.4 0.4 33.7 47.5 0.4 0.5 -11.2 -23.8 Syria 3.0 3.0 0.1 0.1 31.7 9.5 0.4 0.1 -28.7 Other Asian -6.5 eountries 222.8 292.2 4.1 4.8 414.7 544.3 5.5 6.2 -191.9 of whieh: -252.1 China 18.1 27.6 59.4 0.3 0.4 74.0 0.8 0.8 -41.3 -46.4 Japan 16.8 9.9 0.3 0.2 159.3 215.0 2.1 2.4 -142.5 -205.1 India 116.2 169.1 2.2 2.8 22.6 38.9 0.3 0.4 93.6 130.2 Indonesia 14.5 17.8 0.3 0.3 11.6 21.6 0.2 0.2 2.9 Other eountrjes 1.2Q.l -3.8 22M â.Q ~ ~ ~ M 1...Q ~ .1lM Total . 5.ll2.Q .lQQ.Q .lQQ.Q ~ ~ ~ .lQQ.Q .lQQ.Q -21268 -26456 Trade with Europe in 1997 represented 81.1% of exports and 78% of imports, compared with 82.3% and 78.5% respectively, the previous year. Approximately 95% of these transactions were carried out with countries of the European Union. Trade with these countries, with which Tunisia signed an association agreement on July 17, 1995, was marked by a distinct increase in both exports and imports, which rose by 12% and 18.2% respectively. Exports were up particularly for France (13.4%), Italy (17.9%), and Germany (6.4%), which are-in that order- Tunisia's main customers and which absorb more than 61% of total export sales. Major exports were textiles, olive oil, energy-related products, electrical machinery and other electrical devices. The same countries were also the source of increased imports: purchases from France were up 14.2%, and imports from the other two countries went up by more than 20%. Most purchases were of foodstuffs, consumer goods, capital goods and refined petroleum products. These trends increased the deficit in the bilateral balance of trade with ail of these countries, bringing the ove rail deficit with the European Union up by approximately 42% over its 1996 level to a total of nearly TD1.597 billion.

Regarding the other European Union countries, particular note might be taken of trade with the United Kingdom, where exports advanced by 72.6% and imports by 63.7%. Rising sales concerned primarily olive oil, crude oil, c10thing and mechanical and electrical machinery. Purchases increased for cereals, pharmaceuticals, plastics and wearing apparel. Trade with the countries of the European Free-Trade Association remained strongly concentrated on the Swiss market. Exports to that country more than doubled, accounted for essentially by petroleum products, while imports rose by only 2.5%. This reduced the deficit from TD74.4 million in 1996 to TD46.8 million in 1997, improving Tunisia's commercial position with respect to that group of countries.

The same situation holds for the deficit with the Eastern and Central European Countries (ECEC). Trade with that region declined by 47.5% for imports and 10% for exports, and the steep drop in Tunisian purchases brought their share in the total down from 2% to 0.9%. Particular mention might be made here of low exports to Romania and Bulgaria, due especially to a fall in crude oil sales. Imports from those two countries also declined perceptibly, notably for chemicals, wood and finished wood articles. There was a steep 52.1 % increase in imports from the countries of the former USSR as a result of larger purchases of energy-related products, raw materials and semi-finished products, combined with declining sales. This widened the deficit by approximately 63% to a total of TD140.8 million in 1997.

The balance of trade with the countries of the Arab Maghreb Union (UMA), which are Tunisia's second commercial partner after the European Union, was marked by a distinct reduction in the deficit (-50.9%), which came down from TD90.3 million in 1996 to TD44.3 million. This favourable trend was generated by a TD15.7-million trade surplus with Libya, contrasting with a deficit of TD37.8 million in 1996. Particular note might be taken of the sustained Libyan demand for foodstuffs, consumer goods and capital goods. Imports from Libya also increased substantially, in contrast with declining purchases from Aigeria, particularly of natural gas.

Excluding the share of the UMA countries and Egypt, whose sales in Tunisia advanced by 48.5% (particularly various food preparations, leather and skins), trade with the rest of the African continent remained slight, and was concentrated in a small number of countries, particularly Côte d'Ivoire, Cameroon, and to a lesser extent South Africa and Senega!.

Trade with the American continent accelerated, particularly on the imports side, increasing the deficit with this region by 43.9% to a total of approximately TD586.5 million. Tunisian purchases from Latin America were up particularly, especially foodstuff imports (cereals, vegetable oils and sugar) from Argentina and Brazil. Exports were generally down, due to the absence of crude oil sales and a drop in sales of fertilizers, aggravating the trade deficit with that region, which was T0182.7 million, compared with T091.3 million in 1996. Trade with the countries of the NAFTA agreement showed a much greater increase in imports (24.6%) than in exports (3.2%). Tunisian sales remain low, amounting to less than 1% of the total, although this region is a potential market which should be encouraged.

Trade with non-Arab countries on the Asian continent was marked by increased experts and imports. A rise of more than 31% in exports was accounted for primarily by sales of chemicals to India and Indonesia, while an increase of approximately the same magnitude in imports was due mainly to capital goods purchases from Japan. The trade deficit with that region nonetheless increased by over 31.4% to a total of sorne T0252 million.

Trade with the Arab countries of the Asian continent increased considerably in the case of experts, while imports fell back due to a steep decline-for the second consecutive year-in purchases by Syria, chiefly of cereals and cotton.

There was a decrease of sorne 8% in exports to the countries of the Gulf Cooperation Council, especially food exports to Kuwait, joined with a 31.1 % increase in imports, mainly from Saudi Arabia and the United Arab Emirates (sulphur, plastics, and oil and petroleum products). This worsened the trade deficit considerably, taking it up to T033.3 million from a 1996 figure of approximately T011 million.

Restot the France 25.4% America 7.8% worId 7.4% Asia 7.3% France 23.8% ~" ••"::~~" ~ ..•.." I-Eu-c-ou-n-trI-es-78-.3%1 Other EU Rest ot the Other EU countrles worId 8.1% 1 EU countries 72.9%1 31.6% Changes have been made in the presentation of the balance of payments in response to a revision contained in the new, fifth edition of the International Monetary Fund procedures manual, which reclassifies certain payment f10ws and some of the items under the heading "reserves". Under current payments, the gas royalty, which was formerly classified among government transactions as a tax collected by the state for passage of the transcontinental gas pipeline over national territory, now comes under "transports". This category no longer includes transactions pertaining to fuelling, nor does it contain some transactions related to merchandise freight charges and insurance, which are now entered under the headings "merchandise" and "other services", respectively. Unilateral transfers now include donations in kind, which used to be classified under the balance of capital. "Borrowed capital" now includes capital borrowings from the IMF and the Arab Monetary Fund (FMA), which previously figured among international reserves.

These reclassifications have changed balances, particularly those related to current transactions and the general balance of payments. Using this new framework, the general balance of payments showed a surplus in 1997, for the seventh consecutive year, totalling TD373 million, compared with TD386 million in 1996. This trend contrasts with the increased current deficit, and was favoured by an increase in net inflows of borrowed capital.

Net foreign currency holdings at the end of 1997 totalled TD2.227 billion, representing the equivalent of 91 days of imports, the same equivalent represented by the 1996 figure of TD1.892 billion.

in millions of dinars unless otherwise indicated

Heading 1993 1994 1995 1996 1997

A - Current payments -1,270 -617 -735 -466 -655 Current-account deficit/GDP (%) 9.2 3.9 4.3 2.5 3.1 Merchandise (FOB) -2,072 -1,585 -1,881 -1,714 -2,162 Services 688 908 1,094 1,350 1,586 Factor income 33 - 10 -155 -135 Unrequited transfers 81 60 42 53 56

B - Capital movements 1,301 1,136 839 882 1,054 of which: Capital transactions 37 57 29 36 84 Capital shares 595 460 300 291 464 Medium- & long-term loans & borrowings 375 631 541 390 407 C - Adjustment operations (net flows) 34 19 -28 -30 -26

Overall balance 65 538 76 386 373 (millions of TD) 1,200 1,000 ' 800 . 600 - 400 -\- D 1995 200 [] 1996 o . &11997 -200 ~ Capital and financial 400 -'- transactions account -600

-800

Revenues advanced less rapidly in 1997 than did expenditures. This widened the deficit in the current balance, which went from TD466 million in 1996 to TD655 million in 1997, or from 2.5% to 3.1% of GDP. The increased negative balance of current payments is explained by an accentuation of the trade deficit, and by the fact that it was not offset by improvement in the traditional surplus in the balance of invisibles. ln addition, exchange rate trends of the currencies of payment were generally unfavourable.

(in millions of dinars unless otherwise indicated

Heading 1993 1994 1995 1996 1997

Revenues 6,567 7,812 8,420 8,853 10,033 Annual variations (%) 9.5 19.0 7.8 5.1 13.3 Expenditures 7,837 8,429 9,155 9,319 10,688 Annual variations (%) 14.6 7.6 8.6 1.8 14.7

Balance -1,270 -617 -735 -466 -655 GROWTH RATES: GOODS AND SERVICES EXPORTS AND GDP lN CURRENT PRICES in% 25

20

15 - Goods and services exports 10 --GDP .. .. 1 5 •• 1

0 1990 1991

Imports increased more substantially than did exports, raising the trade deficit to TD2.646 billion in 1997, 24.4% over its 1996 level, compared with a 7.2% decrease that year from 1995. As a result, the rate of coverage of imports by exports dropped from 71.6% in 1996 to 69.9% in 1997.

lin millions of dinars unless etherwise indicatedl

Heading 1993 1994 1995 1996 1997

Experts (FOB) 3,]60 4,696 5,173 5,372 6,148 Annual variations (%) 5.2 24.9 10.2 3.8 14.4 Imperts (CIF) 6,171 6,647 7,464 7,499 8,794 Annual variations (%) 8.5 7.7 12.3 0.5 17.3

Balance -2,411 -1,951 -2,291 -2,127 -2,646

The distribution of trade by groups of product shows that only the food balance improved in 1997, with a deficit that moved down from TD251 million in 1996 to TD173 million. This improvement is attributable particularly to increased olive oil exports, resulting from a substantial improvement in production during the 1996-97 season. The balance for consumer goods continued to show a surplus, but its development was not favourable, as the surplus amounted to only TD145 million, compared with TD212 million in 1996.

Trade in energy products continued to aggravate the deficit which first appeared in 1992 and which rose, between 1996 and 1997, from TD28 million to TD104 million. ln addition, the combined effects of stronger economic activity and confirmed recovery in investments aggravated the trade balance deficits for raw materials and semi-finished products, which went from TD832 million to TD1.228 billion, and for capital goods, which rose from TD917 million to 1.597 billion.1

Transactions carried out in return for payment represented only approximately 38.2% of overall transactions in 1997. Exports in return for payment represented 36% of the total, while 39.9% of imports were paid for in cash. The deficit in the balance of such transactions, expressed (FOS-FOS), increased by TD287 million or 35%, going from TD819 million in 1996 to TD 1.106 billion in 1997. Trade without payment represented 61.8% of total transactions in 1997, showing a higher deficit than in 1996.

Although diversification was reinforced somewhat by trade with the countries of the Middle East, Asia and North America, the structure of the currencies of payment remained essentially unchanged, and was dominated by the US dollar and the currencies of the main European Union partners.

in millions of dinars Heading 1993 1994 1995 1996 1997

Food -1 9 9 -362 -251 -173 Raw materials & semi-manufactured products -1,017 . -799 -944 -832 -917 Capital goods -1,338 -1,226 -1,167 -1,228 -1,597 Consumer goods -35 95 256 212 145 Energy -2 -30 -74 -28 -104 Overall balance -2,411 -1,951 -2,291 -2,127 -2,646

The surplus balance of invisibles improved in 1997 for the fourth consecutive year, with revenues increasing considerably faster than expenditures. With the exceptions of government transactions and unrequited transfers, trends in ail headings in the balance of invisibles were favourable to Tunisia in 1997.

(in millions of dinars unless otherwise indicated) Heading 1993 1994 1995 1996 1997

Revenues. 2,720 3,052 3,199 3,423 3,823 Annual variations (%) 16.2 12.2 4.8 7.0 11.7 Expenditures 1,999 2,144 2,095 2,228 2,372 Annual variations (%) 37.4 7.3 -2.3 6.3 6.5 Balance 721 908 1,104 1,195 1,451 The balance of transport, historically a deficit sector, showed a surplus this year with the incorporation of the proceeds of the gas royalty. Almost ail categories of revenues developed favourably in 1997. Income from ticketing rose by T039 million, contrasted with T06 million in 1996, through the joint effects of increased entries of European tourists and expansion of the TunisAir and Tunisian Navigation Company fleets. Revenues from subsidized operations increased by T017 million in 1997, against T03 million in 1996.

(in millions of dinars unless otherwise indicated' Heading 1993 1994 1995 1996 1997

Revenues 523 514 566 624 712 Annual variations (%) 20.6 -1.7 10.1 10.2 14.1 Expenditures 430 468 533 507 557 Annual variations (%) 14.3 8.8 13.9 -4.9 9.9 Balance 93 46 33 11 7 155

Revenues from the gas royalty have been rising steadily since the second transcontinental gas pipeline connecting Italy with Aigeria via Tunisia was put into operation in 1995. The 1997 figure of T0102 million represents a 22.9% increase over 1996, compared with a 12.2% increase that year over 1995. This is explained both by the increase in gas volume transiting through Tunisia and by appreciation of the US dollar, the sole invoicing currency. When the Miskar gas field went into production in June 1996, a larger quantity of the Aigerian gas received in payment of this royalty was exported. The recovery in expenditures was stimulated primarily by an upsurge in trade, expressed in a T034-million increase in merchandise freight.

(in millions of dinars unless otherwise indicated Year ln cash ... ln kind Total in millions of TD Millions of TD % of the total Millions of TD % of the total

1993 21 35.6 38 64.4 59 1994 23 48.9 24 51.1 47 1995 17 23.0 57 77.0 74 1996 55 66.3 28 33.7 83 1997 78 76.5 24 23.5 102

The surplus balance in travel-related transactions continued to move upward in 1997, reflecting improved tourist revenue. Tourism income totalled T01.565 billion, 10.8% more than that of 1996, compared with increases of 6.8% that year and only 0.4% in 1995. This trend was favoured by a distinct improvement in tourist entries and a strong upswing in non-residents' night-stays in Tunisia.1 The structure of tourist revenues according to currency is dominated by the US dollar and the currencies of the main European Union countries. Other income from travel also rose in 1997, totalling TD141 million, against TD133 million the year before. Most of these earnings come from expenditures by personnel of embassies and other diplomatie missions in Tunisia, and by foreign workers making short trips to the country.

Travel-related expenditures totalled TD259 million, 6.1 % more than in 1996, representing mainly tourist spending and the costs of study and training abroad. Other expenditures continued to rise at approximately the same rate as in 1996, and consisted principally of currency transfers for the major and minor pilgrimages to Mecca, which rose by TD2 million in 1997 to total TD25 million.

lin millions of dinars unless otherwise indicated Heading 1993 1994 1995 1996 1997

Revenues 1,230 1,433 1,447 1,546 1,706 Annual variations (%) 18.5 16.5 1.0 6.8 10.3 Expenditures 204 217 237 244 259 Annual variations (%) 37.8 6.4 9.2 3.0 6.1 Balance 1,026 1,216 1,210 1,302 1,447

The deficit in the balance of production factors dropped back in 1997 from TD155 million to TD135 million as a result of stepped up revenues combined with slackened expenditures.

lin millions of dinars unless otherwise indicated Heading 1993 1994 1995 1996 1997

Revenues 673 767 825 862 932 Annual variations (%) 12.7 14.0 7.6 4.5 8.1 Expenditures 640 767 815 1,017 1,067 Annual variations (%) 10.0 19.8 6.3 24.8 4.9 Balance 33 - 10 -155 -135

Transfers of income from Tunisians residing abroad were up 6% in 1997 compared with a 12.1% increase the year before, totalling TD846 million, a decline which touched both cash and kind contributions and seems to be due to host country labour market conditions.

Total Contributions in cash Contributions in kind Year Millions of Annual var. Millions of Annual var. Millions of Annual var. TD in % ID in % TD in %

1993 600 18.1 450 75.0 150 25.0 1994 696 16.0 499 71.7 197 28.3 1995 712 2.3 546 76.7 166 23.3 1996 798 12.1 592 74.2 206 25.8 1997 846 6.0 616 72.8 230 27.2 Capital income

Net foreign currency outflow for repayment of capital totalled TD954 million in 1997, a 1.6% increase over 1996. Income from direct investments rose from TD306 million in 1996 to TD370 million in 1997, and interest on the medium- and long-term foreign debt rose during the same period from TD520 million to TD547 million.

Revenues from repayment of capital, which correspond essentially to the proceeds of foreign currency investments by residents, went from TD60 million in 1996 to TD72 million in 1997, a trend which reflects a distinct improvement during the year in the country's foreign currency holdings.

The balance of government transactions in 1997 showed an increased deficit of TD23 million, compared with TD8 million in 1996. This is explained by the reclassification of proceeds from the gas royalty under "transport" and by the fact that expenditures increased more steeply (+17.4%) than did income (+4%).

(in millions of dinars unless otherwise indicated Heading 1993 1994 1995 1996 1997

Revenues 87 94 102 101 105 Annual variations (%) 16.8 8.0 8.5 -1.0 4.0 Expenditures 162 165 102 109 128 Annual variations (%) -2.2 1.9 -38.2 6.9 17.4 Balance -75 -71 - -8 -23

The deficit in the balance for other .•services showed a surplus of TD7 million in 1997, compared with a TD60-million deficit in 1996, an improvement which is explained by a firming of revenues that reflects efforts to promote exports in this category of services. The sharpest increase in revenues came under the heading of commercial expenses, which went from TD105 million in 1996 to TD145 million in 1997, correlated with the acceleration in trade. This result was due primarily to a TD23-million increase in commercial expense income and a TD17-million rise in bank interest and commissions.

Income from heavy works and technical services also went up during this period, rising from TD25 million to TD31 million, chiefly because of revenue from expenses for repairs, subcontracting, and processing and expert appraisal expenses. Revenues from other services remained relatively low, although-particularly in the cases of telecommunications, manufacturing royalties and software installation-they did continue to develop favourably, amounting to TD84 million, compared with TD68 million in 1996.

Expenditures under the "other services" heading rose TD12 million to reach TD362 million in 1997 as a result of increased commercial charges and financial services. The former went from TD44 million in 1996 to TD55 million in 1997, the latter from TD22 million to TD40 million. The effect of these increases was offset by a drop in outflows for heavy works and technical services, which fell from TD196 million in 1996 to TD135 million in 1997. Among other expenditures, those for insu rance premiums and compensation increased significantly, going from TD62 million in 1996 to TD75 million in 1997. (in millions of dinars unless otherwise indicated\ Heading 1993 1994 1995 1996 1997

Revenues 207 243 258 290 369 Annual variations (%) 5.0 17.4 6.2 12.4 27.2 Expenditures 563 526 407 350 362 Annual variations (%) 20.6 -6.6 -22.6 -14.0 3.4 Balance -356 -283 -149 -6 0 +7

Following reclassification, transactions under this heading now include grants in kind, and no longer include transfers related to emigration and immigration. The strong increase in the surplus balance of unrequited transfers in 1996 continued in 1997, although at a somewhat slackened pace. A slight increase in income, due in particular to income from grants in kind, was accompanied by a rise in expenditures.

lin millions of dinars unless otherwise indicated Heading 1993 1994 1995 1996 1997

Revenues 87 64 48 58 62 Annual variations (%) 11.5 -26.4 -25.0 20.8 6.9 Expenditures 6 4 6 5 6 Annual variations (%) 43.0 -33.3 50.0 -16.7 20.0 Balance 81 60 42 53 56

The surplus balance of capital increased in 1997 for the second consecutive year, but without reaching the level it had attained in 1993. This result can be attributed to improved revenues in the form of grants in kind and to an increase in the surplus balance of equity shareholding.

(in millions of dinars unless otherwise indicated Heading 1993 1994 1995 1996 1997

Revenues 2,487 2,647 2,325 2,430 2,769 Annual variations (%) 27.5 6.4 -12.2 4.5 14.0 Expenditures 1,186 1,511 1,486 1,548 1,715 Annual variations (%) 26.3 27.4 -1.7 4.2 10.8 Balance 1,301 1,136 839 882 1,054

Following two years of near-stagnation, income from capital transactions, which consist primarily of public grants received by Tunisia in cash, nearly doubled in 1997. Most are granted by European Union countries and are intended in large part to finance the upgrading programme for Tunisian enterprises and projects of environ mental protection. (in millions of dinars unless otherwise indicated Heading 1993 1994 1995 1996 1997

Revenues 44 65 43 45 104 Annual variations (%) 175.0 47.7 -33.8 4.6 131.1 Expenditures 7 8 14 9 20 Annual variations (%) 75.0 14.3 75.0 -35.7 122.2 Balance 37 57 29 36 84

The surplus balance of capital shares improved distinctly in 1997, as rising revenues were accompanied by a more gentle rise in expenditures. This rise resulted from notable improvement in both the surplus of direct investments and surplus portfolio investments.

(in millions of dinars unless otherwise indicated Heading 1993 1994 1995 1996 1997

Revenues 689 575 365 344 511 Annual variations (%) 25.0 -16.5 -36.5 -5.8 48.5 Expenditures 94 115 65 53 47 Annual variations (%) 95.8 22.3 -43.5 -18.5 -11.3 Balance 595 460 300 291 464

After sluggish growth following the completion of two major energy-sector projects (the doubling of the transcontinental gas pipeline and development of the Miskar gas field), the surplus in the balance of direct inv.•estments began to move upward again in 1997, due particularly to increased investment in the manufacturing industries. There was also recovery in investments in the energy field, with the exception of expenses for the Miskar gas project, which was fully completed in 1996. The sector attracted total investments of T0247 million in 1997 compared with T0166 million a year earlier, an increase of T081 million.

(in millions of dinars unless otherwise indicated Heading 1993 1994 1995 1996 1997

Revenues 662 544 313 274 381 Annual variations (%) 28.3 -17.8 -42.5 -12.5 39.1 Expenditures 85 100 37 43 37 Annual variations (%) 112.5 17.6 -63.0 16.2 -14.0 Balance 577 444 276 231 344

Investment in 1997 in the other sectors rose by T026 million, or 24.6%, to total T0132 million. The setback in tourism and real estate, which fell from T048 million in 1996 to T023 million in 1997 because of completion of construction on the "Montazeh de Carthage" project, was more than offset by an upswing in manufacturing industry investments, which called in T086 million in 1997 against T050 million in 1996. Taken by category of project, mention should be made of investment by the German company Henkel Alki in the chemical industries, and investments by Danone and Reynolds in the food industry. ln addition, the purchase of the Bougrine Mining Company by Canadians called in a considerable flow of foreign capital in this form.

Portfolio investments totalled TD130 million in 1997, compared with TD70 million in 1996, an improvement that is attributable in part to investments made by foreign operators on the Tunis Stock Exchange (BVMT), which went up by TD26 million from one year to the next, and to increased subscription by non-residents of money market instruments, netting TD71 million in 1997 compared with TD37 million in 1996.

Foreign purchase of shareholding in capital increases of financial institutions totalled TD25 million in 1997 against TD21 million in 1996, and concerned in particular drawdown of the remaining capital in the Banque Tuniso-Libyenne de Développement et de Commerce Extérieur (BTLD), TD23 million of which came from the Libyan party.

(in millions of dinars unless otherwise indicated Heading 1993 1994 1995 1996 1997

Revenues 27 31 52 70 130 Annual variations (%) 6.0 14.8 67.7 34.6 85.7 Expenditures 9 15 28 10 10 Annual variations (%) 12.5 66.7 86.7 -64.3 0.0 Balance 18 16 24 60 120

Following two years of steady decline, the surplus balance of medium- and long-term borrowed capital began to move upward again in 1997. Drawdown more than compensated for the increased expenditures committed for amortization of the foreign debt.

On millions of dinars unless otherwise indicated Heading 1993 1994 1995 1996 1997

Revenues 1,209 1,528 1,481 1,348 1,490 Annual variations (%) 18.6 26.4 -3. 1 -9.0 10.5 Expenditures 872 932 982 1,007 1,102 Annual variations (%) 7.3 6.9 5.4 2.5 9.4 Balance 337 596 499 341 388

Drawdown on medium- and long-term foreign borrowings in 1997 totalled TD1.49 billion, representing a 10.5% increase over its 1996 level, against a 9% drop in that year compared with the year before. Most of the funds raised came from the government, totalling 73.9% of resources, compared with 81% a year earlier. The Central Bank of Tunisia, acting on behalf of the government, mobilized the sixth Samuraï loan on the Japanese domestic market for ~12.5 billion, and-for the first time-a Yankee loan on the American market for $400 million.

New drawdown by companies concerned especially the banking system, and more particularly the National Bank for Touristic Oevelopment, which took out a syndicated loan of sorne T094 million on the London market. The transport sector, on the other hand, resorted more to long-term commercial loans to finance purchases of navigation equipment.

(in millions of dinars'

Variations in % Heading 1993 1994 1995 1996 1997 1996/95 1997/96

Government 721 968 1,056 1,092 1,101 3.4 0.8 Public origin 574 498 451 583 327 29.3 -43.9 Private origin 147 470 605 509 774 -15.9 52.1 Enterprise 488 560 425 256 389 -39.8 52.0 Public origin 227 194 183 164 219 -10.4 33.5 Private origin 261 366 242 92 170 -62.0 84.8

Total 1,209 1,528 1,481 1,348 1,490 -9.0 10.5 Public origin 801 692 634 747 546 17.8 -26.9 Private origin 408 836 847 601 944 -29.0 57.1

Payments made in 1997 to amortize the medium- and long-term foreign debt totalled T01.102 billion, representing a 9.4% increase over those of the previous year. According to the new presentation of the balance.•of payments, these reimbursements include those made to the IMF and to the AMF. The government accounted for 65.2% of these payments, which went particularly to public funders. The amount paid by enterprises for service on the debt remained practically unchanged from its 1996 level.

(in millions of dinars'

Heading 1993 1994 1995 1996 1997 Variations in %

1996/95 1997/96

Government 470 541 562 618 718 10.0 16.2 Public origin 444 524 560 611 702 9.0 14.9 Private origin 26 17 2 7 16 250.0 128.6 Enterprise 402 391 420 389 384 -7.4 -1.3 Public origin 172· 185 207 150 149 -27.5 -0.7 Private origin 230 206 213 239 235 12.2 -1.7 Total 872 932 982 1,007 1,102 2.5 9.4 Public origin 616 709 767 761 851 -0.8 11 .8 Private origin 256 223 215 246 251 14.4 2.0 The outstanding medium- and long-term foreign debt at the end of 1997 totalled TD10.95 billion , an increase of 13.8% over 1996. 8ince gross available national income increased by 10.5%, the rate of indebtedness expressed with reference to this aggregate fell back from 51.1 % in 1996 to 52.6% in 1997. The debt service ratio, on the other hand, continued a downward movement that had begun in 1992, reaching 16.4% of current revenues in 1997 compared with 17.2% in 1996.

{in millions of dinars unless otherwise indicated Parameter 1993 1994 1995 1996 1997 Outstanding debt1 7,794 8,462 9,085 9,620 10,950 Rate of indebtedness (% of gross available domestic income)1 54.2 54.4 53.7 51.1 52.6 Service on the debt 1,275 1,369 , 1,481 1,527 1,649 Principal 872 932 982 1,007 1,102 Interest 403 437 499 520 547 Debt service ratio (%)2 19.4 17.5 17.6 17.2 16.4

The amount of net transfers for foreign borrowings remained negative, but was down trom the previous year, talling trom TD179 million in 1996 to TD159 million in 1997.

lin millions of dinars Heading 1993 1994 1995 1996 1997 Drawdown 1,209 1,528 1,481 1,348 1,490 Service on the debt 1,275 1,369 1,481 1,527 1,649 Net transfers -66 159 0 -179 -159

Source: Ministry of Economie Development. Calculated with reference to current revenues. (5th edition) (in millions of dinars\ Heading 1994 1995 1996 1997 A. CURRENTRECEIPTS 7,812.5 8,420.0 8,853.3 10,032.7 MERCHANDISEEXPORTS(FOS) 4,696.6 5,172.9 5,372.0 6,147.9 SERVICES 2,284.9 2,373.6 2,561.4 2,891.2 TRANSPORT 514.1 566.1 624.1 711.7 Freight 41.4 42.4 44.7 46.2 Other transports 472.7 523.7 579.4 665.5 TRAVEL 1,432.9 1,447.4 1,545.7 1,705.9 Tourism 1,317.5 1,322.9 1,413.2 1,565.3 Studies and training 5.2 5.4 8.2 10.7 Medical care 5.3 5.9 6.6 7.7 Other travel-related expenses 104.9 113.2 117.7 122.2 GOVERNMENTTRANSACT~NS 94.4 101.8 101.5 105.1 Tunisian government 0.0 0.0 0.0 0.0 Foreign governments 94.4 101.8 101.5 105.1 OTHERSERVICES 243.5 258.3 290.1 368.5 Insurance premiums & compensat'ns 14.3 14.6 22.8 24.6 Office expenses 67.7 58.2 69.4 84.6 Comm. expenses & int'l. trade 61.4 64.8 80.3 103.0 Heavy works & technical services 24.5 24.2 24.8 30.6 Communications services 18.3 25.3 15.1 16.7 Financial services 21.9 20.3 24.6 42.2 Miscellaneous 35.4 50.9 53.1 66.8 FACTORINCOM: 766.9 825.4 862.0 931.7 Capital income 71.2 113.6 63.7 85.8 Interest on short-term loans 68.5 109.2 60.2 72.3 Dividends and profits 1.9 3.0 1.9 11.2 Direct investment income 1.4 0.8 1.6 2.3 Labour income 695.7 711.8 798.3 845.9 Wage remittances 635.9 642.6 716.5 756.9 Other labour income 59.8 69.2 81.8 89.0 UNREOUI1EDTRANSFERS 64.1 48.1 57.9 61.9 Tunisian private sector 23.9 24.6 33.6 34.1 Tunisian public sector 40.2 23.5 24.3 27.8 Heading 1994 1995 1996 1997 B. CAPITAL MOVEMENTS 2,647.2 2,324.9 2,430.2 2,769.4 CAPITAL TRANSACTIONS 65.0 43.6 44.5 104.6 FINANCIAL TRANSACTIONS 2,582.2 2,281.3 2,385.7 2,664.8 DIRECT INVESTMENTS 544.3 313.1 274.1 381.5 Assets 1.5 8.0 1.6 3.2 Liabilities 542.8 305.1 272.5 378.3 Shareholding 537.7 300.5 261.0 372.2 Other 5.1 4.6 11 .5 6.1 PORTOFOLIOINVESTMENTS 30.8 51.9 69.7 129.8 Public sector 10.6 13.2 37.4 60.1 Assets 0.2 2.2 0.4 0.1 Liabilities 10.4 11.0 37.0 60.0 Private sector 20.2 38.7 32.3 69.7 Assets 1.6 1.4 1.2 0.3 Liabilities 18.6 37.3 31 .1 69.4 MEDIUM- AND LONG-TERM LOANS TAKEN BV THE GOVERNMENT 968.3 1,055.6 1,092.1 1,101.0 Liabi 1ities 968.3 1,055.6 1,092.1 1,101.0 Public origin 498.6 450.4 583.1 327.0 Private origin 469.7 605.2 509.0 774.0 MEDIUM- AND LONG-TERM LOANS BV AND TO BUSINESSES 594.0 466.7 304.3 408.8 Loans from businesses 34.7 41.4 48.6 19.8 Loans taken by businesses 559.3 425.3 255.7 389.0 Public origin 193.5 183.3 164.3 219.0 Private origin 365.8 242.0 91.4 170.0 SHORT-TERM CAPITAL (net mvts) 444.8 394.0 645.5 643.7 Loans granted 0.0 0.0 0.0 0.0 Loanstaken 444.8 394.0 645.5 643.7 C. ADJUSTMENT OPERATIONS (net mvts) 18.8 0.0 0.0 0.0 GRAND TOTAL 10,478.5 10,744.9 11,283.5 12,802.1 OUTFLOWS (5th edition) (in millions of dinars' Heading 1994 1995 1996 1997

A. CURRENTEXPENDITURES 8,429.3 9,154.6 9,319.2 10,688.0 MERCHANDISEIMPORTS(FOS) 6,281.7 7,053.6 7,086.4 8,309.9 SERVICES 1,377.2 1,279.9 1,210.8 1,305.5 TRANSPORT 468.2 533.0 507.1 557.0 Freight 213.7 260.9 266.1 300.2 Other transports 254.5 272.1 241.0 256.8 TRAVEL 217.5 237.4 243.9 259.0 Tourism 150.2 166.7 169.0 175.6 Studies and training 33.7 36.0 39.1 43.8 Medical care 12.1 12.3 12.6 13.7 Other travel-related expenses 21.5 22.4 23.2 25.9 GOVERNMENTTRANSACT~NS 164.9 102.0 109.5 128.0 Tunisian government 164.9 102.0 109.5 128.0 - Technical assistance 23.9 9.7 12.8 8.1 - Other 141.0 92.3 96.7 119.9 Foreign governments 0.0 0.0 0.0 0.0 OTHERSERVICES 526.6 407.5 350.3 361.5 Insurance premiums & compensat'ns 54.0 57.6 62.1 75.2 Office expenses 3.4 3.6 3.2 8.0 Comm. expenses & int'l. trade 43.8 49.8 44.4 55.1 Heavy works &. technical services 373.6 250.4 195.8 135.2 Communications services 5.0 7.2 2.3 5.4 Financial services 15.4 17.8 21.6 40.3 Miscellaneous 31.4 21.1 20.9 42.3 FACTORINCO~ 767.0 815.3 1,017.1 1,067.0 Capital income 753.6 790.5 1,003.0 1,039.9 Interest on medium- and long-term loans 436.9 499.4 519.9 546.8 Interest on short-term loans 84.7 73.0 123.6 45.4 Dividends and profits 42.2 51.2 52.9 77.0 Direct investment income 188.5 165.3 305.6 369.6 Rent 1.3 1.6 1.0 1. 1 Labour income 13.4 24.8 14.1 27.1 Wage remittances 10.6 20.1 11.0 21.5 Other labour income 2.8 4.7 3.1 5.6 UNREOUITEDTRANSFERS 3.4 5.8 4.9 5.6 Tunisian private sector 2.4 4.6 4.7 5.4 Tunisian public sector 1.0 1.2 0.2 0.2 1 Heading 1994 1995 1996 1997 B. CAPITAL MOVEMENTS 1,511.2 1,468.0 1,548.4 1,714.7 CAPITAL TRANSACTIONS 8.1 14.3 8.8 20.4 FINANCIAL TRANSACTIONS 1,503.1 1471.7 1,539.6 1,694.3 DIRECT INVESTMENTS 100.1 37.3 42.8 37.7 Assets 7.8 3.2 2.3 10.1 Liabilities 92.3 34.1 40.5 27.6 Shareholding 89.4 23.1 34.3 17.9 Other 2.9 11.0 6.2 9.7 PORTOFOLIOINVESTMENTS 15.2 27.9 9.6 9.6 Public sector 2.2 0.0 4.9 0.0 Assets 2.2 0.0 4.9 0.0 Liabilities 0.0 0.0 0.0 0.0 Private sector 13.0 27.9 4.7 9.6 Assets 0.4 1.4 1.4 1.1 Liabilities 12.6 26.5 3.3 8.5 MEDIUM- AND LONG-TERM LOANS TAKEN BV THE GOVERNMENT 540.9 562.1 617.8 718.3 Liabilities 540.9 562.1 617.8 718.3 Public origin 524.3 560.2 611.0 702.2 Private origin 16.6 1.9 6.8 16.1 MEDIUM- AND LONG-TERM LOANS BV AND TO BUSINESSES 390.6 419.4 388.8 384.2 Loans from businesses 0.0 0.0 0.0 0.0 Loans taken by businesses 390.6 419.4 388.8 384.2 Public origin 184.8 207.0 149.9 148.8 Private origin 205.8 212.4 238.9 235.4 SHORT-TERM CAPITAL (net mvts) 456.3 425.0 480.6 544.5 Loans granted 456.3 425.0 480.6 544.5 Loans taken 0.0 0.0 0.0 0.0 C. ADJUSTMENT OPERATIONS (net mvts) 0.0 28.2 29.9 26.4 GRAND TOTAL 9,940.5 10,668.8 10,897.5 12,429.1

BALANCE 538.0 76.1 386.0 373.0 The position of the Tunisian dinar against foreign currencies fluctuated in 1997 to varying extents, the magnitude of the changes bearing the mark of strong variations in certain currencies on the international exchange markets under the effects of the mid-year monetary and financial crisis in the countries of South-East Asia. A continuing policy of realistic management of the exchange rate as an instrument to support economic activity imparted some stability to the real effective exchange rate, an approach which was favoured by successful containment of inflation, which in 1997 remained at 3.7% for the second consecutive year.

Activity related to the cash foreign exchange market continued to fall back, despite an improvement in the ove rail value of exchange f10ws and payments between Tunisia and other countries, but the rate of decline was more moderate in 1997 than in 1996, both because of an increase in clearing transactions and as a result of the inception of foreign currency- foreign currency transactions in May 1997.

THE TUNISIAN DINAR REAL EFFECTIVE EXCHANGE RATE (base 100 in 1980)

75

74

73

72

71

70

69

68

67 1987 1988

Quotation of foreign currencies on the cash foreign exchange market in 1997 was marked to variations which in some cases were of considerable amplitude. Expressed in averages, depreciation of the dinar against the US dollar in 1996 became stronger in 1997. Supported by vigorous growth and a relatively favourable international economic situation, the dollar firmed up on international foreign exchange markets, averaging TD1.0239 in January, peaking for the year at TD1.1565 in August, then moving downward to close the year at TD1.1368.

The Japanese yen, which had depreciated against the dinar by an average of 11.3% in 1996, gained 1.9% in 1997. The rise of the yen throughout the first half of the year, culminating at TD9.8365 for V1,000 in August 1997, was not entirely offset by an almost continuous decline starting in September, and at the end of the year the exchange rate was virtually the same as at the beginning, TD8.7692 vs 8.6930. (account and cash transactions) (in dinars Variations in % Currency 1993 1994 1995 1996 1997 1996/95 1997/96

1 US dollar 1.0057 1.0133 0.9458 0.9747 1.1029 3.06 13.15 (1.0466) (0.9912) (0.9508) (1.0003) (1.1475) 5.21 14.72

10 French francs 1.7754 1.8281 1.8963 1.9058 1.8899 0.50 -0.83 (1.7758) (1.8521) (1.9392) (1.9096) (1.9180) -1.53 0.44

10 Deutschmarks 6.0811 6.2485 6.6035 6.4795 6.3629 -1.88 -1.80 (6.0318) (6.4049) (6.6292) (6.4357) (6.4181) -2.92 -0.27

1000 Italian lira 0.6399 0.6291 0.5810 0.6322 0.6480 8.81 2.50 (0.6115) (0.6113) (0.6000) (0.6555) (0.6527) 9.25 -0.43

1000 Japanese 9.0874 9.9245 10.1076 8.9687 9.1423 -11.27 1.94 yen (9.3492) (9.9673) (9.2182) (8.6132) (8.8515) -6.56 2.77

1000 Spanish 7.9230 7.5784 7.5968 7.7050' 7.5422 1.42 - 2.11 pesetas (7.3643) (7.5190) (7.8371) (7.6450) (7.5848) -2.45 -0.79

1 LJS$rrO 1000 \'rro 1.19 11.30

1.13 10.55

1.07 9.80

1.01 9.05

0.95 8.30

0.89 7.55 93 94 95 96 97 93 94 95 96 97

The 1996 appreciation of the Italian lira against the dinar continued in 199'7 but was less marked, at a rate of increase which had fallen from 8.8% to 2.5%. ln January 1997, the average dinar value of 1,000 lira was 0.6541; in Oecember it was TOO.6524, with a minimum value of TOO.6390 in March.

1 Starting in March 1994, these are the quotations on the inter-bank market. The rates in parentheses reler to the last working day 01 the year under consideration. The dinar value of the French franc in 1997 represented a reversai of the 1996 situation, as the average 0.5% depreciation of the dinar in 1996 gave way to an appreciation of 0.8%. There were, nonetheless, periods of depreciation during the year, corresponding in particular to political events in France. Following firming in January, the franc moved downward, especially in February and in August, when it reached its lowest level of T01.8630 for 10 francs. It then moved upward quite steadily until November, when it dropped once again, though only briefly.

The position of the dinar against the Spanish peseta also improved in 1997, appreciating by an average of 2.1% with respect to that currency, compared with a depreciation of 1.4% the year before.

The dinar continued to gain value versus the Deutschmark in 1997, although somewhat more slowly than in 1996, at 1.8% against 1.9%. The dinar value of 10 marks started the year at 6.3866, moved down in April and reached its lowest monthly average, 6.2825, in August. The mark began moving up in September and closed the year at TD6.3979 for OM10.

10 DMrrD 6.80 1.93

6.60 1.89

6.40 1.84

6.20 1.80

6.00 1.75

5.80 1.71 93 94 95 96 97

The total volume of cash transactions on the foreign exchange market in 1997 was T04.798 billion, marking the second consecutive year of decline and falling by 4%, compared with a drop of 20.3% in 1996. A clear improvement in inter-bank transactions partially offset the pronounced decrease in Central Bank interventions.

Exchange transactions on the inter-bank market totalled TD3.588 billion, a 5% increase over 1996, compared with a 20.4% drop that year. This is attributable to a firming of outbound Tunisian payment flows, particularly those related to trade in goods and to tourist revenue.

ln varying degrees, banks of ail categories were responsible for the recovery. Oeposit bank transactions predominated, totalling T02.541 billion in 1997, a 6% increase over 1996 against a drop of 13.9% in 1996 compared with 1995. Their share in total transactions thus rose slightly, from 70.2% to 70.8%. Transactions initiated by offshore banks and development banks represented T0961 million and T086 million respectively, increases of 2.1% and 8.9% which contrasted with declines of 33.3% and 21.8% the year before.

Total foreign exchange transactions by the Central Bank were TD1.21 billion, down a considerable 23.4% from 1996, compared with a 19.9% decrease the year before. This iIIustrates the Central Bank's determination to provide banks with greater stimulus to make use of inter-bank transactions, as certain operations which used to be handled by the Central Bank are now increasingly handled in the inter-bank compartment.

Broken down according to currency, the total value of foreign exchange transactions in 1997 shows increasing predominance of the US dollar, which represented 52% this year as opposed to 42% in 1996. The French franc came second, also occupying a relatively large share of the market-15.6% in 1997 against 15.4% the year before. Market shares in 1997 were perceptibly lower than those of 1996 in the case of the Deutschmark (8.8% vs 9.3%), the Italian lira (6% vs 8.5%), and the yen (2.2% vs 2.5%).

ln addition to foreign currency-dinar transactions in cash, activity on the inter-bank foreign exchange market also grew stronger through the introduction of foreign currency- foreign currency transactions starting on May 9, 1997. Such transactions totalled TD5.481 billion at the end of 1997, 84.8% of this figure involving foreign correspondents, while the remainder was handled between approved intermediary banks.

(in millions of dinars)

Bank category 1995 1996 1997 Variations in % 1996/95 1997/96 Inter-bank market 4,296 3,418 3,588 -20.4 5.0 Deposit banks 2,784 2,398 2,541 -13.9 6.0 Offshore banks 1,411 941 961 -33.3 2.1 Development banks 101 79 86 -21.8 8.9 Central Bank 1,973 1,580 1,210 -19.9 -23.4 Total 6,269 4,998 4,798 -20.3 -4.0

Central Bank 25%

. - - - _ . .. - , , ' ' . ... - -. . ..

...... •...... ,. - - _ :...... •...•....••.••..••.•..•...•- - - ...... - _ - - - . . -."" -. - - . ., - - - _ - - .. :<- .. <:»>:-:-:::.-.-.".---. ------.. ..'" _ ... ,' ,_. -. - .. French franc . .. ~ ~...... •...... •...•.•...... •...... •...... •...... •...... •.....•....•..•....••....•....•..••...... • ~..•.••.•••.....•..•....•.•....•.•...... •..•...•..••..•...... •...... "'" -. . 16%

.. ' - - -.,"" Developmenl 53% .,. - - - - - .. bonks liS dollar 52% transactions) Inter-bank market Central Bank Total Period Currency Amount Amount Amount in millions Share in millions Share in millions Share of TD in % of TD in % of TD in % US$ 430 53.2 121 31.4 551 46.2 FFr 160 19.8 38 9.9 198 16.6 1st DM 45 5.6 27 7.0 72 6.0 quarter }I 12 1.5 19 4.9 31 2.6 It lira 70 8.7 30 7.8 100 8.4 Other 91 11.2 150 39.0 241 20.2

Sub-total 808 100.0 385 100.0 1,193 100.0 US$ 495 56.2 97 30.2 592 49.3 FFr 150 17.0 45 14.0 195 16.2 2nd DM 84 9.5 45 14.0 129 10.7 quarter }I 15 1.7 1 1 3.4 26 2.2 It lira 50 5.7 16 5.0 66 5.5 Other 87 9.9 107 33.4 194 16.1

Sub-total 881 100.0 321 100.0 1,202 100.0 US$ 511 59.6 66 32.2 577 54.3 FFr 133 15.5 16 7.8 149 14.0 3rd DM 58 6.8 31 15.2 89 8.4 quarter }I 1 1 1.3 7 3.4 18 1.7 Il lira 58 6.8 6 2.9 64 6.0 Other 86 10.0 79 38.5 165 15.6

Sub-total 857 100.0 205 100.0 1,062 100.0 US$ 664 63.7 113 37.8 777 57.9 FFr 139 13.3 67 22.4 206 15.4 4th DM 82 7.9 49 16.4 131 9.8 quarter }I 24 2.3 5 1.7 29 2.2 It lira 57 5.5 1 0.3 58 4.3 Other 76 7.3 64 21.4 140 10.4

Sub-total 1,042 100.0 299 100.0 1,341 100.0 US$ 2,100 58.5 397 32.8 2,497 52.0 FFr 582 16.2 166 13.7 748 15.6 DM 269 7.5 152 12.6 421 8.8 1997 }I 62 1.7 42 3.5 104 2.2 Il lira 235 6.6 53 4.4 288 6.0 Other 340 9.5 400 33.0 740 15.4

Total 3,588 100.0 1,210 100.0 4,798 100.0 US$ 1,720 50.3 380 24.0 2,100 42.0 FFr 613 17.9 159 10.1 772 15.4 DM 282 8.3 183 11 .6 465 9.3 1996 }I 50 1.5 74 4.7 124 2.5 It lira 295 8.6 130 8.2 425 8.5 Other 458 13.4 654 41.4 1 112 22.3

Total 3,418 100.0 1,580 100.0 4,998 100.0 Transactions between Transactions with approved foreign correspondents Total intermediaries Period ln millions Share ln millions Share ln millions Share of TD in % of TD in % of TD in %

May 161.8 19.4 303.2 6.5 465.0 8.5 June 192.3 23.0 628.6 13.5 820.9 15.0 July 89.5 10.7 580.7 12.5 670.2 12.2 August 69.7 8.3 462.6 10.0 532.3 9.7 September 72.1 8.6 551.1 11.9 623.2 11 .4 October 106.4 12.8 622.4 13.4 728.8 13.3 November 39.5 4.7 755.7 16.3 795.2 14.5 December 104.2 12.5 740.7 15.9 844.9 15.4 Total 835.5 100.0 4,645.0 100.0 5,480.5 100.0

The cash foreign exchange market, created on March 1, 1994, was expanded on June 30, 1997 to include futures transactions, in support of measures to Iiberalize foreign financing. Of the initial transactions, 85.5% involved enterprises, the remainder being handled in the frame of the inter-bank market. Transactions of this sort totalled TD95.4 million at the end of the year, with approximately three-quarters of these being executed during the third quarter. .

Transactions between Transactions on the approved intermediary inter-bank market Total banks and businesses Period ln millions Share ln millions Share ln millions Share of TD in % of TD in % of TD in %

July 17.1 21.0 4.3 31.2 21.4 22.4 August 20.2 24.7 7.5 54.3 27.7 29.0 September 19.5 23.9 2.0 14.5 21.5 22.5 October 6.0 7.3 0.0 0.0 6.0 6.3 November 8.3 10.2 0.0 0.0 8.3 8.7 December 10.5 12.9 0.0 0.0 10.5 11. 1 Total 81.6 100.0 13.8 100.0 95.4 100.0 The government budget for 1997 was characterized by a slackened increase in resources and expenditures. At TD7.9823 billion, resources were up 5.8% from their 1996 level, compared with an 18.5% rise in that year over 1995. This deceleration, which reflects tariff dismantling, was offset by improved fiscal revenue, although the latter-65% of which cornes from capital resources and 35% from loans-was itself below the TD8.01 billion forecast in the appropriations law.

Expenditures totalled TD8.0922 billion, an increase of 8% compared with 13.9% in 1996. A preponderant 64.6% of this was committed as operating expenses and capital outlay. ln outstripping the increase in resources, the rise in State expenditures widened the budget deficit to TD839.1 million, excluding debt amortization, against a forecast of TD640 million. Even so, a comparison of the deficit with GDP shows that there has been an effort at containment, and it fell from 4.3% in 1996 to 4% in 1997. To assure its financing, the State called upon TD347 million net in domestic borrowed resources and TD492.1 million in foreign funding.

(in millions of dinars

1997 Variations in %

Heading 1995 1996 Actual Approp. 1996/95 1997/96 law est.

Current-budget revenues 4,110.0 4,380.4 4,671.6 4,926.0 6.6 6.6 Current-budget expenditures exc!. contribution 3,678.2 3,937.8 4,331.8 4,359.0 7.1 10.0

Revenues under the capital budget 150.5 125.3 206.3 224.0 -16.7 64.6

Capital expenditures2 1,290.7 1,439.5 1,464.9 1,431.0 11.5 1.8 Other operations3 -3.1 56.8 79.7

Budget deficit exc!. debt redemption -711.5 -814.8 -839.1 -640.0 14.5 3.0 ln % ofGDP 4.2 4.3 4.0 3.0

Financing of the deficit (net flows) - net domestic resources 221.8 288.4 347.0 300 30.0 20.3 - net external resources 489.7 526.4 492.1 340 7.5 -6.5

With current-budget expenditures advancing more quickly than revenue, budget savings came down from TD442.6 million in 1996 to TD339.8 million in 1997. Budget savings represented only 1.6% expressed in terms of GDP, against an estimate of 2.7% and a 1996 figure of 2.3%.

1 The statistical data used in preparing this chapter are provisional. 2 Including direct payments. 3 Treasury funds and net Treasury advances and loans to public enterprises. Non-fiscal revenue was down by more than 19%, but fiscal revenue picked up considerably, advancing more than twice as fast as in 1996, at 12.3% against 6.1 %, chiefly due to improved yield from income tax and the VAT. Taken as a whole, current-budget revenue increased at the same rate as in 1996, 6.6%, and totalled TD4.6716 billion against an appropriations law estimate of TD4.926 billion.

(in millions of dinars Variations in % Heading 1995 1996 1997 1996/95 1997/96

Fiscal revenue 3,388.3 3,596.5 4,038.2 6.1 12.3 - Direct taxes 810.8 892.0 1,109.8 10.0 24.4 - Levies and indirect taxes 2,577.5 2,704.5 2,928.4 4.9 8.3 Non-fiscal revenue 721.7 783.9 633.4 8.6 -19.2

Total 4,110.0 4,3.80.4 4,671.6 6.6 6.6

Fiscal revenue in 1997 reflected a strong advance in direct income tax and in levies and indirect taxes. The total of TD4.0382 billion was TD81.8 million short of appropriations law estimates, but nevertheless represented a 12.3% increase over 1996, compared with a 6.1% rise the year before. The shortfall is attributable to trends in levies and indirect taxes, which were strongly affected by continued tariff dismantling. The increase in earmarked fiscal revenue from TD183.7 million in 1996 to TD192.1 million in 1997 worsened tax pressure, which rose by 20.1% in 1997 against 19.9% the year before.

(in millions of dinars unless otherwise indicated

Heading 1995 1996 1997

Current fiscal revenue 3,388.3 3,596.5 4,038.2 Earmarked fiscal revenue 104.2 183.7 192.1

Total 3,492.5 3780.2 4,230.3 Fiscal pressure (%) 20.5 19.9 20.1 Rising payroll tax collection, combined with an increase in corporate income taxes, brought about a perceptible improvement in collection of direct taxes in 1997, taking them from TD892 million in 1996 to TD1.1098 billion. Payroll tax incorne rose 19.9%, from TD402.1 million to TD482.1 million. Collection of corporate incorne tax rose as weil, increasing by 35.3% due to accelerated collection of taxes on non-petroleum companies.

Despite a levelling-off of petroleum activity, taxes collected from companies working in that field were up 33.5%, since there was a distinct increase in revenue generated by such activity, due in part to appreciation of the US dollar, the currency in which energy-related product exports are.paid.

Taxes collected on non-petroleum companies increased by 35.7% under the effect of improved profits and improved collection. Other taxes were up 20.6% to total TD287.8 million. Most of this increase is attributable to favourable movement in withholdings for interest on deposits in special savings accounts and in taxes on income from invested capital and on advances for consumer imports.

(in millions of dinars Variations in %

Heading 1995 1996 1997 1996/95 1997/96

Payroll taxes 354.6 402.1 482.1 13.4 19.9 Corporate income tax 263.8 251,3 339.9 -4.7 35.3 Non-petroleum companies 206.3 204.7 277.7 -0.8 35.7 Petroleum companies 57.5 46.6 62.2 -19.0 33.5 Other income taxes 192.4 238.6 287.8 24.0 20.6

Total 810.8 892.0 1,109.8 10.0 24.4

Levies and indirect taxes collected by the State totalled TD2.9284 billion. This marked an increase of 8.3% over the previous year, but did not reach the TD3.09-billion level forecast in the appropriations law. The acceleration varied according to heading. Customs duties totalled TD704.3 million, down 5% from their 1996 level, against a 4.1% decline a year earlier, despite strong recovery in imports. This second consecutive year of decline resulted from the continued tariff dismantling being effected in connection with the association agreement with the European Union.

Revenue from the VAT showed distinct improvement, rising from TD1.0077 billion in 1996 to TD1.1696 billion in 1997, a 16.1 % advance attributable to the extension of the VAT system to retail trade, an upward adjustment in taxation rates for hydrocarbons, and an improvement in the rate of collection of this latter tax. Consumer taxes collected totalled TD722.4 million, showing a continued steady rise for the second consecutive year because of their application to new product categories. Other levies and indirect taxes continued their upward movement in 1997, rising by 5.8%, against 1.5% the year before. (in millions of dinars Variations in % Heading 1995 1996 1997 1996/95 1997196

Customs duties 773.0 741.0 704.3 -4.1 -5.0 VAT 898.9 1,007.7 1,169.6 12.1 16.1 Consumer taxes 596.2 641.9 722.4 7.7 12.5 Other levies and indirect taxes 309.4 313.9 332.1 1.5 5.8

Total 2,577.5 2,704.5 2,928.4 4.9 8.3

After rising by 8.6% in 1996, ordinary non-fiscal revenue dropped 19.2% in 1997, declining from its 1996 figure of T0783.9 million to T0633.4 million. This decline is attributable to an 8.8% fall in income from shareholding and surpluses from public establishments of an industrial and commercial nature (EPIC) and to a 51.6% drop in revenue generated by the petroleum industry, where production was down. The decrease would have been even sharper had it not been for rising revenues from the lump-sum tax on the transcontinental gas pipeline and from collection of interest on loans; payments from the social security funds remained at their level of the previous. year.

(in millions of dinars Variations in % Heading 1995 1996 1997 1996/95 1997/96

Petroleum revenue 258.1 241.1 116.7 -6.6 -51.6 Gas royalty 58.6 81.3 92.3 38.7 13.5 Shareholding and earnings of State-owned industrial and commercial establishments 214.4 260.6 237.6 21.5 -8.8 Loan interest collection 57.3 47.3 53.4 -17.5 12.9 Payments from social security funds 57.2 57.0 57.0 -0.3 0.0 Other 76.1 96.6 76.4 26.9 -20.9

Total 721.7 783.9 633.4 8.6 -19.2

Ordinary expenditures from the State budget in 1997 totalled T04.3318 billion excepting contributions, a figure which was T027.2 million below estimates but 10% greater than the previous year's level. Current expenditures totalled TD3.5436 billion at the end of 1997, 6.6% below estimates and 11.4% above their 1996 level. This increase is attributable essentially to the second wage increase granted in the framework of the 1996-1998 three-year programme.

Expenditures for reimbursement of interest on the public debt totalled TD788.2 million, a 4.3% rise over their 1996 levaI. Between 1996 and 1997, interest payments on the domestic debt went from TD405.8 million to TD385.4 million while those on the foreign debt rose from TD350 million to TD402.8 million. The steady increase in interest service on the debt that has been observed for several years now is attributable to increased recourse to financial markets because of the disappearance of foreign resources of a concessional nature.

Resources of the capital budget were TD3.3371 billion in 1997, and were insufficient to cover commitments in the framework of the budget, totalling TD3.5266 billion.

{in millions of dinars Variations in % Heading 1995 1996 1997 1996/95 1997/96

Resources 2,471.7 3,316.4 3,337.1 34.2 0.6 Contribution from the ordinary budget 431.8 442.6 339.8 2.5 -23.2 Government resources 150.5 125.3 206.3 -16.7 64.6 Borrowed resources 1,889.4 2,748.5 2,791.0 45.5 1.5 Expenditures 2,677.7 3,319.0 3,526.6 24.0 6.3 Capital expenditures 1,290.7 1,439.5 1,464.9 11.5 1.8 Direct investment 599.7 630.6 651.4 5.2 3.3 Financial transactions 364.0 376.4 354.0 3.4 -6.0 Direct payments 327.0 432.5 459.5 32.3 6.2 Reimb. of principal of the debt 1,387.0 1,879.5 2,061.7 35.5 9.7 Domestic 845.2 1,313.9 1,437.5 55.5 9.4 External 541.8 565.6 624.2 4.4 10.4

The low 0.6% increase in capital budget resources is explained, among other factors, by a decline in budget savings joined to a strong deceleration in the rate of increase of borrowed resources.

a. Contribution of the operating budget to the capital budget

Budget savings, initially estimated at TD567 million, totalled only TD339.8 million in 1997 compared with TD442.6 million in 1996. Their share in capital expenditures, excluding contributions to special funds and to grant financing, was only 23.2% in 1997 against the 1996 figure of 30.7% and an appropriations law estimate of 39.6%. The drop is attributable to a shortfall in ordinary revenue. Government resources from the capital budget totalled TD206.3 million in 1997, an TD81- million increase compared with a TD25.2-million drop in 1996, due primarily to a TD49- million grant initially expected in December 1996 and actually received in January 1997.

Total borrowings mobilized by the State in 1997 were TD2.791 billion, TD245 million above the forecast in the appropriations law and only TD42.5 million above the 1996 figure. Of these monies, TD1.6747 billion were from domestic borrowings and TD1.1163 billion from foreign sources. It should be mentioned that in its recourse to foreign loans, the State floated a Yankee 1 bond on the United States market for $400 million and a Samurai VI bond on the Japanese market for \<'12.5 billion; taken together, these total sorne TD571.7 million, calculated at the day's exchange rate.

2. Expenditures

Cash disbursements, including direct payments from the capital budget, totalled TD3.5266 billion in 1997, a figure which exceeds forecasts by 5.7%. Compared with the previous year, they increased by 6.3% because of increased direct payments for reconveyed loans and service on the principal of the debt.

Responding to the imperative necessity of compressing expenditures to contain the budget deficit, capital outlay increased by only 1.8% or TD25.4 million in 1997, to total TD1.4649 billion.

The postponement of certain direct investments made it possible to keep the total for this category down to TD651.4 million in 1997 compared with TD630.6 million the year before; these figures represent, respectively, 44.5% and 43.8% of capital expenditures excluding debt amortization.

The TD354-million package allocated for this heading represented TD22.4 million less than the previous year's amount and was TD41.6 million below the appropriations law estimate.

Direct payments by the State totalled TD459.5 million in 1997, compared with TD432.5 million in 1996, exceeding the budget allocation by TD139.5 million. This was because reconveyed loans were not initially budgeted into the appropriations law. Disbursements by the central government went from TD311.9 million in 1996 to TD327 million in 1997, while expenditures related to reconveyed loans rose from TD120.6 million to TD132.5 million during the same period.

b. Debt redemption

Redemption of the principal of the debt totalled TD2.0617 billion in 1997, a 9.7% increase over its 1996 level. Real disbursements in repayment of the domestic debt, which had been estimated at T01.256 billion, actually totalled T01.4375 billion, up 9.4% from their 1996 level. Reimbursement of the foreign debt was lower than the initially estimated T0650 million, but was nevertheless 10.4% higher than in 1996.

Following a rapid 32% acceleration in 1996 with the allocation of sorne ordinary revenue to the National Solidarity Fund (FSN), revenue earmarked for special funds and grant financing advanced in 1997 at a considerably slackened rate of 7.9%. Expenditures increased by 21.2% in 1997, following a 13.9% decline the year before, as a result of continued social welfare interventions that required the allocation of increased funding. Following a distinct decrease in net Treasury advances and loans, special Treasury operations as a whole showed a surplus of T079.7 million in 1997, compared with T056.8 million in 1996.

(in millions of dinars Variations in % Heading 1995 1996 1997 1996/95 1997/96 Revenue earmarked for special funds & grant financing 220.1 290.6 313.5 32.0 7.9 . Fiscal 104.2 183.7 192.1 76.3 4.6 . Non-fiscal 115.9 106.9 121.4 -7.8 13.6 Expenditures for special funds & grant financing -210.4 -181.2 -219.6 -13.9 21.2 Balance of Treasury fund transactions 9.7 109.4 93.9 Net Treasury loans and advances -12.8 -52.6 -14.2 310.9 -73.0 Net balance -3.1 56.8 79.7

The budget deficit, excluding debt amortization, reflected the development of State revenues and expenditures, and totalled T0839.1 million in 1997 against T0814.8 million in 1996. Net resources raised within the country contributed 41.3% to the financing of this deficit, while 58.7% was accounted for by net foreign resources.

lin millions of dinars Variations 1996 1997 in % Heading ln millions ln % of ln millions ln millions 1997/96 of TD the total of TD of TD

Net domestic financing 288.4 35.4 347.0 41.3 20.3 Borrowed domestic resources 1,656.5 1,674.7 1.1 Debt redemption -1,313.9 -1,437.5 9.4 Other -54.2 109.8 Net external financing 526.4 64.6 492.1 58.7 -6.5 Borrowed external resources 1,092.0 1,116.3 2.2 Debt redemption -565.6 -624.2 10.4 Total 814.8 100.0 839.1 100.0 3.0 FINANCING OF THE BUDGET DEFICIT (NET FLOWS)

millions of TD 600 .lla3~::>:fa NOI.ln81~.lSlaaNV' S.lN3~dOl31\3aA~V'.l3NO~ The challenges of competitiveness that accompany the association agreement for a free-trade zone between Tunisia and the European Union made it necessary to set up a programme to restructure the industrial sector and modernize the banking system, the latter measure also being required to prepare for the negotiations on services that will take place starting in the year 2000. To improve the country's external position, the authorities have continued to strengthen current convertibility of the dinar and promote foreign investment, one measure of these actions being the creation of a term foreign exchange market. Export strategy has been given new support through the creation of a Higher Exportation Council, chaired by the President of the Republic.

The year 1997 was also marked by a change in the criteria for management of the economy. Henceforth, ail commercial, production and banking enterprises will be evaluated by private, independent foreign and domestic rating agencies, and such evaluation will be a prerequisite for quotation on the Tunis Stock Exchange.

The process of restructuring and modernization of the banking system was accompanied in 1997 by diversification.

The financial base of the banking sector continued to undergo strengthening in 1997, and was reinforced by actions designed to improve the banks' organizational and institutional capacities. These actions are part of a vast medium-term programme to modernize Tunisia's banking system and financial institutions along Iines traced by a national commission chaired by the governor of the Central Bank of Tunisia and including ail concerned parties. The programme is intended particularly to improve service quality and efficiency in the banking sector, in order to prepare it for the foreign competition it will face as a result of the General Agreement on Tariffs for Services (GATS) with the European Union, for which Tunisia developed an initial offer in 1995, which was improved and submitted in November 1997. There is consensus in the sector regarding the principal activities planned, which concern the following:

restructuring of the banking system to strengthen, and above ail improve, the quality of its financing of the economy and to adapt it to world-Ievel changes;

modernization of means of payment, by promoting electronic clearing and banking and favouring the book entry of debt instruments;

preparation of the legal framework required by the introduction of new financing instruments such as securitization, factoring and collection companies;1

reinforcement of security of bank transactions, particularly with respect to computer systems and funds transpo.rt;

improvement of the quality and collection of claims through better evaluation of risk and establishment of the necessary guarantees;

1 See law no. 98-4 of February 2, 1998 published in the Officiai GazeNe of the Republic of Tunisia, no. 11, February 6, 1998. increased investment in intangibles, particularly further training for staff and ration al human resource management.

Implementation of this programme began in 1997 with the creation of a private company for funds transport and the enactment of a law on collection companies; these will be followed by a wide range of further actions in 1998.

The monetary authorities approved two new banking establishments in 1997, the Banque Tunisienne de Solidarité (BTS), a deposit bank, and the Banque d'Affaires de Tunisie (BAT), an investment bank. The BTS held its constituent assembly on December 22, 1997, and began activity in March 1998. Its capital, initially set at TD10 million, was raised to TD30 million, ail of which has been paid up; 61.7% is owned by individuals and private companies and 38.3% by the State and by public enterprises. The main purpose of the BTS is to provide financial assistance to promote micro-enterprise, self-employment, and reinsertion of workers, and in general to use micro-financing to contribute to the development of economically viable income-generating activities. The specific nature of its activity led the BTS to opt for a flexible structure that would enable it to reach a maximum number of beneficiaries. Like other commercial banks, however, it must respect the conditions of operation and control specified in banking sector regulations, particularly those concerning prudential standards.

The BAT is promoted by the Société Tunisienne de Banque, has initial capital of TD3 million, and benefits from the technical and financial support of first-rate foreign ban king partners. It will begin operations in 1998 and will provide support especially for the privatization programme and for restructuring Tunisian companies and improving their competitiveness.

When it was created in March 1994, the foreign exchange market was authorized to carry out only cash foreign exchange transactions. ln June 1997, its powers were broadened to include term exchange transactions, a move which reinforces the foundations of current convertibility of the dinar and provides economic operators with better coverage for exchange risks related to their commercial transactions and service delivery,1

Certain rules governing the functioning of the foreign exchange market have been revised, as have prudential standards for exchange positions generated by transactions on this market. Approved resident intermediary banks have been authorized to carry out arbitration operations with banks set up abroad, in order to seize the better opportunities that foreign markets Qffer, and indirectly to enable Tunisian economic operators to benefit from these. Similarly, the level of the exchange position for individual foreign currencies has been raised from 5 to 10% of the net capital base of each approved intermediary, and the ove rail position for ail currencies taken together remains Iimited to 20% of that same net capital base. Prudential standards also provide that in case of a 1055 equal to 3% or more of an approved intermediary's exchange position in a given currency, for amounts equal to or greater than TD200,000, the intermediary must close that position and immediately notify the Central Bank.2

1 See BCT circular to approved intermediaries, no. 97-07, May 9, 1997. 2 See BCT circular to approved intermediaries, no. 97-08, May 9, 1997. As an element in the continuing support provided for export activities, the maximum annual investment that can be made abroad by resident companies has been doubled. Such investments, which must be financed by a company's foreign currency revenues, can take the form of purchase of equity, or can be made through the creation of liaison or representation offices, branch offices or subsidiaries. The amount of such investments is determined as a function of turnover, and may vary from TD20,000 to TD100,000 for liaison offices and from TD40,OOO to TD200,000 for the other types of office.1

A standing commission that has been created in the Ministry of International Cooperation and Foreign Investment is charged with coordinating the various economic structures set up abroad. Among the commission's responsibilities are those of providing these structures with a common body of data and with written, audiovisual and computerized supports of an economic nature, and of holding an annual conference in Tunis to inform them of joint plans of action, and to evaluate and prepare these.2

A number of measures were introduced in 1997 to improve economic competitiveness. These concerned ail sectors of activity, in addition to public enterprises.

The importance of the agricultural sector and the necessity for coordination of farm-related actions are such that the authorities set up a plan to upgrade the structures of the Ministry of Agriculture, in the aim of increasing efficiency to promote the attainment of performance objectives.3

the project to increase cereals production, intended especially to provide farmers with technical assistance. This project calls for setting up regional technical cells in the Offices of the Regional Commissioners for Agricultural Development (CRDA) and for carrying out the relevant studies;4

the project to expand the area involved in citrus fruit conservation in Cap Bon,5 which is to be executed over a four-year period in a series of stages covering irrigation infrastructure, civil engineering, and provision of water for the irrigated perimeters concerned;

the information system to promote aquaculture in the Mediterranean,6 the purpose of which is to promote this activity and protect the marine environ ment.

1 See BeT circular ta approved intermediaries, no. 97-13, Oeta ber 17, 1997, and the foreign exchange notice of the Minister of Finance, Officiai Gazette no. 64, August 12,1997. 2 See decree no. 97-558 of March 31, 1997, Officiai Gazette no. 27, April 4, 1997. 3 See departmental order of the Minister of Agriculture, July 30, 1997, Officiai Gazette no. 65, August 15, 1997. 4 See decree no. 97-1005 of May 26,1997, Officiai Gazette no. 45, June 6,1997. 5 See decree no. 97-1181 of June 16, 1997, Officiai Gazette no. 50, June 24, 1997. 6 See decree no. 97-1537 of August 4, 1997, Officiai Gazette no. 65, August 15, 1997. Two technical centres have been set up to support two major crops, potatoes and cereals.1 These centres will publish and distribute research results in these fields, institute means for communication among farmers, and improve farm mechanization.

As a measure to provide better management of state-owned farm land, such land may now be worked by legal entities of a public or parastatal nature, by individuals, and by civil and limited Iiability companies of Tunisian nationality. ln addition, the notion of Tunisian nationality has been widened to include farming companies more than one-third of whose capital is in the form of registered securities owned by Tunisian physical or legal entities.2

ln addition to the grouping of regulations governing investment in this sector, another measure taken in 1997 to promote tourism was the creation of the National Tourism Council.3 This new structure is to meet at least twice a year, and is responsible in particular for implementing government policy in this field. Another of its tasks is to coordinate the development and promotion of Tunisian tourism in every touristic region of the country and in the markets which provide Tunisia with tourists.

The disparate nature of regulations governing investment in certain sectors has led to the preparation of an investors' procedures manual which concerns, among others, agriculture and fisheries4 and the sector of handicrafts and tourism.5

ln July 1997, the tourism sector was given a legal framework to regulate the "time-share" tourism product.6 The time-share arrangement is a personal, transferable right of use for at least one week per year for a period of 30 years. Companies proposing this service may not market more than 50% of ail weeks to Tunisian residents, nor may they have a third party do SOt Promoters of such companies must deposit 15% of the proceeds of sale of weeks of accommodations in a frozen account. For projects in the process of establishment, the promoter must provide a bank guarantee for the amounts he receives. The new provisions represent the first attempt that has been made to regulate a product that was only recently introduced on the Tunisian market, and tend to ensure protection of the sector by instituting prior government control for ail investment in the plants that will manufacture the product; they also guarantee a certain balance between the interests of profession ais in the sector and their customers.

1 See departmental orders of the Minister of Agriculture: July 4, 1997, Officiai Gazette no. 56, July 15, 1997; October 30, 1997, Officiai Gazette no. 89, November 7, 1997. 2 See law no. 97-33 of May 26, 1997, Officiai Gazette no. 44, June 3, 1997. 3 See decree no. 97-1215 of June 23,1997, Officiai Gazette no. 52, July 1, 1997. 4 See departmental order of the Minister of Agriculture. November 24, 1997, Officiai Gazette no. 97, December 5, 1997; and the guide published in Officiai Gazette no. 99, December 12, 1997. 5 See departmental orders of the Minister of Tourism and Handicrafts, July 18, 1997, Officiai Gazette no. 61, August 1, 1997. 6 See law no. 97-46 of July 14, 1997, OfficiaI Gazette no. 57, July 18, 1997. To promote foreign investment in aquaculture and introduce modern fish-farming techniques, foreigners are now authorized to invest directly in this activity by purchasing equity in companies set up to engage in it.1

The tax advantage granted holders of oil exploration permits has been increased from 10% to 30% regarding expenditures for exploration in difficult-to-reach areas or for the identification of gas reserves or deep-Iying geological formations.2 This incentive applies only to work related to acquiring geophysical information, drilling exploratory wells, and any related operations required to execute these works, such as development of working areas and access roads.

Law no. 96-74 of July 29, 1996 modifying law no. 89-9 of February 1, 1989 made substantial changes in the management procedures for public enterprises, providing among other things that the authorities of oversight approve management activities and monitor the management of these companies. ln 1997, regulations were passed to reorganize the means by which oversight is exercised in the light of the new laws. This reorganization applies both to public enterprises that are set up as companies and to public establishments of a non-administrative nature which figure on a list set by decree and which are considered as public enterprises.3 The authorities have demonstrated their determination to make public companies which may be destined for privatization sounder and to restructure them. With this in mind, the composition of the Commission to Improve and Restructure Public Enterprises and the Committee for Privatization has been reviewed.4

The economy continued in 1997 to benefit from the financing required for its development. New measures were taken in the agriculture sector to help farmers finance their crop seasons and surmount the financial difficulties resulting from bad weather.

* sugar beets: credit was raised from TD655/ha to TD690/ha for unirrigated beets and from TD935/ha to TD975/ha for beets grown on irrigated land;

* orchards: cultivation of table olives was allotted TD415/ha in new credit of on irrigated land, and other crops of this category were accorded increases ranging from 7% to 25% when grown on unirrigated land and fram 19% to 82% when irrigated;

1 See Law no. 97-34 of May 26, 1997, Officiai Gazette no. 44, June 3, 1997. 2 See departmental order of the Minister of Industry, August 19, 1997, Officiai Gazette no. 69, August 29, 1997. 3 See decrees nos. 97-564, 97-565, 97-566 and 97-567 of March 31, 1997, Officiai Gazette no. 27, April 4, 1997. 4 See decree no. 97-410 of February 21, 1997, Officiai Gazette no. 17, February 28, 1997. * market-garden crops: an increase of 25% was allowed for unirrigated crops, and increases of 16% to 46% were applied to irrigated crops with the exception of tomatoes (+83%).1

2. 1 ncreased credit for complementary crops

Following relatively high rainfall in the last four months of 1997, the schedule of credits for complementary crops (to carry out weed removal, anti-fungal treatment and occasional fertilization) was improved in zone l, which covers most of the governorates of the northeast, the northwest, the centre and the Sahel region. For unirrigated crops, the credit allocation was T050 per hectare, compared with the previous T024, to handle weed killing and antifungal treatment. Irrigated crops, which were formerly not eligible for this financing, now also receive a credit allocation of T050 per hectare.2

The authorities identified the regions devoted to large-scale cropping that had been affected by drought du ring the 1996-97 growing season, and allowed the banks to reschedule the payments due for that period on loans granted to dealers to enable cereal farmers affected by the drought to purchase farm equipmenP This was the third consecutive year in which such a decision was adopted. The rescheduled loans must be for terms not exceeding five years, and are eligible for Central Bank refinancing at the rate of the cali for tenders. Interest payments resulting from the rescheduling are paid by the National Guarantee Fund, in the case of loans eligible for guarantee by that fund which are declared in a timely fashion.

ln the cases of loans for cereals crops and investment Joans for cereal growing which are not eligible for guarantee by the Fund, the government decided to pay the interest resulting from rescheduling of due dates for farm credits for the 1996-97 season. At the same time, cereal farmers benefiting from rescheduling were permitted to request new loans for the 1997-98 season.4 Bank credits abandoned to the benefit of agricultural development and improvement companies were made fully deductible from taxable income.s

Among the most important measures taken to promote experts were the creation of a Higher Council for Exportation and the incorporation of export insurance into the Insurance Code. To strengthen the incentives for exporting companies, new provisions were adopted allowing them to sell part of their production on the domestic market.

To give new impetus to the export effort, the Higher Council for Exportation was created, chaired b'y the President of Tunisia. The council is composed of representatives of the relevant ministry cabinets, the Central Bank, and the main organizations concerned by the export sector. The council meets every six months and is responsible for preparing expert strategy and for finding solutions to problems that arise in this area.6

1 See SCT circular ta banks, no. 97-06, April 10, 1997. 2 See SCT memorandum ta banks, no. 97-14, March 18, 1997. 3 See decree no. 97-1807 of September 3, 1997, Officiai Gazette no. 74, September 16, 1997, and SCT memorandum ta banks, no. 97-39, October 9, 1997. 4 See SCT memoranda to banks, nos. 97-40 of October 9, 1997, 97-42 of November 10, 1997, and 97-47 of December 17, 1997. 5 See article 83 of law no. 97-88 of December 29, 1997, Officiai Gazette no. 104, December 30-31, 1997. 6 See decree no. 97-612 of April 7, 1997, Officiai Gazette no. 30, April 15, 1997. To promote exports and protect exporters from the risks of non-payment the authorities have added a new chapter, "expert insurance", to the Insurance Code. This measure also introduced competition into this branch, which had hitherto been the exclusive domain of the Tunisian Company for Foreign Trade Insurance (COTUNACE). This new situation should lower insurance premiums and improve procedures for the payment of compensation, which in turn will increase the competitiveness of exporting companies. Organizing the policy for non-commercial risks required the creation of the Fund to Guarantee Export Risks, intended to reassure such risks as weil as those of a commercial nature pertaining to exports which are of capital importance for the national economy. This fund has superseded the Fund to Guarantee Export Loan Risks instituted by law no. 84-40 of June 23, 1984, and is managed by a specialized company.1

As an element in opening the local market to companies producing entirely for export, a certain flexibility has been introduced into the regulations governing sale of their products and the related formalities of foreign trade.2 These companies may now open outrets for their own merchandise or sell their products to foreign trade operators.· ln either case, the merchandise is to be marketed in accordance with the legal procedures for the system governing the product. Industrial companies may sell on the domestic market goods representing up to 20% of their export turnover at factory prices exclusive of taxes; the limit for agricultural, fisheries and agri-food enterprises is 30%.

Measures were again taken in 1997 to improve the organization of the Tunis Stock Exchange, or Bourse des Valeurs Mobilières de Tunis (BVMT) and to continue diversifying Exchange instruments. Incentives were also introduced to attract foreign investment.

The Financial Market Council adopted the general regulations to govern the BVMT,3 which include definition of:

the rules which apply to those involved in market management and to the Market Guarantee Fund;

the rules which apply to the organization and functioning of the market and to the suspension of negotiations;

the rules which apply to acceptance of securities for quotation and to the negotiation and delisting of securities;

the rules which apply to the conditions for declaring and executing projects to purchase controlling shares apd blocks of securities;

1 See law no. 97-24 of April 28, 1997, OfficiaI Gazette no. 35, May 2,1997. 2 See decree no. 97-308 of February 3, 1997, OfficiaI Gazette no. 13, February 14, 1997. 3 See departmental order of the Minister of Finance, February 13, 1997, OfficiaI Gazette no. 15, February 21, 1997. the cases of legal public issues and optional public issues, the conditions under which they are initiated, accepted, executed and paid for, the procedures to be followed, and the means for defence and guarantee.

This new regulatory framework has also introduced a significant change in the organization of the Exchange, instituting the principle of company ratings. This new approach will enable companies to present themselves on the bonds market without having to seek bank approval and will facilitate their rating by investors. This initiative led to the creation, early in 1997, of Tunisia's first rating agency, Maghreb Rating, a subsidiary of the Inter Arab Rating Company.

The regulations also provide for a mechanism of coverage for risks of default in payment or delivery of transactions, through the creation of the Market Guarantee Fund, an institution of last resort when ail other ways and means allowed by the prevailing Stock Exchange regulations have been exhausted. The resources of this fund comprise various contributions pa id by Stock Exchange traders, Le., a minimal initial contribution, a regular contribution which is proportional to the volume of transactions traded daily on the market, and an exceptional contribution in case of default or when the fund balance is insufficient to cover the full amount due.

As an element in improving management of the internai public debt, the state will, starting in June 1998, issue a new category of Treasury bond, "Bons du Trésor Assimilables" (lit., "bonds considered equivalent to Treasury bonds") (BTA). These will have a face value of TD1,000 and a minimum term of maturity of five years or a multiple of five years. They will be redeemable once, at maturity. The technique of comparability characterizing these bonds consists in attaching to a previous issue which has not matured a new issue to be effected under the same conditions as those of the initial issue. This will make it possible to avoid multiplying Iines of quotation and will facilitate the actions of professionals in market Iiquidity. BTA will be allocated exclusively to specialists in Treasury securities, on their own behalf or for their clients and traders on the Exchange. These SVT, chosen from among the traders on the Exchange, will be responsible for participating in BTA allocations and for guaranteeing their tradability and their liquidity, in accordance with specifications laid down by the Ministry of Finance.1

The authorities have adopted measures to enable the capital market to offer opportunities which will motivate foreign investors. Thus companies of ail categories may freely purchase securities and equity in companies set up in Tunisia, so long as the foreign-held shares do not exceed 50%.2 ln the following cases, such purchases may be made without approval from the Higher ~nvestment Commission even when foreign interest is greater than 50%:

when the purchase is made by a resident or non-resident foreign physical or legal entity or by a non-resident legal entity set up in Tunisia;

when the purchase is effected between foreign parties who are shareholders or partners in one and the same company;

1 See decree no. 97-2462 of December 22, 1997, OfficiaI Gazette no. 104, December 30-31, 1997. 2 See decree no. 97-385 of February 14,1997, OfficiaI Gazette no. 15. February 21,1997. when a resident ornon:.:Fèsldent· fêteigft"l'lalionalpurcnases shares assigned to guaranteeing the managerial activities carried out by the manager of a company set up in Tunisia. ln the case of Tunisian securities which confer votingrights, raquests for authorization must be presented to the Financial Market CouncU; approval must be obtained from the Central Bank of Tunisia in the case of equity in companies set up in Tunisia.11n addition, approval from the Higher Investment Commission is no longer required for activities of real estate promotion, computer services, studies, consulting, expertise and assistance, and other services, even when foreign ownership exceeds 50% of capital.2

1 See decree no. 97·1738 of September 3, 1997, Officiai Gfjzette no. 73, September 12, 1997. 2 See decree no. 97-503 of March 14, 1997, Officiai Gazette no. 24, March 25, 1997. Monetary policy during 1997 continued to strengthen the qualitative aspect of mechanisms already in place. The Central Bank of Tunisia strove to assure regulation of bank Iiquidity, and after discharging claims of the National Agriculture Bank (BNA) on the Cereals Board and the National Oil Board, intervened on the money market to drain off the resulting cash surplus.

Government discharge of the BNA claims on the Cereals and National Oil Boards on Oecember 31, 1996 improved the banks' cash situation. By injecting a total of sorne T0969 million in Iiquid assets, this operation substantially reduced Central Bank financing of deposit banks, which fell from T0653 million on Oecember 30, 1996 to T0154 million the following day.

This improvement in cash position was maintained in 1997 by certain autonomous factors of liquidity. Net foreign currency holdings showed an average increase of T0450 million, and the average balance of the banks' ordinary current account dropped by T085 million, influenced by discontinuance of the priority activities ratio on November 29, 1996. This trend would have been even stronger had it not been for restrictive factors attributable to increases in banknotes and coins in circulation (T0196 million) and in the average balance of the Treasury current account (T046 million).

One measure used by the Central Bank of Tunisia to regulate bank liquidity on the money market was a weekly negative cali for tenders and occasion al one-day daily transactions to tap cash. This absorbed liquid assets averaging T0242 million in 1997, compared with an average injection of T0996 million in 1996. Cyclic trends in the major factors of bank liquidity led it to vary strongly during the year.

(year-end fiqures in millions of dinars

End of period Dec. 1997 Variations 1996 Dec.96 Dec.97 Factor March June Sept. Dec. Dec.95 Dec.96

Banknotes and coins in circulation -1,561 -1 ,631 -1,648 -1,661 -1,676 -186 -115 Treasury current account balance -249 -184 -1 81 -586 -227 -116 +22 Net assets in foreign currency +1,892 +1,669 +1,677 +2,448 2,227 +367 +335 Legal reserve -543 - 5 0 -68 -1 1 7 -124 -437 +419 Other factors +307 +305 +256 +249 +155 f+1,013 -152 Total factors -154 +109 +36 +333 +355 +641 +509 Total assistance +154 -1 09 -36 -333 -355 - 641 -509 of which: BeT intervention on the money market 46 -204 -132 -426 -448 -634 -494

Improvement in the banks' cash position was moderate during the first seven months of the year. The expansive effect of the discharge was gradually dulled by a tightening in almost ail autonomous factors. Observations of month-to-month easing du ring this period were irregular, with a slight improvement during the first quarter, followed by a phase of relative decline which took the form of a tightening in April and July. Liquidity improved fram August until the end of the year, on the other hand, rising relatively high in November and December, partly due to an increase in net foreign currency holdings.

During January 1997, the banks' cash position, taken as an average, eased up somewhat fram that of the previous month as a result of an increase in the "Other factors" heading (TD895 million) and a drop in the balance of the Treasury current account (TD61 million), offset by the restrictive effects of the other factors of Iiquidity. The surplus cash situation in January continued through the following two months, although at slightly lower levels. Excluding "Other factors" and the balance of the Treasury current account, the remaining factors exercised a restrictive effect of varying magnitude. The Treasury current account balance, in particular, continued to drop, strongly reflecting the effects of payments for retirement of the foreign debt and operating expenses related to public services. It fell by TD114 million in March, generating a concomitant improvement in bank Iiquidity.

Net foreign currency holdings averaged TD1.695 billion during the third month of the year, bringing the banks' cash position down TD126 million from its December 1996 level, a development which can be attributed to increased foreign currency expenditures for retirement of the foreign debt and goods imports. This period was also characterized by an absence of drawdown on foreign loans.

The easing of liquidity was also attenuated by massive cash withdrawals by families, particularly in January and February to cover the expenses of the month-Iong Ramadan period and of Aïd el Fitr, the holiday with which it ends. These had a restrictive effect on bank cash of TD114 million in March 1997 compared with December 1996.

The convergence of restrictive effects was strengthened by developments in the banks' ordinary current account with the Central Bank. After rising by a substantial TD82 million in January following increased deposits at the end of the preceding year, the average balance of this account dropped during the following two months. ln going from TD87 million in December 1996 to TD92 million in March 1997, it exerted a restrictive effect of TD5 million. The trend towards diminution of bank cash continued in April, and there was a TD157 million tightening of the situation in that month compared with the previous one.

(daily averaÇjes in millions of dinars 1997 quarterly averages Variations Period 1996 1 Il III IV 1997 96/95 97196 Factor Banknotes and coins in circulation -1,441 -1,596 -1,632 -1,703 -1,616 -1,637 -147 -196 Treasury current account balance -1 93 -174 -187 -268 -328 -239 +6 -46 Net assets in foreign currency +1,422 +1,758 +1,659 +1,877 +2,195 +1,872 - 1 +450 Legal reserve and temporary deposits -209 -125 -1 15 -124 -132 -124 -1 6 +85 Other factors - 6 91 +206 +274 +255 +354 +273 +31 +964 Total factors -1,112 +69 - 1 +37 +473 +145 -127 +1,257 Total assistance +1,112 - 6 9 +1 -37 -473 -145 +127 -1,257 of which: BeT intervention on the money market 996 -173 - 95 -133 -566 -242 +167 -1,238 With the exception of the "Other factors" heading, which had an expansive effect of TD101 million, ail the autonomous factors contributed to this contraction, which was due in particular to a drop in net foreign currency holdings (-TD111 million), an increase in the Treasury current account balance (+ TD65 million), and a rise in household expenditures in April because of Aïd el Idha, one of the major religious festivals in the Muslim calendar.

The tightening observed in April proved transitory, and in May and June the banks' cash situation improved by TD131 million over the April figure, due primarily to an increase in net foreign currency holdings (+ TD184 million) and a decline in banknotes and coins in circulation (-TD46 million). This recovery was reversed in July, when bank cash tightened by TD135 million compared with the previous month, chiefly because of a renewed decline in net foreign currency holdings (- TD77 million), an acceleration in cash withdrawals (+ TD72 million), and an increase in the balance of bank ordinary current accounts with the Central Bank (+ TD20 million).

The cash situation improved once again in August, by TD87 million, and easing of treasury was more sustained than it had been during the previous month, with cash in December exceeding the July figure by TD595 million. This development resulted chiefly from the expansive effects of increased net foreign currency holdings and a drop in banknotes and coins in circulation. Thus the banks' cash situation improved gradually through the last five months of 1997. Examination of the factors of Iiquidity shows that this period was marked by a rise in net foreign currency holdings, beginning with a TD167 million increase in August over July and continuing through the rest of the year. Total net holdings in foreign currency went, on average, from TD1.691 billion in July to TD2.271 billion in December, the highest average for the year. The resulting TD580-million increase reflected the proceeds of the Samuraï VI bond issue on the Japanese domestic market for TD122 million, calculated at the accounting reference rate, and the Yankee 1 bond issue on the domestic U.S. market for TD452.5 million, joined by current foreign currency revenues from, among other things, tourism, exports and .labour income.

Increased banknotes and coins in circulation during this period also had an expansive effect averaging around TD69 million. After peaking in August at TD1. 741 billion following massive withdrawals for summer spending and to meet the expenses of the new school year, circulating banknotes and coins moved almost continuously downward, reaching TD1.613 billion in December.

The average expansive effect of these factors was attenuated by a tightening that accompanied the higher average balance of the Treasury current account. Monies collected as foreign loans and subscriptions to transferable and negotiable Treasury bonds in December, joined with higher tax revenue, strengthened the government's cash situation and more than covered the large payments to which it was committed, particularly for amortization of the debt and repayment of the first instalment of the firm claims that the Central Bank had purchased from the BNA.

Thus after reaching a high for the year, TD481 million, in October 1997, the Treasury current account balance descended to TD207 million in December, TD23 million more than the July level, generating an equivalent tightening in the banks' cash position.

The balance of the banks' ordinary current account with the Central Bank, at TD134 million in December 1997, had a restrictive effect of TD1 million in comparison with July. Given the trends that prevailed throughout the year, the issuing institution was obliged to intervenecontinually to regulatetiquidity. Thefinaooialpaokage absorbed in 1997 was, on average, TD242 million. Ad hocoperationstotap Iiquidity were effected through weekly negative caUs for tenders, complemented where necessary by individual operations. Actions to regulate bank liquidity were adjusted during the year as a function of the surplus existing on the wholesale market.

, .. (in millions of dinars 1997 End of period Dec. March June Sept. Dec. Item 1996 . Calls for tenders 40 -200 -180 -375 -390 Allowance uptake 1 0 0 0 0 Net tapping operations 5 -4 48 - 51 -58

Total 46 -204 -132 -426 -448

During the first seven months of the year, the amounts tapped were moderate, with an increase during the first quarter being distinctly attenuated during the other months. From August until the end of the year, the Centra~ Bank resumed tapping actions as a means of dealing with the improvement in banks' cash positions. From the beginning of the year until July, the amounts of negative calls for tenders fluctuated between TD13 and 299 million, but on an average, the volume absorbed descended from TD174 million du ring the first quarter to TD68 million for the following four months. The net amount of the individual tappings made during the first seven months of the year to absorb residual cash surpluses or satisfy the temporary cash needs of specifie banks involved net amounts averaging - TD4 million.

From August until the end of the year, and in correlation with improvement in the banks' cash situation, the Central Bank continued to carry out ad hoc tapping operations and published negative calls for tenders which, during the last five months of the year, absorbed an average of TD356 million. Individu al tapping operations during this period were effected only in August, October and December, to satisty the temporary needs of certain banks. The average monthly amount of such net operations peaked at TD84 million in November, bringing the average for the last five months of the year to TD61 million, compared with an average injection of TD7 million during the same period in 1996.

(in millions of dinars 1997 auarterlv avera es Period 1996 1 Il III IV 1997 Item

Cali for tenders 246 -174 -87 -102 -496 -215 Allowance uptake 742 0 0 1 0 0 Net tapping operations 8 1 -8 -32 - 70 -27

Total 996 -173 -95 -133 -566 -242 C. RESOURCESAND USESOF CAPITALBV DEPOSITBANKS, DEVELOPMENTBANKS,AND LEASINGAGENCIES

Tunisia's financial system was enhanced in 1997 by the appearance of a new deposit bank, the Tunisian Solidarity Bank (BTS), created to contribute to the promotion of micro- business. A second investment bank was also created in 1997, the Banque d'Affaires de Tunisie (BAT).

Ten new bank branches were opened in the country during 1997, six in the Greater Tunis region and the other four in the centre and the northwest, bringing the total number of bank branches to 770, or one per 12,004 inhabitants, compared with one per 11,968 in 1996.

1 . Deposit banks

The rate of increase rose for almost ail elements in deposit bank resources in 1997, particularly monetary and quasi-monetary resources, net worth and reserves. At the same time, uses of capital firmed up as a result of strong recovery in net claims on the state and a rising rate of increase of financing of the economy.

(in millions of dinars\ End of period 1 997 1996 Item March June Sept. Dec.

Financing of the economy 9,363 9,570 9,849 10,015 10,449 Claims on the State 287 311 313 197 675 Cash accounts 755 484 515 519 488 Other net line items -103 -432 -347 -370 -131 Total uses = Total resources 10,302 9,933 10,330 10,361 11,481 Monetary & quasi-monetary resources 7,588 7,441 7,640 7,927 9,002 Special resources 899 908 937 958 947 Reserves 886 908 972 1,005 1,040 Net worth 775 785 817 804 847 Bank refinancing 154 -109 -36 -333 -355

Deposit bank use of capital rose more rapidly in 1997 than during the previous year, as a result of increased financing of the economy and greater commitment to the government.

At the end of 1997 the banks had financed the economy for a total of TD10.449 billion, representing an 11.6% increase over 1996, when in turn the increase over 1995 had been 3.7%. These figures include both outstanding credits and securities holdings.

Total credits rose by 11.2%, against 3.8% in 1996. The acceleration was shown primarily by credits granted from ordinary resources, which amounted to TD9.094 billion in 1997, an 11.8% increase, compared with a 3.6% increase a year earlier. The rise in the discount portfolio was particularly strong, at 15.7%, with 92% of this increase occurring during the last two monthe of the year. (in millions of dinars' 1997 End of period 1996 March June Sept. Dec. Item

Credit from ordinary resources 8,131 8,312 8,540 8,698 9,094 Credit from special resources 873 882 925 930 921 Securities holdings 359 376 384 387 434

Total 9,363 9,570 9,849 10,015 10,449

Loans from special resources advanced in 1997 by 5.5%, nearly the same rate as in 1996, to total TD921 million. This development was favoured particularly by increased recourse to government monies, partially through financing provided by the Fund to Promote Housing for Wage-Earners (FOPROLOS) and by funding from the Special Fund for Agricultural Development (FOSDA).

The deposit banks' securities portfolio, at TD434 million in 1997, was up 20.9% from its 1996 level (compared with a 2.9% increase a year earlier), strengthened by new equity purchases and by the fact that some banks converted account overdrafts they had granted their subsidiaries into equity and current accounts.

Outstanding claims on the state, which had fallen TD48 million in 1996, were up TD388 million in 1997, essentially because of increased outstandings in bank subscriptions to Treasury bonds. Outstandings in national bonds and government borrowing were down TD17 million from 1996, a drop which corresponded ta repayment of matured securities.

Treasury bonds held by deposit banks, which are the main element in bank claims on the state, moved irregularly in 1997. Dropping from TD295 at the beginriing of the year, they reached their lowest level, TD135 million, during August, then moved up again to reach TD667 million at the end of 1997. 1 n December alone, their value rose by TD415 million because of large issues during the second half of the month which had not yet been distributed to the public.

3 ) Cash accounts

The total amount of deposit bank cash accounts at the end of 1997 was TD488 million, down 35.4% from the figure at the end of 1996, compared with a 63.1 % increase the previous year. The decline was due to a drop in ordinary current accounts opened at the Central Bank, which had risen sharply late in 1996 following liquidation of bank claims on the National Oil Board and the Cereals Board on December 31, and which returned to their normal level in 1997. (in millions of dinars 1997 End of period 1996 March June Sept. Dec. Item

Cash 98 97 100 96 92 Ordinary current accounts 563 39 65 98 117 Postal current account deposits 4 7 8 13 7 Foreign currency accounts 112 143 130 153 173 Minus: Other BCT financing 32 40 27 26 39 Net banking correspondents -40 9 43 - 43 85 Head offices, branches 50 229 196 228 53

Total 755 484 515 519 488

Deposit bank resources totalled TD11.5 billion at the end of 1997, representing an 11.4% increase over 1996, when in turn they had risen 5.8% over the preceding year.

This category, by far the largest among resources, involved a total of TD9.002 billion at the end of 1997, an 18.6% increase over its level at the end of 1996, against a 14% increase in that year. This upswing occurred in both monetary and quasi-monetary resources, the former increasing between 1996 and 1997 from TD2.738 billion to TD4.85 billion and the latter from TD3.19 billion to TD5.812 billion?

(in millions of dinars 1997 End of period 1996 March June Sept. Dec. Item

Monetary resources 2,738 2,615 2,609 2,769 3,190 Residents' sight deposits 2,270 2,150 2,114 2,278 2,709 Non-residents' sight deposits 468 465 495 491 481 Quasi-monetary resources 4,850 4,826 5,031 5,158 5,812 of which: Residents' forward deposits 983 968 1,070 1,122 1,515 Residents' savings accounts 2,721 2,780 2,832 2,893 3,078 Residents' housing savings accounts 395 418 433 451 471 Residents' certificates of deposit 122 46 56 36 121 Bonds & loans redeemable beyond 1 year (residents) 143 136 133 129 121

Total 7,588 7,441 7,640 7,927 9,002

With regard to monetàry resources, an advance in sight deposits by residents contrasted with a downswing in such deposits by non-residents. Outstandings of the first category rose from TD2.27 billion to TD2.709 billion in 1997, up 19.3% compared with a 12.9% increase in 1996; they moved irregularly during the year, and it was only between November and December that they marked a TD481 million rise. Sight deposits by non-residents rose by only 2.8% in 1997, against 9.1% the previous year, to reach TD481 million. Most of these deposits took the form of accounts in convertible dinars.

Deposits in quasi-money also firmed up in 1997, going from their 1996 figure of 15% to 19.8%, an advance which was achieved despite a fall in outstanding bond issues, which dropped back from TD143 million in 1996 to TD121 million in 1997. Other quasi-money resources showed accelerated increase during the same period. Time deposits fluctuated throughout the first seven months, then rose steadily to total TD1.515 billion at the end of the year, marking at that point a 54.1 % increase, compared with a 48.5% rise in 1996. More than one-quarter of the total increase in 1997 took place during December, and was accounted for especially by social welfare agencies, private companies, and to a lesser extent, individuals.

Housing savings outstandings totalled TD471 million at the end of 1997, representing a 19.2% increase compared with 15.2% the year before. This development was accounted for by TD28 million in capitalization of annual interest, and by the opening of new accounts. Savings deposits by residents continued to advance steadily, and at TD3.078 billion represented 53% of ail quasi-money deposits.

Special resources managed by deposit banks rose to TD947 million in 1997, an increase of 5.3% compared with a rise of 3.5% the previous year. This can be attributed to increased endowments from the budget for economic and social purposes, combined with increased mobilization of external resources from, among others, the World Bank, the French Development Fund, and the Company to Promote and Participate in Economic Cooperation (PROPARCO).

Increases in capital were effected in 1997 in connection with restructuring of the banking system and privatization of this sector, both by public savings cali and by incorporation of reserves. This resulted in paid-up capital of TD744 million. Reserves set aside in 1997 for the previous fiscal year were up TD32 million, after having dropped by TD2 million in 1996, a movement which was exhibited in particular by special and contingency reserves. Thus deposit bank equity totalled TD847 million, compared with TD775 million in 1996.

lin millions of dinars' 1997 End of period 1996 March June Sept. Dec. Item

Capital 1,022 1,026 1,068 ('1,059 1,111 of which: Paid-up capital 700 700 700 700 744 Reserves 187 191 232 224 219 Premium 119 119 119 119 133 Partners' current accounts 14 14 14 14 14 Fixed assets & net loss on depreciations 247 241 251 255 264 Buildings & furniture 387 392 408 416 435 Bad debts 13 13 13 13 13 Depreciation -153 -164 -170 -174 -184 Net worth 775 785 817 804 847 ln compliance with prudential standards, the banks continued to set aside reserves in 1997, although at a slower rate than during the previous year. Net reserves for 1997 totalled TD154 million, compared with TD139 million for 1995, bringing total outstandings for this heading to TD1.04 billion before allocation of the cash flow for fiscal 1997.

1,200 CReserves ElNet worth 1.000 Q ~-- "5 800 =~ 600 :S 400 'il '-' 200 0 1990 1991 1992 1993 1994 1995 1996 1997

The contribution of development banks to financing the economy followed approximately the same trend in 1997 as in the preceding year, despite a more sluggish increase in the overall resources of these banks-which indeed actually decreased in sorne cases, particularly that of money raised on the bond market. Confirmed recovery in investments was accompanied by a 1.5% increase in approvals for project financing, which had dropped by 8.2% in 1996.

(in millions of dinars' 1997 End of period 1996 March June Sept. Dec. Item

Financing .of the economy 2,412 2,474 2,561 2,614 2,621 Other net line items -188 -301 -396 -360 -370 Total uses = Total resources 2,224 2,173 2,165 2,254 2,251 Monetary resources 40 41 45 46 48 of which: non-residents' sight deposits 33 36 40 42 42 Borrowings 1,143 1,085 1,052 1,126 1,103 of which: internai loans 200 155 11 7 97 86 external loans 943 930 935 1,029 1,017 Reserves 298 305 309 314 320 Net worth (after subtr. fixed assets & bad debts) 665 668 702 711 737 Other resources 78 74 57 57 43 a Uses of capital

Outstandings under dEwelopment bank financing of the economy at the end of 1997 totalled TD2.621 billion, an 8.7% increase, (compared with 9.2% the preceding year) which touched ail sectors of activity. Loans from ordinary resources showed a 12.6% upswing in 1997, compared with 7.5% the year before, and represented 53.3% of the total credit package. There was a drop in outstandings under loans from special resources, most of which came from external loan funds. The TD1.063 billion total represented a 5.1 % rate of advance, compared with 11.6% in 1996.

Outstanding securities holdings reached TD343 million at the end of 1997, a TD21 million rise, compared with an increase of TD23 million in 1996. This slackened increase in securities holdings outstandings resulted from a deceleration in purchase of equity in 1997.

Cin millions of dinars 1997 End of period 1996 March June Sept. Dec. Item

Loans from ordinary resources 1,079 1,162 1,215 1,264 1,215 Loans from special resources 1,011 987 1,010 1,013 1,063 Securities holdings 322 325 336 337 343

Total 2,412 2,474 2,561 2,614 2,621

Growth in development bank slowed down in 1997, rising by 1.2%, against 6.3% in 1996. This strong decline was accounted for by borrowings, which showed a strong decline at the end of 1997 from their 1996 level, dropping from TD200 million to TD86 million because of the absence of new issuings. External borrowings, on the other hand, showed firmer growth, at a rate of 7.8% in 1997 compared with 7.2% in 1996. These included in particular the floating of a private euro-yen issue by the BNDT on the Japanese market for TD94 million. Similarly, monetary resources showed firmer growth, at 20% against 11.1 %, an acceleration which was due in particular to sigh deposits by non-residents (27.3%).

Net worth increased by 10.8% in 1997, compared with a 3.6% rise in 1996, under the combined effects of partial allocation of 1996 profits to contingency funds and release of the last payment of BTLD capital (TD46 million).

ln compliance with prudential standards, the development banks set aside total reserves of TD320 million, a figure TD22 million higher than the end-1996 level, which in turn was TD35 million above that of 1995.

Other development bank resources reflected the strong decrease in time deposits, which fell back from TD37 million in 1996 to only TD7 million in 1997, and lost TD35 million in 1997. The decline in time deposits resulted from the transformation of deposits made by the national social security fund and the Libyan Arab Foreign Bank in the Tunisian-Libyan Development Bank, the BTLD, into purchase of equity in that institution. (in millions of dinars 1997 End of period 1996 March June Sept. Dec. Item

Capital 693 695 729 738 764 of which: Paid-up capital 486 488 510 511 536 Reserves 202 202 213 222 223 Premiums 4 4 4 4 4 Fixed assets & net loss on depreciations 28 27 27 27 27 Buildings & furniture 43 43 43 43 44 Bad debts 2 2 2 3 3 Depreciation -17 -18 -18 -1 9 -20 Net worth (atter subtr. fixed assets & bad debts) 665 668 702 711 737

Leasing agency activity continued to advance in 1997, as can be seen from a steady rise in resources and uses of capital. This increase was, nonetheless, less rapid than that of the previous year, despite the fact that two new agencies began operations this year.1

(in millions of dinars 1997 End of period 1996 March June Sept. Dec. Heading

Financing of the economy 298 322 346 372 394 Claims on the State 9 1 1 1 5 4 Other net line items -96 -106 -105 -124 -145 Of which: Treasury -79 -79 -89 -99 -122 Total uses = Total resources 211 217 252 253 253 Loans resources 134 137 160 159 156 Domestic loans 107 106 130 128 126 External loans 27 31 30 31 30 Reserves 1 1 12 14 15 17 Equity not incl. fixed assets or bad debts 55 55 63 69 69 Other resources 1 1 13 15 10 1 1

Financing of the economy by leasing agencies totalled TD394 in 1997, an increase of 32.2%, compared with a 38% increase that year over 1995, a trend which on the whole reflects that of credit to the economy.Leasing outstandings increased between 1996 and 1997 by a factor of nearly three, to reach TD391.7 million. Leasing operations are the main component in credit to the economy, and in 1997 involved a total of some TD349 million, representing a 34.7% increase over their level at the end of 1996, when in turn they were 39.1 % up from 1995. ln terms of overall credit extended to the economy by the financial system, such operations accounted for 2.5% of such assistance in 1997, against 2% in 1996.

1 These two agencies are Modern Leasing, which opened in April, and Arab International Lease, which began work in September. (in millions of dinars 1997 End of period 1996 March June Sept. Dec. HeadinQ

Credits to the economy 288 310 334 360 383 of which: Leasing operations 259 276 297 322 349 Debit current accounts 6 10 10 11 9 Securities holdings 10 12 12 12 11

Total financing 298 322 346 372 394

Indicator 1993 1994 1995 1996 1997 A. GFCF (millions of TD)l 3,692 3,940 4,011 4,377 5,130 Variations (%) 7.8 6.7 1.8 9.1 17.2 B. Leased equipment (millions of TD) 56 94 129 173 223 Variations (%) 47.4 67.9 37.2 34.1 28.9 C. Rate of penetration (B/A) (%) 1.5 2.4 3.2 4.0 4.3

The securities portfolio held by leasing agencies is relatively slight and advanced liUle in 1997, reaching a value of TD11 million, compared with TD10 million the previous year. Leasing assets of ail leasing agencies totalled TD223 million in 1997, marking a 28.9% increase over 1996, against a 34.1 % rise that year. This development was favoured by the progression of real estate leasing, which was created by law no. 94-89 and outstandings for which went from TD8 million in 1995 to TD27 million in 1997. The rate of penetration, measured by the ratio of leasing assets to gross fixed capital formation, has been improving steadily, and went from 4% in 1996 to 4.3% in 1997. ln 1993, the rate was 1.5%. Leasing assets were used primarily to finance projects in the services sector, which accounted for 52.9% of such financing in 1997 against 42.8% in 1996.

Variations 1996 1997 in % Sector ln millions in % of ln millions in % of 1997/96 of TD total of TD total Agriculture 3 1.7 8 3.6 166.7 Industry 38 22.0 43 19.3 13.2 Building & public works 35 20.2 36 16.1 2.9 Tourism 23 13.3 18 8.1 -21.7 Other 74 42.8 118 52.9 59.5

Total 173 100.0 223 100.0 28.9 Borrowed resources represented approximately 61.7% of total resources in 1997, for a total of TD156 million, an increase of 16.4% compared with a rise of 83.6% the previous year. This development reflects primarily the trend in internai borrowed resources, for which outstandings went from TD17 million in 1996 to TD126 million in 1997. Resources from external borrowings totalled TD30 million in 1997, an increase of TD3 million compared with a rise of TD7 million a year before.

With the inception of two new leasing agencies, the total of net worth, fixed assets and provisions for possible deficits for such agencies as a group was TD69 million in 1997, against TD55 million the previous year. Provisions went from TD11 million in 1996 to TD17 million in 1997.

Deposit bank activity in 1997 generated turnover of TD1.1047 billion, down 5.3% from 1996, against a 14.8% increase in that year over 1995. The main reason for this drop was a decline in interest payments received on loans and cash transactions; after rising by 16.8% in 1996, these fell 13.2% to TD739.7 million following a 2 percentage-point reduction in the money market interest rate. The TD98.2-million (12.6%) decline in proceeds from interest on credit affected the average yield of this heading, which fell from 9.2% in 1996 to 7.8% in 1997.

Parallel to the drop in interest on credit, financial expenses fell 26.4% to TD373.8 million, following bank disengagement from the money market made possible by an easing of the cash position that prevailed throughout the year. The greater reduction in financial charges than in interest collected on credit and cash transactions improved the deposit banks interest margin, which at TD365.9 million was up 6.2% from 1996.

Commissions collected on bank transactions increased by 17%, compared with a 7.9% rise the year before, to reach TD170.3 million. This improvement was due especially to commissions on treasury bills and on foreign trade and exchange transactions, and brought the share occupied by ail these commissions together in turnover from 12.5% in 1996 to 15.4% in 1997.

(in millions of dinars unless otherwise indicated Variations 1997/96 Heading 1996 1997 ln millions ln % of TD (+) Interest on loans & cash transactions 852.3 739.7 -112.6 -13.2 (-) Interest charges 507.7 373.8 -133.9 -26.4 = Interest margin 344.6 365.9 21.3 6.2 (+) Commissions/banking transactions 145.5 170.3 24.8 17.0 (+) Earnings on securities holdings 60.3 79.1 18.8 31.2 (+) Net earnings on exchange transactions 9.7 16.7 7.0 72.2 = Net banking proceeds 560.1 632.0 71.9 12.8 Income from securities holdings was up 31.2% in 1997 at TD79.1 million, reflecting the banks' efforts with r~spect to taking up Treasury bonds. The increase in securities holdings commissions and revenue, joined to the improved bank margin of interest, contributed to increase net banking proceeds from their 1996 figure of TD560.1 million to TD632 million in 1997. Their share in turnover rose perceptibly to 57.2%, against 48% in 1996 and 1995.

Operating expenses rose relatively moderately compared with the previous year, showing containment of expansion in both the wage bill and general operating expenses. The former increased by TD13.7 million in 1997 and the latter by TD2.1 million, compared with respective rises of TD24.6 million and TD8.7 million in 1996, despite an increase in the number of bank employees, which went from 15,603 to 15,950. As a result, the weight of operating expenses in net bank proceeds fell from 52.8% in 1996 to 49.3% in 1997, reflecting a distinct improvement in overall bank productiveness. This improvement can be seen in the increased net bank proceeds per employee, which went from TD32,000 in 1995 to TD35,900 in 1996 and reached TD39,600 in 1997.

Gross operating income increased less sharply in 1997 than in 1996, and totalled TD289.7 million in 1997 compared with TD260.3 million the year before. Its share in turnover is rising consistently, and reached 26.2% in 1997 against 22.3% in 1996. Net reserves concerned an endowment of TD104 million, and remained at the previous year's level. Net deposit bank profits totalled TD131.2 million in 1997 against TD126.4 million in 1996, revealing a net return on capital of 11.8%. An examination of the financial situation of deposit banks shows that in 1997 they pursued the effort to strengthen capital, increasing it by TD123 million to a total of TD1.1972 billion compared with TD1.0742 billion at the end of 1996. Concurrently with this, the banks continued improving the prudent management of their assets in order to lessen their risks of loss, at the same time making greater efforts to cover risks, as is shown by the development of outstanding agio reserves and allowances, which rose from TD1.4858 billion in 1996 to TD1.6156 billion in 1997.

(in millions of dinars unless otherwise indicated) Variations 1997/96 Heading 1996 1997 ln millions ln % of TD

Net banking proceeds 560.1 632.0 71.9 12.8 (-) Operating expenses 295.5 311.3 15.8 5.3 Wage bill 207.3 221.0 13.7 6.6 General operating expenses 88.2 90.3 2.1 2.4 (+) Gains on share transfer 24.4 0.7 -23.7 -97.1 (-) Endowments for amortization 28.7 31.7 3.0 10.5 = Gross operating income 260.3 289.7 29.4 11.3 (-) Reserves net of cash recoveries 103.7 103.9 0.2 0.2 (-) Claims written off 16.1 16.6 0.5 3.1 (+) Other proceeds 34.2 31.4 -2.8 -8.2 (-) Other expenses 14.4 26.4 12.0 83.3 (-) Taxes 33.9 43.0 9.1 26.8 = Net fiscal year income 126.4 131.2 4.8 3.8 2. Development banks

The activity of development banks during 1997 showed operating turnover of TD170.1 million, compared with TD192.9 million in 1996. This was accounted for in part by interest on credit, which totalled only TD146.4 million in 1997, compared with TD160.5 million a year earlier, reflecting the combined effects of a 2 percentage-point reduction in exit rates. from these banks in November 1996, and of slackening activity due to competition from co.mmercial banks.

(in millions of dinars unless otherwise indicated\ Variations 1997/96 Heading 1996 1997 ln millions ln % of TD (+) Interest on loans & cash transactions 168.9 151.7 -17.2 -10.2 Of which: interest on credit 160.5 146.4 -1 4. 1 -8.8 (-) Interest on deposits and borrowings 118.4 101.0 -17.4 -14.7 = Interest margin 50.5 50.7 0.2 0.4 (+) Commissions/banking transactions 6.7 6.1 -0.6 -9. a (+) Portfolio earnings net of lasses 17.3 12.3 -5.0 -28.9 = Net banking proceeds 74.5 69.1 -5.4 -7.2

The proceeds from investments by development banks as a group tell trom TD8.4 million in 1996 to TD5.3 million in 1997 due to the lowering of the money market rate and a decline in the volume of development bank investments on that market, which averaged TD26.5 million in 1997 against TD58.6 million a year earlier.

Interest on borrowings and deposits also fell, declining by TD17.4 million or 14.7% to total TD101 million in 1997, against TD118.4 million in 1996, more than offsetting the decline in interest collected on credit. Thus the interest margin remained very close to its 1996 level, TD50.7 million. Revenue from portfolio securities also dropped, falling to TD12.3 million in 1997 from its 1996 level of TD17.3 million, partly due to the fact that capital gains realized by certain banks on share sales were lower than they had been in 1996. As a result, net bank proceeds dropped TD5.4 million to total TD69.1 million, compared with TD74.5 million the year before.

Operating expenses reached TD21.8 million, TD15.3 million (70.2%) of which was accounted for by the wage bill, rising at a slower rate of 6.3% compared with 7.9% in 1996. Gross operating income was down 13.4% or TD6.8 million, falling from the 1996 figure of TD50.8 million to TD44 million. Net reserves set aside represented 43.6% of gross operating income in 1997, or TD19.2 million. Net profits of development banks as a group remâined at their level of the pervious year, TD29 million.

An examination of the development bank financial situation shows that they are in compliance with prudential standards with respect to equity and to efforts they have been making since 1992 to set up reserves. lin millions of dinars unless otherwise indicated Variations 1997/96 Heading 1996 1997 ln millions In% of TD

Net banking proceeds 74.5 69.1 -5.4 -7.2 (-) Operating expenses 20.5 21.8 1.3 6.3 Personnel expenses 14.2 15.3 1.1 7.7 General operating expenses 6.3 6.5 0.2 3.2 (-) Reserves for amortizations 3.2 3.3 0.1 3.1 = Gross operating income 50.8 44.0 -6.8 -13.4 (-) Reserves net of cash recoveries 25.5 19.2 -6.3 -24.7 (-) Miscellaneous expenses 4.7 3.5 -1.2 -25.5 (+) Miscellaneous proceeds 9.9 8.4 -1.5 -15.2 (-) Income taxes 1.4 0.7 -0.7 -50.0 = Net fiscal year income 29.1 29.0 -0.1 -0.3

The leasing sector comprised eight agencies at the end of 1997, following the entry into activity of two new companies, Modern Leasing and Arab International Lease. This sector continues to make a growing contribution to financing of the economy, as can be seen from the leasing penetration rate, which has gone from 3.1% in 1995 to 4.3% in 1997. Leasing agency activity in 1997 generated turnover of T0177.7 million, marking a T044.3-million or 33.2% increase that is attributable to higher rent on leasing transactions, which totalled T0176.2 million in 1997, against T0132.3 million in 1996.

lin millions of dinars unless otherwise indicated Variations 1997/96 Heading 1996 1997 ln millions ln % of TD

(+) Proceeds on leasing operations 132.3 176.2 43.9 33.2 (-) Financial amortization 91.7 123.4 31.7 34.6 = Gross operating income 40.6 52.8 12.2 30.0 (-) Inte. charges + charges on borrowings 21.5 26.2 4.7 21.9 = Interest margin 19.1 26.6 7.5 39.3 (+) Portfolio earnings 1.0 1.3 0.3 30.0 (+) Other operating proceeds 0.1 0.2 0.1 100.0 = Net margin 20.2 28.1 7.9 39.1

Considering the expenses of leased equipment depreciation, which totalled T0123.4 million in 1997, the gross margin was T052.8 million, marking an advance of T012.2 million or 30% over its level at the end of 1996. ln correlation with increased borrowings that were mobilized, interest charges increased by T04.7 million or 21.9% to reach a total of T026.2 million in 1997, providing a net margin of T028.1 million, up T07.9 million or 39.1% from 1996. Operating expenses were T06.6 million in 1997, an increase of T02.1 million, 53% of which is attributable to personnel expenses for a total of 171 staff, including 100 managerial staff. Net reserves increased in 1997, with a net reserves allowance of T05.7 million by leasing agencies, against T04.4 million in 1996, bringing reserve outstandings to To17.3 million. Net profits for 1997 totalled TD12 million, giving an average return on capital of 16.3%, against 14.9% in 1996. A study of the financial situation of leasing agencies shows that they are in compliance with prudential standards and that there is appropriate coverage of their risks.

(in millions of dinars unless otherwise indicated Variations 1997/96 Heading 1996 1997 ln millions ln % of TD

Net margin 20.2 28.1 7.9 39.1 (-) Operating expenses 4.5 6.6 2.1 46.7 Wage bill 2.4 3.5 1. 1 45.8 General operating expenses 2.1 3.1 1.0 47.6 (- ) Reservers for amortizations 0.6 1.0 0.4 66.7 = Gross operating income 15.1 20.5 5.4 35.8 (-) Reserves net of cash recoveries 4.4 5.7 1.3 29.5 (-) Miscellaneous expenses 0.3 0.4 0.1 33.3 (+) Miscellaneous proceeds 0.4 0.4 0.0 0.0 (-) Taxes on profits 2.2 2.8 0.6 27.3 = Net fiscal year income 8.6 12.0 3.4 39.5

Resources mobilized by offshore banks in 1997 advanced by 7.5% in 1997, a slower rate than the 11.7% registered in 1996. They totalled US$1.2308 billion, 53.6% of which consisted of bank resources and 21.6% of customer deposits. The cause of this slackening lies in bank resources, which rose by only 6.4%, against 15% in 1996, to total $660.1 million, following a $36.5-million, or 21%, increase in loans taken from banks set up in Tunisia, compared with a drop of $12.6 million or 6.8% the year before.

Customer deposits totalled $265.7 million, up 11.9%, compared with a 5.2% rise in 1996. Of this increase, 13.4% is attributable to deposits by non-residents, although there was only a slight increase of 6.9% in residents' deposits. Offshore bank equity increased by $11.5 million between December 1996 and December 1997, primarily due to drawdown of a $6.2-million tranche of capital.

ln correlation with trends manifested by resources, 60% of offshore bank use of capital consisted of investment in banks, for a total of $741.5 million at the end of 1997, an increase of 22.7%, compared with 28.6% in 1996, 80.5% of which is attributable to banks established abroad. The share occupied by Tunis banks in the investments made by offshore banks was .only 42.1 %, compared with 47.2% in 1996, for funds collected on the same market which totalled $210.1 million in 1997.

Intervention of offshore banks in financing continues to decline, on the other hand, having dropped from $450.8 million in 1995 to $434.8 million in 1996 then to $403.5 million in 1997. Loans to non-residents, which represented 32.8% of these interventions, rose slightly over their 1996 figure following $1.7 million in new equity purchase. (in millions of US$ unless otherwise indicated)1 Variations 1997/96 Source 1996 1997 ln millions ln % of US$

Ordinary accounts 16.2 16.5 0.3 1.9 Bank investments 620.5 660.1 39.6 6.4 Banks set up in Tunisia 173.6 210.1 36.5 21.0 Banks set up abroad 446.9 450.0 3.1 0.7 Clients' deposits 237.4 265.7 28.3 11.9 Resident 54.9 58.7 3.8 6.9 Non-resident 182.5 207.0 24.5 13.4 Capital 172.3 183.8 11.5 6.7 Reserves 43.7 49.0 5.3 12.1 Other resources 55.1 55.7 0.6 1.1 Total 1,145.2 1,230.8 85.6 7.5

(in millions of US$ unless otherwise indicated Variations 1997/96 Use 1996 1997 ln millions ln % of US$

Cash holdings and ordinary accounts 59.6 37.9 -21.7 -36.4 Bank investments 604.2 741.5 137.3 22.7 Banks set up in Tunisia 285.1 311.9 26.8 9.4 Banks set up abroad 319.1 429.6 110.5 34.6 Loans granted 407.8 374.0 -33.8 -8.3 To residents 279.5 246.0 -33.5 -12.0 To non-residents 128.3 128.0 -0.3 -0.2 Shareholding 27.0 29.5 2.5 9.3 ln resident companies 12.8 13.6 0.8 6.3 ln non-resident companies 14.2 15.9 1.7 12.0 Other uses 46.6 47.9 1.3 2.8 Total 1,145.2 1,230.8 85.6 7.5

The contribution of offshore banks to financing the Tunisian economy totalled $259.6 million in 1997, compared with $292.3 million in 1996, down 11.2% because of a selective loan policy adopted by some banks. Concurrently with this, offshore bank operation showed turnover of $84.6 million in 1997, compared with $79.8 million in 1996, an increase of $4.8 million or 6%. This advance resulted from increased proceeds of cash transactions (+$3.1 million) and to a lesser extent from commissions on bank transactions (+$1.6 million).

The interest margin advanced by 11.3% to total $18.7 million. Joined with a slower $1.2- million, or 3.1 %, increase in interest payments, the increased interest margin made it possible to achieve net bank proceeds of $42.5 million, against $38 million in 1996, an advance of $4.5 million or 11.8%.

1 End of period US$ average rate: December 1996: $1 ~ TDO.9971 ; December 1997: $1 ~ TD1.1443 . lin millions of dinars unless otherwise indicated\ Variations 1997/96 Heading 1996 1997 ln millions ln % of TD

(+) Interest on credit & cash transactions 55.8 58.9 3.1 5.6 (-) Interest on cash transactions & clients' deposits 39.0 40.2 1.2 3.1 = Interest margin 16.8 18.7 1.9 11.3 (+) Commissions 11.9 13.5 1.6 13.4 (+) Portfolio earnings 0.4 0.5 0.1 25.0 (+) Credit balance/losses on foreign exchange transactions 8.9 9.8 0.9 10.1 = Net banking proceeds 38.0 42.5 4.5 11.8

At $14 million in 1997, operating expenses were down 3.4%, mainly because of a policy of expense reduction applied by certain banks for the second consecutive year. Thus productivity, measured by the ratio of operating expenses to net bank proceeds, showed significant improvement in 1997, going from 38.2% to 32.8% and giving gross operating results of $27.7 million in 1997, an increase of $5.6 million or 25.3% in comparison with 1996.

Net reserves set aside for contingencies were $9.3 million, or 33.6% of gross operating income, compared with $10.8 million or 48.9% in 1996, and resulting from collection efforts on the part of certain banks. The year 1997 showed net income of $17.7 million, against $13.6 million in 1996, giving a 9.6% rate of return on capital, against a rate of 7.9% in 1996. A study of the financial situation of offshore banks shows that they are in compliance with prudential standards and that there is appropriate coverage of their risks.

(in millions of US$ unless otherwise indicated Variations 1997/96 Heading 1996 1997 ln millions ln % of US$

Net banking proceeds 38.0 42.5 4.5 11.8 (-) Operating expenses 14.5 14.0 -0.5 -3.4 Wage bill 7.9 7.7 -0.2 -2.5 General operating expenses 6.6 6.3 -0.3 -4.5 (+) Gains from share transfer 0.0 0.8 0.8 100.0 (-) Reserves for amortization 1.4 1.6 0.2 14.3 = Gross oPerating income 22.1 27.7 5.6 25.3 (-) Reserves net of cash recoveries 10.8 9.3 -1 .5 -13.9 (-) Claims written off 0.0 0.7 0.7 100.0 (+) Other proceeds 2.7 0.6 -2. 1 -77.8 (-) Other expenses 0.1 0.3 0.2 200.0 (-) Taxes on profits 0.3 0.3 0.0 0.0 = Net fiscal year income 13.6 17.7 4.1 30.1 Continuing vigorous economic growth meant the continued necessity of bank financing, which developed in accordance with the objective that had been set, and this trend made it possible to keep the increase in the monetary aggregate, in the broad M4 sense, at a level below that of GDP in current terms. ln addition, due to strong advances of the external sector and net claims on the state, monetary and quasi-monetary resources of the financial system1 continued to move upwards.

End of period ln millions of dinars Variations in %

Heading 1995 1996 1997 96/95 97/96

M4AGGREGATE 11,056 12,505 13,576 13.1 8.6 Money supply, broad sense (M3) 8,448 9,618 10,981 13.8 14.2 Money supply, strict sense (M2) 7,696 8,764 10,162 13.9 16.0 Money (Ml) 3,519 3,981 4,474 13.1 12.4 Currency in circulation 1,314 1,472 1,594 12.0 8.3 Bank money 2,205 2,509 2,880 13.8 14.8 Quasi-money 4,177 4,783 5,688 14.5 18.9 M3 - M2 752 854 819 13.6 -4.1 M4-M3 2,608 2,887 2,595 10.7 -10.1 OTI-ERRESOURCES 4,864 5,512 6,188 13.3 12.3 TOTALRESOURCES=TOTALCOUNTERPARTS 15,920 18,017 19,760 13.2 9.7 FOREIGNSECTQR2 854 1,137 1,537 283 400 OOMESTICLOANS 15,066 16,880 18,223 12.0 8.0 Net claims on the State2 3,163 3,527 3,702 364 175 Financing of the economy 11,903 13,353 14,521 12.2 8.7 Loans to the economy 11,333 12,751 13,831 12.5 8.5 Securities holdings 570 602 690 5.6 14.6

Heading M4 (monthly (Dl Inflation rate Cash ratio average) (current priees) (base 100 in (M4/GDP) End of period in millions of TD in millions of TD 1990) in % in %

1993 8,603 14,663 4.0 58.7 1994 9,524 15,814 4.7 60.2 1995 10,325 17,027 6.3 60.6 1996 11,557 19,070 3.7 60.6 1997 12,984 21,016 3.7 61.8

1 The "financial system", in this chapter, includes the Central Bank, the deposit banks, postal current accounts. development banks, leasing agencies, and the Tunisian National Savings Fund. 2 For the se aggregates, variations are expressed in millions of dinars. The M4 aggregate, which includes ail monetary assets, advanced by 8.6% in 1997 for a GOP growth rate of 10.2% at current prices, compared with respective figures of 13.1 % and 12% in 1996. The modest level of this increase resulted from a drop in market instruments. The rate of Iiquidity in the economy, on the other hand, measured by the ratio of the M4 aggregate to GOP, increased slightly from 60.6% in 1996 to 61.8% in 1997. This increase in liquidity was due far more to quasi-money investments than to available monies, a trend which is explained principally by the continued attractiveness of quasi-money deposits to savers.

TRENDS lN INFLATION RATE, AND lN M4 AND GDP GROWTH RATES lN CURRENT PRICES

18 16 14 .- 12 ~Q 10 .5 GDP -- 8 - - ...... 6 .. .•...... Inflation 4 ------2 1990 1991 1992 1993 1994 1995 1996 1997

The M2 money supply totalled T01 0.162 billion at the end of 1997, an increase of 16% over 1996, compared with a 13.9% increase in that year. There was a slackening in fiduciary issue, reflecting the trend in bank money and, particularly, quasi-money.

At T01.594 billion in 1997, fiduciary money had risen 8.3%, compared with a 12% increase in 1996. After varying throughout the first five months of the year, it moved steadily upward from June through August, and it was during this period that it reached its maximum for the year, T01.653 billion, coinciding with the summer high season. Following a drop bet~een September and November, this upward trend reappeared in Oecember, when heavy end-of-year expenditures joined expenses in preparation for the month of Ramadan to give rise to increased withdrawals of cash. ln 1997, fiduciary money represented 15.7% of the M2 money supply, 'compared with 16.8% the previous year.

Bank money rose from its Oecember 1996 level of T02.509 billion by 14.8%, against a 13.8% rise the previous year. This sustained increase reflects a rise in sight deposits in banks. It would have been even sharper had there not been a drop in sight deposits at the postal chequing centre. The rate of advance shown from one year to the next by the first category of deposits went from 12.9% to 19.3%. Between November and Oecember, these deposits went up T0481 million, largely because of reimbursement of mature Treasury bonds and window dressing transactions. of wh i c h: Heading Sight deposits in Sight deposits Bank money postal current at banks accounts Amount Amount Amount Variation Variation Variation End of period millions millions millions in %1 in %1 in %1 of TD of TD of TD

1995 2,205 9.7 2,016 6.9 184 50.8 1996 March 2,002 -9.2 1,794 -11 .0 205 11.4 June 2,068 -6.2 1,866 -7.4 200 8.7 September 2,103 -4.6 1,972 -2.2 127 -31.0 December 2,509 13.8 2,276 12.9 230 25.0 1997 March 2,411 -3.9 2,155 -5.3 254 10.4 June 2,340 -6.7 2,119 -6.9 218 -5.2 September 2,448 -2.4 2,282 0.3 163 -29.1 December 2,880 14.8 2,715 19.3 162 -29.6

There was a more marked acceleration in quasi-money, which advanced by 18.9% compared with 14.5% the year before, going from TD4.783 billion to TD5.688 billion. This improvement continues to be attributable to most components of the heading. Time deposits rose steadily through 1997, especially during the last quarter, when growth amounted to TD380 million out of a total of TD509 million. The overall increase at the end of December was TD1.517 billion, representing 50.5% compared with 48.5% in 1996.

o f wh i ch: Heading Quasi-money Forward deposits Certificates of Savings deposits deoosit Amount Amount Amount Amount Variation Variation Variation Variation End of period millions millions millions millions in %1 in %1 in %1 in %1 of TD of TD of TD of TD

1995 4,177 4.7 679 7.3 83 27.7 2,971 2.1

1996 March 4,188 0.3 715 5.3 89 7.2 2,987 0.5 June 4,219 1.0 741 9.1 87 4.8 2,999 0.9 Sept. 4,330 3.7 848 24.9 95 14.5 3,030 2.0 Dec. 4,783 14.5 1,008 48.5 122 47.0 3,276 10.3

1997 March 4,760 -0.5 994 -1 .4 46 -62.3 3,340 2.0 June 4,952 3.5 1,084 7.5 56 -54.1 3,400 3.8 Sept. 5,041 5.4 1,137 12.8 37 -69.7 3,455 5.5 Dec. 5,688 18.9 1,517 50.5 123 0.8 3,678 12.3

Outstandings for certificates of deposit remained low, at TD123 million in 1997 compared with TD122 million in 1996, figures which represent rises of 0.8% and 47% respectively. On the whole, they moved downward except during the last three months of the year. Taken as a whole, savings deposits, which constitute approximately 65% of quasi-money, increased by 12.3%, compared with 10.3% the year before. This acceleration concerned only deposits in special savings accounts (12.5% against 9.8%), bringing outstandings here in December 1997 to TD2.973 billion. The growth which was registered starting in February, and particularly during December, resulted from the lack of recovery in Stock Exchange activity and from capitalization of interest.

There was a slackening in the rate of increase of outstandings for savings with the Tunisian National Savings Fund (CENT), which dropped from 9.9% in 1996 to 8.9% in 1997. Deposits in other savings accounts, while remaining slight, nonetheless continued to increase, marking growth of 36.2% in 1997 against 45% in 1996.

Special savings Postal savings Other savings Heading accounts accounts accounts End of period Amount Amount Amount Variation Variation Variation millions millions millions in %1 in %1 in %1 of TD of TD of TD

1995 2,408 0.9 523 8.5 40 -4.8 1996 March 2,414 0.2 529 1.1 44 10.0 June 2,421 0.5 532 1.7 46 15.0 September 2,455 2.0 531 1.5 44 10.0 December 2,643 9.8 575 9.9 58 45.0 1997 March 2,691 1.8 589 2.4 60 3.4 June 2,740 3.7 595 3.5 65 12.1 September 2,798 5.9 588 2.3 69 19.0 December 2,973 12.5 626 8.9 79 36.2

ln correlation with the shrinking of new offerings, bond issue outstandings fell back, causing a 4.1% drop in the "M3-M2" aggregate, compared with a 13.6% advance in 1996. This development contrasts with the considerable strengthening of housing savings, which advanced by 19.2%, compared with 15.2% in 1996. Bonds & loans Business & Heading M3 - M2 Housing savings redeemable investment bevond one vear accounts Amount Amount Amount Amount Variation Variation Variation Variation End of period millions millions millions millions in %1 in %1 in %1 in %1 of TD of TD of TD of TD

1995 752 7.0 343 8.9 391 4.0 18 50.0 1996 March 759 0.9 358 4.4 382 -2.3 19 5.6 June 803 6.8 371 8.2 414 5.9 18 0.0 Sept. 832 10.6 381 11. 1 432 10.5 19 5.6 Dec. 854 13.6 395 15.2 439 12.3 20 11 . 1 1997 March 832 -2.6 418 5.8 386 -12.1 28 40.0 June 828 -3.0 433 9.6 368 -16.2 27 35.0 Sept. 819 -4.1 451 14.2 342 -22.1 26 30.0 Dec. 819 -4.1 471 19.2 321 -26.9 27 35.0

The "M4-M3" aggregate also declined 10.1%, after increasing by 10.7% the previous year. This trend resulted from decreased government securities outstandings with the public, combined with shrinking inter-business financing. Outstanding public applications for Treasury bonds began moving down in September and ended the year at TD2.054 billion, a decline of TD159 million compared with a TD473 million advance in 1996. During the same period, privately-owned development bond outstandings fell from TD28 million to TD12 million; issuing of these bonds stopped in 1991. The same downward trend was observable in treasury bill outstandings, which totalled TD529 million in December 1997, a drop of TD256 million from the previous month's level and of TD102 million from their December 1996 figure.

lin millions of dinars

End of period Year Variations

Heading 1995 1996 1997 1996/95 1997/96

Development bonds 71 28 12 -43 -1 6 Treasury bonds 1,740 2,213 2,054 473 -159 Government loan 36 15 0 - 21 -1 5 Treasury bills 761 631 529 -130 -102

Total financing 2,608 2,887 2,595 279 -292 Net claims on foreign sources rose in 1997 for the second consecutive year, having increased from TD854 million in 1995 to TD1.137 billion in 1996 and to TD1.537 billion in 1997. Analysis of this variable shows that it followed three different trends in 1997. Throughout the first half of the year, except in May, net claims on foreign sources fell steadily, as foreign currency expenditures were only partially offset by income du ring that period. From July to September the trend was reversed, in correlation with increased tourist revenues and an upswing in foreign currency transfers from Tunisians residing abroad.

(in millions of dinars

Heading International reserves Other External liabilities Net claims abroad of which: foreign foreign of which: Total End of period Total currencv assets assets deposits Amount Var.1 Amount Var.1 by non- residents

1995 1,541 1,525 70 487 1,174 592 854 ·53 1996 March 1,236 1,204 -321 444 1,233 576 447 -407 June 1,390 1,379 -146 439 1,182 608 647 -207 Sept. 1,760 1,727 202 605 1,368 618 997 143 Dec. 1,918 1,892 367 632 1,413 663 1,137 283 1997 March 1,727 1,683 -209 661 1,451 654 937 -200 June 1,7 44 1,721 -1 71 599 1,503 680 840 -297 Sept. 2,493 2,472 580 709 1,537 693 1,665 528 Dec. 2,282 2,253 361 792 1,537 701 1,537 400

NET FOREIGN CURRENCY HOLDINGS EXPRESSED lN DAYS OF IMPORTS ln addition, Central Bank mobilization, on behalf of the state, of two bond issues on the Japanese and American foreign financial markets (Samurai VI and Yankee 1) brought net claims on foreign sources to their highest level for the year in September, at TD1.665 billion. After that, they moved down again, ending the year at TD1.537 billion. Thus between 1996 and 1997 this heading showed an increase of TD400 million, compared with a TD283 million rise in 1996.

At TD18.2 billion, internai credits advanced by 8%, compared with 12% the year before, a slackening which characterized both net claims on the state and financing of the economy.

Net claims of the financial system on the state totalled TD3.702 billion, representing an increase of TD175 million over 1996, when they had risen TD364 million above their 1995 figure. This slackening resulted from a decline in the rate of increase of outstanding net Treasury bond subscriptions, which fell from TD477 million in 1996 to 244 million in 1997, while the amount held by the banks had, on the contrary, increased by TD403 million.

Treasury holdings at the Central Bank of Tunisia totalled TD227 million at the end of 1997, down T.[)22 million from the end of the previous year. This reflected the first payment of firm purchase of claims on the Cereals Board and the National Oil Board.

(in millions of dinars\ Heading Net claims on the of wh je h: State Treasury current Development Treasury bonds End of period account bonds Amount Var.1 Amount Var.1 Amount Var.1 Amount Var.1

1995 3,163 147 133 -60 129 -126 2,007 147 1996 March 3,464 301 118 -1 5 120 - 9 2,305 298 June 3,404 241 171 38 114 -1 5 2,334 327 September 3,303 140 303 170 104 -25 2,451 444 December 3,527 364 249 116 45 -84 2,484 477 1997 March 3,644 11 7 184 -65 45 0 2,538 54 June 3,786 259 181 -68 44 - 1 2,695 211 September 3,264 -263 586 337 40 -5 2,624 140 December 3,702 175 227 -22 20 -25 2,728 244 TREASURY BONDS (TRANSFERABLE AND NEGOTlABlE) BV TERM (outstanding amounts in thousands of dinars; WAR [weighted average interest ratel in %\ Heading 1993 1994 1995 1996 1997

13 weeks OuIsIanding 73,000 61,000 66,000 20,000 0 WM 9.3750 9.1875 9.0625 7.9375 0

26 weeks OuIsIanding 38,000 126,000 330,440 3,000 0 WM 9.9375 9.1250 9.0625 7.8750 0 52 weeks OuIsIanding 713,300 403,500 207,000 177 ,000 309,150 WM 10.7500 9.3750 9.1875 9.0625 6.9375 2years OuIstanding 468,600 711,650 920,300 1,415,102 1,208,327 WM 11.3750 10.5625 9.1875 9.0625 7.8125 3years OuIsIanding 68,000 119,000 111,001 508,177 534,336 WM 10.2500 9.8750 9.3125 8.5000 7.9375 4years OuISlanding 0 0 0 23,000 288,000 WM 0 0 0 9.2500 7.4375 5years OuIstanding 207,775 487,928 451,271 426,853 578,074 WM 11.3125 9.9375 9.9375 9.6250 8.7338 7years OuIsIanding 0 14,000 12,000 10,000 8,000 WM 0 9.5000 9.5000 9.5000 .9.5000 10 years OuIsIanding 0 118,901 167,352 215,140 298,679 WM 0 10.5000 10.5000 10.5000 9.8828 Total OuIsIanding 1,568,675 2,041,979 2,265,364 2,798,272 3,224,566 WM 11.0625 10.0000 9.4375 9.1250 8.0832

Financing of the economy totalled TD14.521 billion in 1997, up 8.7%, compared with a 12.20/0 rise a year earlier. This slackening touched long-term loans granted on both ordinary and special resources. There was, on the other hand, an acceleration of short- and medium-term credits allocated from ordinary resources.

End of period ln millions of dinars Variations in % Heading 1995 1996 1997 1996/95 1997196

Credit to t~ economy 11,333 12,751 13,831 12.5 8.5 Credit from ordinary resources 8,840 10,237 11,320 15.8 10.6 Credit from special resources 1,732 1,883 1,982 8.7 5,3 Treasury bills 1 761 631 529 -130 -102 Securities holdings 570 602 690 5.6 14.6

Total 11,903 13,353 14,521 12.2 8.7 Most banks stepped up their contribution to financing the economy. Loans granted by deposit banks rose by 17.1%, compared with 11.1% in 1996, bringing their share from 71.3% to 76%. While commitments by development banks increased at approximately the same rate as du ring the previous year, leasing agencies continued to make a growing contribution, and their share rose, between 1996 and 1997, from 2.4% to 2.9% of total contributions.

The drop in tinancing by the issuing institution is explained primarily by comfortable provisions in bank treasuries. The new Joans granted in 1997 went to ail sectors.

Bank securities holdings rose by a substantial 14.6% in 1997, compared with 5.6% in 1996, due in particular to the tact that one Tunisian bank acted to improve its subsidiaries by converting its overdratts into securities and partners' current accounts.

End of period ln millions of dinars Variations in %

Heading 1995 1996 1997 1996/95 1997/96

Central Bank 690 1,1 11 532 61.0 -52.1 Deposit banks 7,776 8,638 10,116 11 .1 17.1 Development banks 1,899 2,083 2,271 9.7 9.0 Leasing agencies 207 288 383 39.1 33.0

Total 10,572 12,120 13,302 14.6 9.8 Pursuing ils upward trend, outstanding total indebtedness for ail economic agents taken together totalled TD29.708 billion at the end of 1997, up 10.7% from the previous year, a rate slightly lower than the 9.9% that characterized 1996. Of this increase in the debt, 41.2% was attributable to the state, which increased its cali on credit, especially external loans.

(in millions of dinars Heading Variations in % Structure in %

1995 1996 1997 96/95 97/96 1996 1997

Total indebtedness 24,428 26,846 29,708 9.9 10.7 100.0 100.0 *State 9,978 10,826 12,237 8.5 13.0 40.3 41.2 *Other economic agents 14,450 16,020 17,4 71 10.9 9.1 59.7 58.8 Total internai credit 15,343 17,226 18,758 12.3 8.9 64.2 63.1 *State 3,421 3,857 4,199 12.7 8.9 14.4 14.1 *Other economic agents 11,922 13,369 14,559 12.1 8.9 49.8 49.0 With the financial system 12,458 13,993 15,628 12.3 11.7 52.1 52.6 *State 1,316 1,271 1,636 -3.4 28.7 4.7 5.5 *Other economic agents 11,142 12,722 13,992 14.2 10.0 47.4 47.1 On domestic markets 2,885 3,233 3,130 12.1 -3.2 12.1 10.5 *Money market 2,572 2,872 2,595 11.7 -9.6 10.7 8.7 .State 1,811 2,241 2,066 23.7 -7.8 8.3 6.9 .Other economic agents 761 631 529 -17.1 -16.2 2.4 1.8 *Bond market 313 361 535 15.3 48.2 1.4 1.8 .State 294 345 497 17.3 44.1 1.3 1.7 .Other economic agents 19 16 38 -15.8 137.5 0.1 0.1 External financing 9,085 9,620 10,950 5.9 13.8 35.8 36.9 *State 6,557 6,969 8,038 6.3 15.3 26.0 27.1 *Other economic agents 2,528 2,651 2,912 4.9 9.8 9.9 9.8

An advance of 11.7% in financing from the financial system, compared with 12.3% in 1996, brought total internai credit outstandings to TD18.758 billion. While this heading continued to be preponderant, its share in total indebtedness decreased slightly between the two years, falling from 64.2% in 1996 to 63.1 % in 1997. Most of these loans were granted by the financial system, with TD15.628 billion, representing a share of 83.3%. Approximately 90% of this financing concerned non-governmental economic agents, a rate which is comparable to that of 1996.

An upswing in assistance provided by the financial system to the state, with outstandings which were up from TD1.271 billion in 1996 to 1.636 billion in 1997, resulted chiefly from new subscriptions to the last two Treasury bond sales, offered during the second half of December for a gross amount of TD293 million corresponding to a net of TD189 million. ln addition to these net subscriptions, certain banks also redeemed Treasury bonds for theïr customers at the end of the year.

Outstanding internai financing granted in the framework of internai capital markets was TD3.13 billion in 1997, a 3.2% drop from its 1996 figure, compared with a 12.1% increase in that year. This development reflects trends on the money market, where resource mobilization dropped 9.6% in 1997 to a figure of TD2.595 billion, against an 11.7% increase a year earlier. The decline touched both the state and the other economic agents, which received only TD2.066 billion and TD529 million respectively in 1997, compared with TD2.241 billion and TD631 million the previous year. The increase in resources raised on the bonds market, on the other hand, was distinctly stronger than in 1996: 48.2% compared with 15.3%.

To meet its needs in means of payment and set aside a volume of foreign exchange reserVt::Js suitable for strengthening its position with respect to the outside, Tunisia was obliged to mobilize a larger package of foreign resources in 1997. The outstanding medium- and long- term foreign debt, at TD10.95 billion, was up 13.8%, against a 5.9% increase the previous year. As a result of this acceleration, the share of foreign financing in total indebtedness rose from 35.8% in 1996 to 36.9% in 1997. This development was a result of two factors: the exchange effect of certain foreign currencies entering into the structure of Tunisia's indebtedness, particularly the US dollar, and foreign credits raised on the domestic Japanese market in August 1997 (Samurai VI) and on the American market in September (Yankee 1), for respective amounts of TD122 million and TD453 million.

Total indebtedness in 1997 represented 141.4% of GDP expressed in current priees, compared with 140.8% the preceding year, a drop which is also observed in the case of total domestic credit, the share of which fell back from 90.3% of GDP in 1996 to 89.3% in 1997. The share of total state indebtedness in this same aggregate increased, on the other hand, by a small 1.4 percentage points in 1997 to reach 58.2%.

lin %

Parameter 1995 1996 1997

Total internai indebtedness/GDP in eurrent priees 143.5 140.8 141.4 *State/GDP 58.6 56.8 58.2 *Other eeonomie agents/GDP 84.9 84.0 83.2 Total internai ereditlGDP in eurrent priees 90.1 90.3 89.3 *State/GDP 20.1 20.2 20.0 *Other eeonomie agents/GDP 70.0 70.1 69.3 Internai State indebtedness/Total internai credit 22.3 22.4 22.4 Internai indebtedness of other eeonomie agentslTotal internai credit 77.7 77.6 77.6

GDP in eurrent priees (millions of TD) 17,027 19,070 20,016 Outstanding loans granted by the financial system as noted by the risk base totalled over TD13 billion at the end of 1997, a figure which represents a 9.6% rate of increase 1.6 percentage points higher than the rate of the previous year. It was investment credit outstandings which accounted for this acceleration, whereas there was a deceleration in operating credit outstandings.

The increase in investment loan outstandings (11.7% in 1997 compared with 2.2% in 1996) concerned credit to the farming and fisheries sector, and to a lesser extent credit to industry. The rate of ·outstanding loans to the services sector slackened in 1997, at 14.8% against 16.4% the previous year. This trend, coinciding with the first year of the Ninth Plan, is attributable primarily to loans granted to finance the programme to upgrade production plants in ail fields of activity. Operating loan outstandings totalled TD7.6 billion in 1997, an 8.1% increase, compared with a rise of 12.5% the previous year, a slowing which characterized outstanding short-term credit to ail sectors of economic activity.

Broken down by sector of activity, there was a slight dropback in credit outstandings to farming and fisheries, which went from 12.3% in 1996 to 11.6%, and to industry, which dropped from 41.3% to 40.1 %. The share of loans granted to the services sector, on the other hand, gained nearly 2 percentage points between 1996 and 1997, going from 46.4% to 48.3%.

• Agriculture and fisheries

6,100 I?J1nd ustry S- IlServices E- 5,100

"5 4,100 '" :S= 3,100 'ë 2,100 - 1,100 100

Medium- and long-term loans to firms belonging to a number of groups totalled TD5.5 billion at the end of 1997, against TD4.9 billion in 1996 and TD4.3 billion in 1995. These loans represent an average 42.1 % of ail assistance provided by the financial system.

The share of private enterprises in the volume of credit granted to the economy by the financial system was stronger in 1997 than the year before (94.2% as opposed by 93.1%), and as a result, the share of public enterprises continued to diminish, falling to 5.8% in 1997 against 6.9% a year earlier. Credit granted to the private sector went from TD11.1 billion to TD12.3 billion, an increase of 10.9%, compared with a 13.8% rise in 1996. This slackening concerned both investment loans (12.2% against 13.7%) and operating loans (9.8% against 13.8%), and touched ail sectors of activity. Loans to public enterprises, on the other hand, fell back less steeply than in 1996 (by 7.5% against 35.6%), dropping from T01028 billion in 1995 to T0824 million in 1996 then to T0762 million in 1997.

lin millions of dinars unless otherwise indicated\ Share in the End 01 period 1997 Variations in % total in%

Sector/Term 1996 March June Sept. Dec. 96/95 97/96 1996 1997

Agriculture and lisheries 1,468 1,485 1,596 1,547 1,508 -18.0 2.7 12.3 11.6 Short term 830 843 944 925 846 8.6 1.9 7.0 6.5 Medium and long terms 638 642 652 622 662 -37.9 3.8 5.3 5.1 Industry 4,913 4,902 4,967 5,103 5,231 8.0 6.5 41.3 40.1 Short term 3,592 3,593 3,657 3,798 3,796 8.5 5.7 30.2 29.1 Medium and long terms 1,321 1,309 1,310 1,305 1,435 6.4 8.6 11 .1 11.0 Services 5,519 5,708 5,904 6,150 6,301 18.1 14.2 46.4 48.3 Short term 2,565 2,715 2,790 2,923 2,911 20.0 13.5 21.6 22.3 Medium and long terms 2,954 2,993 3,114 3,227 3,390 16.4 14.8 24.8 26.0 Total credit 11,900 12,095 12,467 12,800 13,040 8.0 9.6 100.0 100.0 Short term 6,987 7,151 7,391 7,646 7,553 12.5 8.1 58.7 57.9 Medium and long terms 4,913 4,944 5,076 5,154 5,487 2.2 11.7 41.3 42.1

If the substantial drop in this figure in 1996 was due chiefly to the Central Bank's firm purchase of claims held by the BNA on the cereals and oil collection and marketing boards, two main factors were responsible for the 1997 decline, namely continued improvement in the financial situation of the Groupe Chimique Tunisien and the Compagnie de Phosphates de Gafsa, and a drop in commitments of the Cereals Board following a mediocre cereals season. The fall in loan outstandings to public enterprises was also favoured by the fact that the Equalization Fund settled payment for services rendered by the different operators more quickly in 1997, and by a stepping-up of the programme to improve, restructure and privatize these enterprises.

(in millions 01 dinars unless otherwise indicated' End 01 period 1996 1997 Variations in % Medium Medium Sector/Enterprise category Short & long Total Short & long Total 96/95 97/96 term term term term

Agriculture & lisheries 830 638 1,468 846 662 1,508 -18.0 2.7 State-owned lirms 265 6 271 277 5 282 -59.5 4.1 Private lirms 565 632 1,197 569 657 1,226 6.7 2.4 Industry 3,592 1,321 4,913 3,796 1,435 5,231 8.0 6.5 State-owned lirms 309 65 374 232 65 297 -8.3 -20.6 Private lirms 3,283 1,256 4,539 3,564 1,370 4,934 9.6 8.7 Services 2,565 2,954 5,519 2,911 3,390 6,301 18.1 14.2 State-owned lirms 72 107 179 80 103 183 -11.4 2.2 Private lirms 2,493 2,847 5,340 2,831 3,287 6,118 19.4 14.6 Total 6,987 4,913 11,900 7,553 5,487 13,040 8.0 9.6 State-owned firms 646 178 824 589 173 762 -35.6 -7.5 Private lirms 6,341 4,735 11,076 6,964 5,314 12,278 13.8 10.9 Considered by form of assistance, the decline in outstanding loans to public enterprises resulted from a decrease of nearly 8.8% in outstanding management credit, and touched only the industry sector, while credit outstanding to agriculture, fisheries and services showed a slight increase. Outstandings on investment credit allocated to this same category of enterprise, which plummeted 72.1% in 1996, declined by only 2.8% in 1997, a decrease which concerned chiefly medium- and long-term credit to companies in the services sector, and to a lesser extent to agriculture and fisheries firms.

ln 1996, there was a drop of nearly 18% in credit granted directly and indirectly to the agriculture and fisheries sector, following the Issuing Institution's repurchase, for T0968.7 million over a period of 12 years, of bank claims to finance overdue Equalization Fund payments for the Cereals Board and the National Oil Board. ln 1997, these credit outstandings advanced by a slight 2.7%, bringing them down from T01.791 billion in 1995 to T010468 billion in 1996 and T010508 billion in 1997.

This advance characterized outstandings for loans granted directly to farmers and fishermen, which rose T064 million or 6.2% in 1997, going from T01.032 billion at the end of 1996 to T01.096 billion at the end of 1997, while outstanding indirect credit dropped by T024 million or 5.5%, going from T0436 million in 1996 to T0412 million in 1997. The drop in indirect credit to agriculture is explained by a decrease in outstandings in credit to farm produce storage agencies, following a drop in farm production caused by bad weather in certain parts of the country.

(in millions of dinars

End of period Short-term loans Medium- and long- Total term loans Forms & beneficiaries of credit 1996 1997 1996 1997 1996 1997 Direct credit to farmers 467 513 565 583 1,032 1,096 Indirect credit 363 333 73 79 436 412 Agricultural marketing agencies 363 333 17 18 380 351 of which: National Oil Board 117 181 3 2 120 183 Cereals Board 125 66 0 0 125 66 Central Wheat Cooperative 29 14 1 1 30 15 Central Cooperative for Large- Scale Cropping 44 29 1 1 45 30 Agricultural equipment marketing firms . 0 0 56 61 56 61 Total 830 846 638 662 1,468 1,508

Outstandings for short-term loans to agriculture and fisheries totalled T0846 million in 1997, against T0830 million the year before, representing an increase of T016 million or 1.9%. This trend concerned operating credit granted directly to farmers, which advanced by 9.9% in 1997 against 0.6% in 1996, and thus showed rises from T0464 million in 1995 to T0467 million in 1996 and to T0513 million in 1997. The increase is explained both by credit to finance the new cereals season and by payments due on loans for cropping and for investment, connected with cereal cultivation, which had been granted to farmers affected by drought. ln this connection, certain measures of support were taken in favour of cereal-growers in drought-ridden regions, involving payment by the National Guarantee Fund or from the national budget of interest on the rescheduling of loans for cereal cropping for the 1996-97 season and investment loans connected with cereal cultivation, depending upon whether or not they were eligible for coverage by the National Guarantee Fund. ln addition, outstanding management credit granted to farm produce marketing agencies, which had advanced by TD63 million or 21% in 1996, dropped by TD30 million or 8.3% in 1997 following a mediocre farm season that generated a decline in Cereals Board commitments and commitments by the different cooperatives for farm produce collection.

Outstandings for medium- and long-term loans to the agriculture and fisheries sector totalled TD662 million at the end of 1997, against TD638 million in 1996, marking a 3.8% increase in 1997 as opposed to a 37.9% decline the year before. This trend can be attributed to measures of adjustment of the above-mentioned due payments by the Equalization Fund. The increase in investment loan outstandings concerned both assistance granted directly to farmers and indirect credit granted to farm machinery marketing agencies.

Direct loans continued to move upward, going from TD540 million in 1995 to TD565 million in 1996 th en to TD583 million in 1997, respective increases of 4.6% and 3.2%. Indirect credit, following an 85% decrease in 1996, had risen 8.2% at the end of 1997.

Outstandings for loans to the industrial sector totalled TD5.231 billion at the end of 1997, an increase of only 6.5%, compared with an 8% rise in 1996. This slackening was accounted for by management credit, while investment credit advanced more rapidly, in connection with the inception of the programme to upgrade Tunisian industry.

(in millions of dinars

End of period Short-term Medium- and Total loans long-term loans Branch of activity

1996 1997 1996 1997 1996 1997 Mines 79 40 12 10 91 50 Energy and water distribution 35 41 32 41 67 82 Building & public works 434 468 107 113 541 581 Agri-food industries 602 687 322 362 924 1,049 Textiles, clothing & leather 600 638 216 200 816 838 Mechanical & electrical industries 786 832 198 211 984 1,043 Building materials, ceramics and glass ind's. 408 427 207 237 615 664 Chemicals and rubber 319 298 115 141 434 439 Miscellaneous industries 329 365 112 120 441 485 Total 3,592 3,796 1,321 1,435 4,913 5,231 Investment loan outstandings went from TD1.321 billion in 1996 to TD1.435 billion in 1997, an increase of TD 114 million or 8.6%, compared with a 6.4% rise in 1996. Management credit outstandings were TD3.796 billion in 1997, up 5.7% from 1996, when in turn they had risen by 8.5% over 1995. This slackening was due to decreased outstandings on loans for mining activities and for the chemicals and rubber branch.

Credit outstanding to mining enterprises, which had risen by TD6 million in 1996, dropped TD41 million in 1997 to total TD50 million. This decrease is explained principally by a fall in short-term loan outstandings, which went from TD79 million to TD40 million between 1996 and 1997. The improvement in the cash situation of the Compagnie de Phosphates de Gafsa lay at the origin of the decrease in operating credit outstandings.

2. Energy and water distribution

Outstandings for credit allocated to firms working in this branch increased substantially in 1997 for the second consecutive year, rising by more than 22.4% or TD15 million, compared with 31.4% or TD16 million in 1996. This increase resulted from, among other factors, a TD9 million, or 28.1%, increase in investment credit to mineraI water companies and certain oil companies.

After increasing by TD76 million or 16.3% in 1996, outstandings for Joans to this branch rose by only TD40 million, or 7.4%, in 1997, a slackening which was felt far more in investment Joans than in management credit. Investment credit outstandings in 1997 totalled TD113 million, marking an increase of only TD6 million, or 5.6%, compared with TD22 million or 25.9% a year earlier. Oustandings on management loans, granted mainly in the form of current-account advances and advances on government claims, increased by 7.8% in 1997, against 14.2% in 1996.

Outstandings for credit granted to enterprises in this sector totalled TD1.049 billion in 1997, a 13.5% increase over 1996, compared with an 11.7% increase in that year over 1995. This trend is explained by an increase in short-term credit; the rate of advance of investment credit slowed down.

Operating loan outstandings, which has risen by TD51 million or 9.3% between 1995 and 1996, increased by TD85 million or 14.1% in 1997. New credit went especially to mills for flour and semolina production, dairies and date packaging plants. Oustanding investment credit totalled TD362 million in 1997, a 12.4% increase over 1996, against a 16.7% increase in that year. New credit went mainly to plants producing carbonated beverages and pasta.

5. Textiles, clothing and leather

Loan outstandings for credit to companies in this sector went fram TD816 million in 1996 to TD838 million in 1997, marking a slackened rate of advance of only 2.7%, against 6.8% in 1996. The reason for this was chiefly a drop of TD16 million in investment loan outstandings. Short-term credit, on the other hand, increased by TD38 million, or 6.3%, against a 9.1% rate of advance in 1996. Most new credit was granted in the form of current- account advances, and went particularly to tanneries, spinning and weaving plants and clothing manufacturers.

Outstandings for credit allocated to this sector went from TD984 million in 1996 to TD1.043 billion in 1997, an increase of 6%, compared with 4.6% the year before. The increase concerned both short-term loans and medium- and long-term credit, the former increasing by 5.9% over 1996 and the latter by 6.6%. Operating credit increased by TD46 million, against a rise of TD58 million in 1996. Most new credit was granted in the form of commercial discount and current-account advances to foundries, plants manufacturing metal items and packaging, and factories that assemble electrical household appliances and television sets.

The increase in medium- and long-term credit outstandings, which totalled TD13 million in 1997 compared with a drop of TD14 million a year earlier, was due chiefly to the establishment of medium-term credit for the strengthening of certain factories.

Outstanding credit for this sector totalled TD664 million in 1997 against TD615 mil/ion in 1996, an increase of TD49 million or 8%, compared with a rise of TD73 million or 13.5% in 1996 over 1995. A firming up of medium- and long-term credit (14.5% against 12.5%) did not offset a deceleration in short-term credit (4.7% against 14%). New investment credit was granted primarily to cement factories and brick-works. The main beneficiaries of new short-term credit, most of which was granted as current-account advances and commercial discount, were marble-masonry works, ceramics plants and glass factories.

Outstandings for credit granted to factories in this sector, after dropping by nearly TD19 million in 1996, rose by TD5 million in 1997, a minor increase which resulted from a distinct decrease in short-term credit contrasting with a 22.6% increase in medium- and long-term credit. The decline in management credit, which concerned primarily the Groupe Chimique Tunisien, was attenuated by a small increase in credit to the pharmaceuticals industry and to plants manufacturing plastic items. Investment credit increased by TD26 million, the main beneficiaries being pharmaceuticals operations and paint manufacturers.

Credit outstandings among firms in this sector totalled TD485 million, an increase of TD44 million or 10%, compared with only 4% the year before. The increase involved management credit far more than investment credit, which increased by only TD8 million, or 7.1%. New management credit advanced by a substantial 10.9% in 1997, going mainly to cardboard packaging plants in the form of current-account advances and commercial discount.

As of the end of 1997, outstandings for credit granted to the services sector was marked by more sluggish advancement, with a rate of increase of only 14.2%, compared with 18.1% in 1996. These outstandings had gone from TD4.674 billion at year-end 1995 to TD5.519 billion at the end of 1996, reaching TD6.301 billion in 1997, respective differences of TD845 million and TD782 million. The decline in growth was a result of more sluggish progression in outstandings for ail types of credit.

Investment loans went from TD2.954 billion in 1996 to TD3.39 billion in 1997, slowing by 14.8%, against 16.4% in 1996, a trend which characterized tourism and the "other services" branch. The slackening was more acute (13.5% against 20%) in management credit, a heading in which outstandings advanced by only TD346 million to total TD2.911 billion at the end of 1997. The slackened rate of increase in operating credit concerned ail branches of activity with the exception of trade.

(in millions of dinars

End of period Short-term Medium- and loans long-term loans Total Branch of activity 1996 1997 1996 1997 1996 1997

Transport & telecommunications 156 177 175 216 331 393 Tourism 518 621 1,450 1,589 1,968 2,210 Real estate promotion 253 277 811 948 1,064 1,225 Trade 1,161 1,285 176 227 1,337 1,512 Other services 477 551 342 410 819 961

Total 2,565 2,911 2,954 3,390 5,519 6,301

Outstandings for credit granted to firms in this sector totalled TD393 million in 1997, against TD331 million in 1996, an increase of 18.7% in 1997 against 15.7% the year before. This acceleration concerned investment credit (23.4% compared with 10.8%), while the increase in operating credit outstandings slowed down, at 13.5% against 21.9%.

Management credit outstanding totalled TD177 million, marking a TD21-million increase compared with a rise of TD28 million the previous year. New credit was granted in the form of current-account advances, and went to public transportation companies, chiefly the national railway, the SNCFT.

Investment credit went from TD158 million in 1995 to TD175 million in 1996 and TD216 million in 1997. The TD41-million increase in medium- and long-term credit went primarily to car-hire agencies and the National Transport Company, SNT, for replacement of rolling. stock, and to certain maritime transport companies to help them extend their fleets.

Outstandings for credit to this sector, which gobbled up 35% of the volume of bank assistance to the services sector and nearly 17% of credit provided by the financial system to the economy, went from TD1.968 billion in 1996 to TD2.21 billion in 1997, marking a 12.3% increase in the latter year compared with a rise of 18.4% a year earlier. This deceleration was noted in both investment and operating credit. Medium- and long-term credit went from TD1.45 billion in 1996 to TD1.589 billion in 1997, a 9.6% increase compared with a rise of 16.2% a year earlier. The new credit went to finance new investments both in extension and improvement of existing units and in the creation of new establishments.

Operating credit outstandings went from T0518 million in 1996 to T0621 million in 1997, gaining T0103 million or 19.9%, compared with T0104 million and 25.1% a year earlier. The increase in management credit was accounted for entirely by account debits for hotels; it is explained by project prefinancing awaiting the obtention of investment credit and by payments due on loans taken out, in particular, by hotels in the southem part of the country and credit taken by young promoters encountering financial difficulties.

3 . Real estate promotion

Outstandings on credit to this sector rose by 15.1% in 1997 compared with 17.2% a year earlier, figures which reflect an increase from T0908 million in 1995 to T01.064 billion in 1996 and to T01.225 billion at the end of 1997. The deceleration was due to a slackened rate of increase in management credit; investment credit continued to advance at a growing rate. Operating credit increased by only 9.5% in 1997, against 40.6% the year before, going from T0180 million in 1995 to T0253 million in 1996 and then to T0277 million in 1997.

The beneficiaries of new short-term credit were real estate management and sales enterprises, primarily in the form of current-account advances for the prefinancing of real estate projects. Certain projects also encountered marketing difficulties and were overdue in payment of medium-term prefinancing credit they had initially contracted.

Medium- and long-term credit to this branch went from T0728 million in 1995 to T0811 million in 1996 and T0948 million in 1997, respective increases in 1996 and 1997 of 11.4% and 16.9%. The new credit went for the prefinancing of a number of real estate projects in various regions.

Outstandings on credit to the trade branch totalled T01.512 billion in 1997, an increase of TD 175 million or 13.1% over 1996, against a rise of T0123 million or 10.1% that year over 1995. The acceleration was felt most in medium- and long-term credit. At T0227 million, compared with TD176 million in 1996, investment credit outstandings were up T051 million or 29%, against TD21 million or 13.5% between 1995 and 1996. Operating credit to this branch, on the other hand, had outstandings which were up T0124 million or 10.7%, compared with an increase of T0102 million or 9.6% in 1996. This credit, most of which took the form of current-account advances and commercial discount, was oriented towards companies dealing in building materials and spare parts.

Credit outstanding to firms in the other services branch reached T0961 million at the end of 1997, an increase of TD142 million or 17.3% over 1996, compared with T0215 million or 35.6% that year over 1995. This deceleration was felt in both investment credit (19.9% against 37.9%) and operating credit (15.5% against 34%). Efforts were undertaken beginning in 1995 to modernize the capital market, with a reorganization that separated the functions of control from those of management. Efforts at modernization continued in 1997, aimed at giving the Tunis market appropriate techniques for quotation and operation and a safety infrastructure that would meet international standards. When the new system of electronic quotation was introduced on October 25, 1996, it applied to only four stocks. Since then it has gradually been extended, and in June 1997 it covered ail stocks quoted on the exchange. The Tunis Stock Exchange (BVMT) has also assumed management of the Market Guarantee Fund, the function of which is to ensure successful completion of ail transactions handled by stockbrokers.

The general regulations for the organization and functioning of the BVMT were approved by the Capital Market Council (CMF) in February 1997. This new regulatory framework specifies the conditions under which companies are accepted on the Stock Exchange and defines the principles that govern negotiation transactions, the procedures for public oHer, and the procedures for seUlement of default on payment and delivery of securities.

ln 1998, the Tunis Stock Exchange will enter the final stage in the planned modernization, that of relocating the negotiation desks which are currently located on the exchange floor, an operation that will coyer a two-year period.

Activity on the capital market in 1997 was marked by continuation of the setback noted during the previous year, which caused a distinct decline in most exchange indicators, particularly those pertaining to the secondary market. There were, however, signs of improvement starting around the month of September.

ln 1996 and 1997, the setback in activity took the form mainly of a correction of priees on the Stock Exchange. These had soared between 1993 and 1995, and the correction was moderate on the different market actors. After rising steadily between 1990 and 1995 at an average rate of 40.7% per year, the BVMT index dropped by 10.1% in 1996 and by 20.2% in 1997. The total volume of transactions fell for the second consecutive year, dropping to TD590 million, compared with TD626 million in 1996 and TD927 million in 1995. As a result, the capital market contribution to financing of the economy slackened perceptibly, with the ratio of stock exchange capitalization to GDP falling from 23.3% in 1995 to 20.4% in 1996, and then to 12.5% in 1997.

The savings raised through the primary market steadied in 1996 and 1997 at around 15% of national savings, where they had totalled 30.8% in 1995. ln terms of gross investment, overall offérings remained at around 14.7% during the same period, compared with 25.5% in 1995. Confirming a trend that had begun in 1996, investment company activity in 1997 was marked by an aggravation of the difficulties being experienced by mixed open-end investment funds (SICAV) and a strengthening of the situation of bond SICAVs and of venture- capital investment funds (SICAR).

Nevertheless, despite a continued drop in Stock Exchange indicators in 1997 the capital market began to emerge gradually from its lethargy, and signs of recovery were favoured by reforms and by the previously-mentioned effort at modernization, especially the new electronic quotation system. As a result, the market Iiquidity rate improved perceptibly, averaging 35% and even reaching peaks of 80% during the year, compared with rates of 12% in 1996 and 61% in 1995. The rate of securities rotation also improved in 1997, climbing to 10.9% after sharp fall of 7% in 1996.

lin millions of dinars unless otherwise indicated Indicator 1993 1994 1995 1996 1997

Overall volume of offerings 484 751 1,050 644 754 Volume of public offering through cali for savings 92 485 480 357 493 Overall volume of offerings/national savings, in % 16.7 23.6 30.8 15.1 15.2 Overall volume of offerings/gross investments, in % 11.7 17.6 25.5 14.7 14.7

BVMT index in points (base 100 on Sept. 30, 1990) 251.02 507.22 634.71 570.64 455.64 Stock exchange capitalization (a) 1,000 2,525 3,967 3,892 2,632 Stock exchange capitalization/GDP, in % 6.8 16.0 23.3 20.4 12.5 Number of companies quoted 19 21 26 30 34 Overall volume of transactions 162 531 927 626 590 Stock exchange quotation (b) 54 330 684 274 287 Rotation rate, in % = (bl/(al 5.4 13.1 17.2 7.0 10.9

Offerings in 1997 totalled TD754 million, an increase of TD11 0 million over the previous year, when they had fallen by TD406 million in comparison with 1996. Offerings through public savings cali (APE) accounted for 65.4% of this amount, compared with 55.4% in 1996 and 45.7% in 1995. A total of TD493 million was offered through APE in 1997, TD136 million over the previous year's volume. This entire increase concerned Treasury bonds negotiable on the Stock Exchange, which were bought for TD319 million, compared with TD118 million in 1996. Stock and bond offerings fell somewhat during the same period, declining overall from TD239 million to TD174 million.

The increase in negotiable Treasury bond offerings is explained essentially by the government's concern to restructure its internai indebtedness by privileging medium- and long-term financing. Here it should be pointed out that a considerable share has been subscribed by bond SICAVs seeking low-risk investments providing relatively high rates of return. ln 1997, the Capital Market Council approved 19 offerings of equity shares by APE out of a total of TD114 million, compared with 21 offerings and TD143 million a year before. Of this amount, companies quoted on the exchange accounted for TD64 million, or 56% of the total, compared with TD91 million and 64% in 1996.

ln 1997, banks carried out four operations of capital increase for a total of TD53 million, including TD15 million by the issuing of preferred stock. A new deposit bank, the Tunisian Solidarity Bank (BTS), was also created through issuing of shares by APE. Initially set at TD10 million (according to the CMF authorization), the capital of this bank is now TD30 million, 38.3% of which is owned by the government. The remaining operations were carried out chiefly by other financial institutions, investment companies and companies in the real sector. One insurance company (Tunis-Ré) issued investment certificates for TD3 million. (in millions of dinars unless otherwise indicated

Variations Heading 1996 1996 (millions of TD)

Volume of public offering through cali for savings 357 493 136 * Capital securities 143 114 -29 of which: Preferred shares 0 15 15 Investment certificates 0 3 3 Banking sector offerings 64 63 -1 Number of operations 3 5 Non-banking sector offerings 79 51 -28 Number of operations 18 14 Bonds 214 379 165 * Bond issues 96 60 -36 Banking sector offerings 35 0 -35 Number of operations 2 0 Non-banking sector offerings 61 60 -1 Number of operations 13 8 of which: Leasing company offerings 45 22 -23 Hotel company offerings 14 14 0 Negotiable Treasury bonds 118 319 201

ln the absence of the banking sector, offerings on the bond market dropped back from their 1996 figure of T096 million to T060 million in 1997. The average volume per operation, however, increased during the same period from T06.4 million to T07.5 million. Two leasing agencies (Tunisie Leasing and Arab Tunisian Lease, ATL) were responsible for offerings totalling T022 million, while a cement company (Les Ciments d'Enfidha) accounted for T020 million in offerings; hotels were among those responsible for the remainder. It should be noted that ATL called on an evaluation by the agency Maghreb Rating to undertake a bond issue which was not back-to-back with a bank guarantee.

2. The secondary market

The secondary market in 1997 felt the pressure of the supply that had accumulated throughout 1996 due to the rigidity of the manual quoting system in use until November of that year, and because of a low demand for securities. The illiquid situation that marked the secondary market in 1996 was gradually attenuated in 1997 by the introduction of the electronic .quotation system and by a slight improvement in demand, particularly from September onward. The conception of the new system of quotation is such as to favor transparency of transactions and improve market liquidity.

The total volume of transactions in 1997 was T0590 million, down T036 million from the volume recorded in 1996, compared with a large drop of TD301 million in that year. The rate of decline thus improved from 32.5% in 1996 to 5.8% in 1997. This trend involved only exchanges on the "off-exchange" segment of the Stock Exchange, while the officially quoted side was slightly more active in 1997 than during the previous year, representing 49% of the total, as opposed to only 44% in 1996. in millions of dinars unless otherwise indicated

End of period 1996 1997 Indicator March June Sept. Dec. - BVMT index (in points) 570.64 523.69 454.31 446.30 455.64 - Stock exchange capitalization 3,892 3,519 2,722 2,546 2,632

- Ove rail volume of transactions 626 151 314 419 590 *Number of shares handled 27,570 4,457 9,712 24,747 33,029 (thousands)

- Stock listing 274 85 161 218 287 *Number of shares handled 11,497 2,104 4,418 17,955 22,956 (thousands)

- Unlisted shares 352 66 153 201 303 *Number of shares handled 16,073 2,353 5,294 6,792 10,073 (thousands)

The number of securities traded increased from 27.6 million shares in 1996 to 33 million in 1997. Nearly 70% of this trading involved securities quoted on the exchange. The total figure for quoted shares traded was TD287 million in December 1997, up TD13 million from its 1996 lever, which had represented a fall of TD410 million. This improvement was accounted for entirely by trading in shares (+23 million). Particularly visible starting in September, this improvement was favoured by a slight recovery in demand resulting from low quotations on the exchange. Thus the average for monthly trading during the last four months of the year was TD22 million, where it had averaged sorne TD18 million during the first eight months.

Most of this demand came from mixed SICAVs, anxious to minimize declines in value that had been accumulating since September 1995, and at the same time to revise their portfolios by eliminating non-liquid securities and positioning themselves among more attractive ones. Small traders also contributed to this recovery in buying those same securities at low priees, with a view to recovering sorne of their losses at a later date. Thus the structure of the demand continued to be dominated by the tradition al actors, in other words, small bearers and investment companies, and the recovery noted did not result from any activity by new categories of investors, particularly institution al investors, who might impart new vigour to the demand.

Continuing supply, joined with the emergence of a shy, unstable demand, caused priee fluctuations and a general downward movement. The rate of decline was faster in 1997 than in 1996, influenced by the more intense movements of supply acompanying the introduction of securities on the new quotation system. Thus there was a distinct drop in almost ail the securities quoted on the exehange. Out of 31 stocks accepted for quotation, 24 deelined in value between 1996 and 1997, in proportions that varied from 1% to 72%. The remainder experieneed increases, often relatively high ones, which ranged from 1% to 52%.

Most of the eompanies aceepted for quotation on the exchange issued dividends at between 5% and 50% of faee value. These distributions minimized drops in value for investors, and 11 seeurities showed positive yields, the maximum reaehed being 68%. The downward trend in priees on the exehange is reflected in a 115-point drop in the BVMT index, whieh was 455.64 points at the end of December 1997. II) 525 ë ·0 l1. 425

Expressed in terms of monthly slippage, the index dropped almost uninterruptedly, although there were minor rises in February, March, September and October. After dropping by a relatively large 86 points in January, the index showed a sorne recovery (+10 points) in February and a heftier improvement (+29 points) in March. From that time until August it moved downward again, although more slowly, losing an average of 16.5 points each month. ln September and October it increased slightly (+37 points), and then moved downward again during the last two months of the year.

Correlated to the decline in market priees, exchange capitalization dropped by a considerable 32.4% in 1997, compared with a 1.9% decline the year before. The structure of this capitalization continued to be marked by a predominance of the banking system, which owns 68% of the total. If the other financial institutions are considered, this proportion rises to 75%.

Four new companies were quoted on the exchange in 1997, the Société Immobilière et de Participation (SIMPAR), the Société Tunisienne d'Assurances et de Réassurances (STAR), the Compagnie Internationale de Leasing (CIL), and Arab Tunisian Lease (ATL). The first two entered the exchange through public sale offer, the third in the ordinary manner, and the fourth by the technique of minimum-priee offer.

Activity in negotiations on the bonds market remains slight, as the structure of offerings is that of private investment under identical conditions, Iimiting possibilities for trading. Most bonds and Treasury bonds negotiable on the exchange are held by investment companies, and these cannot alone invigorate the market in the absence of an active contribution from smail holders and institutional investors.

Total tradings on the bonds market in 1997 were T057 million, a drop of T010 million from their 1996 volume, compared with an increase of T018 million in that year over the previous one. Off-exchange trading fell back for the second consecutive year, dropping by T049 million, after a T0109-million fall in 1996. Transactions resulting from negotiations under this heading concern relatively small amounts, while the greater part of the activity is composed of registration operations. The improvement that has been noted in these operations starting in 1995 is explained by the f1exibility introduced by law no. 94- 117 liberalizing transactions that concern securities issued by companies which do not make a public savings calI. (in millions of dinars

End of period 1996 1997 Variations Type of security in %

Overall market 626 590 -5.8 · Shares & rights 517 523 1.2 · Bonds & negotiable Treasury bonds 109 67 -38.5 Stock listing 274 287 4.7 · Shares & rights 207 230 11 .1 · Bonds & negotiable Treasury bonds 67 57 -14.9 Unlisted shares market 352 303 -13.9 · Shares & rights 310 293 -5.5 · Bonds 42 10 -76.2

The continuing downward trend of stock exchange priees in 1997 was strongly fell by mixed SICAVs, which experienced further losses in their portfolios. Bonds SICAVs and SICARs, on the other hand, found their activities strengthened, as had also been the case the previous year. ln 1997, four bonds SICAVs began activity, ail promoted by banks, and seven SICARs went into operation.

Taken as a whole, the volume of assets managed by investment funds totalled TD1.326 billion in 1997, an increase of 16.2% over their 1996 level, as against a 1.5% drop in that year from the previous one. This increase, accounted for by a distinct increase in funds managed by bonds SICAVs (TD273 million) and to a lesser extent by the capital of SICARs (TD25 million), was greatly offset by a substantial reduction in the assets managed by mixed SICAVs (down TD113 million). Capital invested by SICAFs, on the other hand, remained at its 1996 level of TD513 million.

Type of fund 1996 1997

SICAF 86 86 SICAV 15 19 . bond funds 4 8 . mixed funds 1 1 1 1 SICAR 9 16

Total 110 121

The movement of divestment in 1996 with respect to the products of mixed SICAVs was accentuated in 1997 by the strong decline in priees on the exchange. A large share of this capital went to bonds SICAVs, whose products continue to give higher yields which are risk- free and, given the composition of their portfolios, more liquid. Indeed, there was a drop in realizable securities among ail mixed SICAVs, in some cases amounting to more than 80% of their nominal securities. The yields recorded in 1997 were negative; they varied from 8% to 90% and were greatly in excess of 1996 losses. The considerable differences in yield rates from one company to another are explained by differences in the composition of their share portfolios. The heaviest losses were felt by those with the securities which were least Iiquid and whose priees fell considerably.

(in millions of dinars

Type of fund 1996 1997 Variations in %

SICAF 513 513 0.0 SICAV 521 681 30.7 . bond funds 318 591 85.8 . mixed funds 203 90 -55.7 SICAR 107 132 23.4

Total 1,141 1,326 16.2

The rate of use of mixed SIGAVs in transferable securities declined slightly in 1997, dropping to 93.3% from its 1996 figure of 98.5%. This drop is explained by a decline in the use of mixed SIGAVs in shares (-TD74 million), and to a lesser extent in exchange- negotiable Treasury bonds and in bonds (-TD42 million). The acute Iiquidity problem noted in 1996 worsened in 1997, and obliged these agencies to Iiquidate their share portfolios gradually to finance the massive purchases their clients were making.

(in millions of dinars unless otherwise indicated

Type of asset 1996 1997

Bonds Mixed Total Bonds Mixed Total

Shares 0 138 138 0 64 64 Bonds 131 26 157 145 17 162 Negotiable Treasury bonds 89 36 125 278 3 281

Sub-total 220 200 420 423 84 507 Rate of use in % 69.2 98.5 80.6 71.6 93.3 74.4

Short-term investments 75 17 92 168 6 174 Liquidity balance 23 -14 9 0 0 0

Total 318 203 521 591 90 681

Bonds SIGAVs, on the other hand, profited from the difficulties of mixed SIGAVs, attracting a large share of the capital freed by those funds. Assets of bonds SIGAVs rose from TD200 million in 1995 to TD318 million in 1996 and to TD591 million in 1997. Taking into consideration the drop in the money market rate in 1996 and at the beginning of 1997, bonds SICAVs continued to practice attractive yield rates. These increased in 1997 by 6 to 7%, slightly down from those recorded one year earlier but still distinctly higher than bank investment rates, which vary from 4.875% for special savings accounts to 6.375% for time deposits. The narrow range of bond rates is explained by the similarity in the characteristics of bond issues on the bonds market.

The rate of use of bonds SICAVs improved slightly in 1997; at 71.6%, it was 2.4 points above its 1996 level. Assets in the form of Treasury bonds negotiable on the exchange increased by a hefty T0189 million, Iinked with large offerings made by the Treasury during this year. Investment in bonds increased slightly between 1996 and 1997, reaching T0145 million. Short-term investments, primarily in the form of transferable Treasury bonds, certificates of deposit and treasury notes, showed a T093 million increase.

(in %

Fund 1996 1997

Bond SICAVs

Tunisie-SICAV 7.2 6.8 SICAV -Rendement 6.7 6.0 Alyssa-SICAV 7.3 5.9 Amen-Première-SICAV 7.0 6.0 Placement Obligataire-SICAVl - 6.1 SICAV-Trésor1 - 6.8 SICAV-L'Epargnant1 - 6.4 SICAV-BH-Obligataire 1 - 4.2 Mixed SICAVs SICAV-Plus -3.8 -63.9 SICAV-AMEN -15.6 -80.9 SICAV-BNA -6.8 -22.9 Sud-valeurs-S ICAV 6.4 -33.2 SICAV -Placement 6.1 -26.3 SICAV-L'Investisseur 3.9 -11. a SICAV-Prosperity 4.0 -8.4 Arabia-SICAV -9.1 -54.5 SICAV -BH-Placement -0.4 -60.5 Union-Valeur-SICAV 0.5 -89.8 SICAV-BDET 2.2 -61.9 VISINn.l:JO )lNV8 lV'~.lN3J 3H.l :JO .lN3~3~VNV'~ The proceeds of the Central Bank fell back considerably in 1997 as a result of an easing of the banking system's cash position in 1997, which reversed the Central Bank's net position on the money market. Nevertheless, a firming up of foreign assets, combined with appreciating exchange rates for certain important foreign currencies, attenuated the effects of lowered proceeds on operating income, which on December 31, 1997, before the setting aside of contingency allowances and welfare funds, totalled TD70.2 million, compared with TD109.9 million a year earlier.

The major portion of increased assets can be attributed to a rise in foreign exchange reserves, which gained TD360.9 million to close the year at a total of TD2.2534 billion. Improved tourism revenue and remittances from Tunisians working abroad, added to the mobilization of external financing resources, particularly Tunisia's first Yankee bond issue on the U.S. market (TD452.5 million) and its sixth Samuraï bond issue (TD122 million), contributed considerably to strengthening the country's foreign currency assets, despite an aggravation of the trade balance deficit.

ln addition, the advance to the government for monetary fund subscription (International Monetary Fund and Arab Monetary Fund) increased by TD13.8 million, an amount which represents Tunisia's proportional share in IMF capital, expressed in dinars, following appreciation of special drawing rights with respect to the dinar.

The increase in assets would have been greater had it not been for two factors. First, the government made a payment of TD80.7 million as the first instalment in its repayment of debts it purchased in December 1996, which were owed to the National Agriculture Bank by the Cereals Board and the National Oil Board. The second factor was the disengagement of the banking system as a whole from the issuing institution.

Increased liabilities in 1997 resulted from several trends which concerned essentially fiduciary money, bank current accounts, and other sight and term commitments.

The total of banknotes and coins in circulation as of December 31, 1997 was TD1.6757 billion, compared with TD1.5613 billion a y~ar earlier.

These accounts totalled TD127 million on December 31, 1997, against TD546.1 million at the end of 1996. The TD419.1-million decrease was offset by the amounts tapped from Iiquidities, particularly in the form of negative calls for tenders. There was a net increase of TD37.1 million in this heading, resulting mainly from the following factors:

- increased foreign currency commitments in cash, particularly those entered on foreign accounts under the unified payment convention among the countries of the Arab Maghreb Union (TD21.4 million);

- increased commitments by the Central Bank respecting foreign currency borrowings on the money market, for TD12.8 million; and

- a TD28-million decline in current accounts of foreign agencies, due in part to payment of 1997 instalments due for broadened facilities granted by the lM F, and in part to repayment of the first instalment due on the fourth automatic loan of the AMF. This drop was offset by an increase in IMF dinar assets, following an April 1997 adjustment which generated a TD24.4-million drop in value.

The balance of these accounts declined by TD2.9 million, covering the TD22.1-million diminution of the Treasury current account, offset by a net increase in the other accounts and funds managed by the Central Bank on behalf of the government.

Central Bank proceeds went down TD45.2 million, going from TD184.2 million in 1996 to TD139 million in 1997. Despite a perceptible improvement in revenue generated by management of international reserves and increased exchange gains through the adjustment of headings quoted in foreign currency, the net expenses of refinancing the banking system were strongly fel1,

The easing of bank Iiquidity in 1997, favoured by the purchase of the BNA's claims on the Cereals Board and the National Oil Board, had a negative effect on the revenues from money market interventions, which were limited to tapping of cash balances creating TD16.8 million in net expenses, against net proceeds of TD60.? million in 1996. Similarly, elimination of the rediscount resulting from the abolition of subsidized rates on loans granted for priority activities lowered interest on discounted paper by TD18.4 million. Of this drop, TD5.1 million were offset when the Union Internationale de Banques paid interest due for 199? on the special pension uptake it had been allotted in 1992.

The decrease in Central Bank proceeds was contained by a considerable improvement in proceeds from foreign currency holdings management, which totalled TD100.5 million in 1997 against TD80.3 million in 1996, a development which was related to the improvement in international reserves. Il was also Iimited by an increase in the exchange earnings resulting from monthly adjustment of foreign currency headings. The accrued adjustment gave a gain of TD31 milion, against a loss of TD22.1 million a year before.

The US dollar and the Japanese yen are the principal foreign currencies in the country's foreign exchange reserves. The dollar moved upward trend during 1997, and there was strong recovery in the yen early in the second half of the year, before it began-particularly in October-to reflect the financial crisis in South-East Asia. Following appreciation of special drawing rights versus the dinar, the adjustment of holdings subject to an exclusion by the IMF generated a depreciation of TD1 0.7 million, compared with a gain of TDS.1 million in 1996.

Central Bank expenses, not including contingency allowances and reserves for welfare funds, also decreased, and although the drop was minor, it nonetheless Iimited the restrictive effect of the decline in proceeds on earnings. Expenses of operations of intervention on the money market fell by TD8.3 million between 1996 and 1997, totalling TD17.6 million on December 31, 1997. These represented interest paid on sales effected through bidding and interventions in the form of tapping of Iiquidities, against TD2S.9 million paid in 1996 to write back liquidities related to the rediscount, before its discontinuance.

Administration expenses increased by TD3.7 million due to the printing of banknotes, minting of coins and medals, and increased personnel expenses.

Central Bank activity in 1997 thus generated operating income of TD7o.2 million, from which the following deductions were made:

- TD3.S million as a reserve for building related to the first phase of construction of an extension to Central Bank headquarters;

- TDS million to increase the exchange risk, partly in order to coyer the Central Bank's increased commitments related to the mechanism for coverage of the exchange risk on foreign loans; and

ln accordance with the provisions of article 68 of the Articles of Association of the Central Bank of Tunisia, the Board of Directors has approved the following distribution of the profits for the 1997 fiscal year, which, after deduction of endowments for contingencies and welfare funds, total TD6o,174,498.804: STATEMENT OF INCOME AS OF DECEMBER 31st, 1997 lin dinars DEBIT CREDIT Administrative expenditures 26,422,000.000 Interest on receivables 11,976,996.518 Expenses of money market Proceeds from money market interventions 17,609,203.969 interventions 790,254.094 Interest on foreign currency Interest on term investments in transactions 8,087,640.479 foreign currency 74,901,625.750 Other expenses on foreign Other proceeds on foreign currency transactions 1,143,256.648 currency transactions 25,569,271.488 Commissions paid to international Interest on transactions with organizations 13,664,857.548 international organizations 888,882.074 Miscellaneous expenses 100,396.936 Interest on claims on the state 160,906.250 Endowments for fixed asset Interest on bank & financial depreciation 1,640,323.154 establishment accounts 359,821.617 Endowments for the Welfare 1,500,000.000 Miscellaneous proceeds Fund 953,673.705 Endowments for reserves 8,500,000.000 Adjustment of foreign currency Losses from previous fiscal years 135,071.547 line items 23,226,158.273 Exceptional losses 2,508.000 Profits from previous fiscal years 150,362.990 Net income for the fiscal year 60,174,498.804 Exceptional profits 1,804.326

138,979,757.085 138,979,757.085 Gold holdings 4,385,452.481 Banknotes & coins in circulation 1,675,729,745.411 Subscriptions to international organizations 2,371,792.500 Bank & financial establishment current accounts 126,955,922.931 Special drawing rights holdings and investments 24,006,710.738 Govemment accounts 292,457,599.252 Foreign currency holdings 2,253,406,730.295 Intervention on the money market 448,000,000.000 Economie cooperation accounts 266,338,506.564 Allocation of special drawing rights 52,559,923.130 Postal current account 4,999,987.773 Other sight & term liabilities 768,394,682.196 Foreign exchange refinancing bills 320,165.986 Depositors of paid-in bills 31,872,163.555 Pawned bills 92,500,000.000 Economie cooperation accounts 286,301,679.021 Outstanding discounted bills & checks 22,197,219.953 Contingency allowances 71,977,761.542 Bills to be cashed 29,936,333.825 Special reserve 16,816,905.082 Firm repurchase of debts 887,960,333.333 Legal reserve 3,000,000.000 Standing advance to the State 25,000,000.000 Balance carried forward 337,351.790 Reimbursable advance to the State 6,000,000.000 Capital 6,000,000.000 Advance to the State pertaining to monetary Miscellaneous creditors 58,004,914.621 fund subscription 321,455,034.468 Memorandum accounts and accounts calling for Securities holdings 21,832,972.705 adjustment 136,837,479.243 Fixed assets 14,164,738.411 Net income for the fiscal year 60,174,498.804 Miscellaneous debtors 44,426,511.390 Memorandum accounts and accounts calling for adjustment 14,118,136.156

4,035,420,626.578 4,035,420,626.578 AUDITOR'SSTATEMENT FOR FISCAL YEAR 1997

ln fulfillment of the legal prescriptions and in accordance with the mission with which you have entrusted me, it is my honour to inform you that 1 have verified the accounts of the Central Bank of Tunisia drawn up as of December 31st, 1997.

As is provided for by law, 1 made a series of verifications and random checks to satisfy myself that the balance-sheet, the profits and losses accounts and the table of distribution of the income for the fiscal year agree with the entries on the books of the Central Bank of Tunisia, and with the legal prescriptions.

This verification enabled me to note that the operations were in order, and in perfect compliance with statutory rules.

The balance-sheet and the profits and losses accounts attached may be considered to provide an accurate reflection of the situation of the Central Bank of Tunisia as of December 31st, 1997.