Report No: ACS16340 . Republic of Tunisia Public Disclosure Authorized Impact of the Libya Crisis on the Tunisian Economy . February 2017 Public Disclosure Authorized . GMF05 MIDDLE EAST AND NORTH AFRICA Public Disclosure Authorized Public Disclosure Authorized Macroeconomics & Fiscal Management Global Practice Middle East and North Africa Region Contents Acknowledgements .................................................................................................................................... v Executive Summary .................................................................................................................................. 1 Introduction ................................................................................................................................................ 4 Chapter 1 Libyan Households in Tunisia: How Many and Who are They? ............................ 10 ....................................................................................................................................... 10 ......................................... 11 ......................................................... 12 ...................... 18 ................................................................................................................................................... 22 ................................................................. 26 Chapter 2 The Impact on Financial Flows and the Banking System ......................................... 30 ....................................................................................................................................... 30 .... 31 ......................................................................................................................... 34 .................................................................................................................................. 40 ................................................................................................................ 45 Chapter 3 Contraband and Informal Foreign Exchange at the Tunisia–Libya Border ....... 48 ....................................................................................................................................... 48 ................................................................................................................................................. 49 ........................................................................................................................................... 51 ............................................................................................................................. 57 ............................................. 64 i ........................................................................................................................................ 66 Chapter 4 An Estimation of the Macroeconomic and Fiscal Impacts ....................................... 68 ....................................................................................................................................... 68 ......................... 69 .............................................................................................................. 73 ......................................................................................................... 75 ........................... 78 ........................................................................................................................................ 81 Annexes ..................................................................................................................................................... 82 Appendices ............................................................................................................................................... 83 References ................................................................................................................................................ 91 Figures Figure 1.1 Distribution of Libyans in Tunisia by Age Group and Gender ......................................... 13 Figure 1.2 Distribution of Long-Term and Short-Term Libyan Residents in Tunisia by Age Group and Gender ........................................................................................................................ 14 Figure 1.3 Libyan Residents by Education Level and Gender (Age 10 Years and Older) ................. 15 Figure 1.4 Libyan Children by School Attendance Status and Gender (Age Five to 14 Years) ........ 15 Figure 1.5 Economic Status of Long-Term Libyan Residents by Gender (Age 15 Years and Older) 16 Figure 1.6 Distribution of Employed Libyans in Tunisia, by Function .............................................. 17 Figure 1.7 Occupations of Employed Libyan Residents in Tunisia by Gender.................................. 17 Figure 1.8 Type of Housing by Libyan and Mixed Households ........................................................ 19 Figure 1.9 Ownership Rates of Durable Goods among Libyan Households ...................................... 20 Figure 1.10 Per Capita Expenditure Per Annum for Libyan and Mixed Households (TD) ................. 21 Figure 1.11 Shock Incidence ................................................................................................................ 22 Figure 1.12 Coping Strategies of Households that Experienced a Shock (%)...................................... 24 Figure 1.13 Households’ Recovery Status after a Shock Experience (%) ............................................ 25 Figure 1.14 Length of Stay of Long-Term Libyan Residents (Age 15 Years and Older) .................... 27 Figure 2.1 Libyan FDI in Tunisia ....................................................................................................... 32 Figure 2.2 Tunisian FDI in Libya ....................................................................................................... 32 Figure 2.3 Remittances by Country and Region of Origin (TD, millions) ......................................... 33 Figure 2.4 Money Orders by Region (TD, millions) .......................................................................... 33 Figure 2.5 Breakdown of Account Balance by Transaction Type (TD, millions) .............................. 44 Figure 2.6 Bank Account Source of Supply Balance by Nature of Transaction (%) ......................... 44 Figure 3.1 Number of Libyan Visitors in Tunisia (Millions) ............................................................. 50 Figure 3.2 Liquidities Imported from Libya (millions TD) ................................................................ 54 Figure 3.3 Liquidities in U.S. Dollars and Euros Imported into Tunisia from Libya (millions TD) .. 54 Figure 3.4 Estimates of Informal Trade Volumes (TD millions) ....................................................... 58 Figure 3.5 Subsidized Goods Seized by Tunisian Customs (TD–Thousands) ................................... 64 Figure 4.1 Aggregate investment 2010-15 (index, 100 in 2010) ........................................................ 69 Figure 4.2 Tunisia Terrorism Index ................................................................................................... 72 ii Figure 4.3 Tunisia Security Budget, Interior and Defense Ministries (2010–15) .............................. 72 Figure 4.4 Hotel & Restaurant Sectors: Annual Growth Rate ............................................................ 73 Figure 4.5 Tourist Night Stays (Foreigners Only) .............................................................................. 73 Figure 4.6 Growth Rates (Predicted and Observed) ........................................................................... 76 Figure 4.7 Unemployment Rates (Predicted and Observed) .............................................................. 76 Figure 4.8 Growth Loss (percentage points) ...................................................................................... 76 Figure 4.9 Welfare Loss, GDP (TD, millions) ................................................................................... 76 Figure 4.10 Impact of Libyan Crisis vs. other factors (percentage points) .......................................... 77 Figure 4.11 Contribution of Various Effects (percentage points) ........................................................ 77 Figure 4.12 Aggregate Consumption (% difference relative to baseline) ............................................ 78 Figure 4.13 Investment (% difference relative to baseline) .................................................................. 78 Figure 4.14 Exchange Rate .................................................................................................................. 78 Figure 4.15 Exports and Imports (%) ................................................................................................... 78 Figure 4.16 Estimated Fiscal Revenues (%)......................................................................................... 79 Figure 4.17 Observed Tax Revenues (%)............................................................................................. 79 Figure 4.18 Simulated Impact on External Debt-to-GDP Ratio (Difference relative to baseline, in % of GDP) ...................................................................................................................... 80 Figure 4.19 Growth Impact by Sector (% difference relative to baseline) ........................................... 80 Tables Table 1.1 Number of Sample