Tunisian Economy Threatened as Libya Unravels

By Ikhalas Latif, translated for Al-Monitor. Any opinions expressed are those of the author, and do not necessarily reflect the views of Libya Business News.

(Picture: The point where the borders of Libya, Tunisia and Algeria meet.)

Since July 2014, political instability and armed violence have been on the rise in Libya. The future of Tunisia’s neighboring country is uncertain and could escalate at any time into a conflict that permanently destabilizes the region.

The difficult economic situation in Tunisia could get worse at a time when the country has been expecting growth to take off in 2015 with the consecration of political stability after the elections. The Libyan crisis could endanger this optimistic scenario and is now directly impacting the Tunisian economy.

The Libyan crisis could negatively impact the Tunisian economic recovery, according to the report published in August 2014 by the United Nations’ Economic and Social Commission for Western Asia (ESCWA). Tunisia has been a member of ESCWA since 2012.

A correlation analysis between Libya and Tunisia from 1995 to 2013 has revealed that GDPs of the two countries are strongly linked despite their structural differences. The correlation is mainly due to the strong economic ties between Tunisia and Libya.

According to ESCWA, Europe accounts for nearly 80% of Tunisian trade. Consequently, weak growth in the EU has weakened the Tunisian economy. Any other disturbances will also negatively affect economic growth. Although Libya receives only 5% of Tunisian exports, this represented [a significant amount] of Tunisian GDP during the 2008-2013 period. Exports increased by 23.6% annually from 2000-2013. Until recently, Tunisia’s exports to Libya helped offset t losses from the European market.

Tunisia and Libya have developed strong economic and commercial relationships. For example, an agreement was signed in 2013 to supply the Tunisian market with 650,000 barrels of crude oil and gas a month. Tunisia depends heavily on these imports and production disruptions in Libya have prevented it from meeting its commitments; Libya used to provide more than 25% of Tunisia’s fuel needs at preferential prices.

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