Given a steady pace of structuralreforms, and sound macroeconomic management, Tunisiaexperienced a fast, and sustained growth. However, whileforward-looking policies helped preserve external andinternal balances, challenges remain in the context of avolatile external environment. High and pro-poor growth,contributed to a sharp reduction in poverty in the secondhalf of the 1990s, yet, despite strong growth, unemploymentremains high, at around 15 percent, partly reflectingdemographic pressures, and partly the decrease in theemployment intensity of growth. Moreover, weaknesses ineconomic governance, in particular regarding thepredictability, and transparency of the regulatoryframework, and market contestability, may be an importantconstraint to private investment. Tunisia faces a turningpoint where, unless coordinated efforts to improve thequality of economic governance, and stimulate privateinvestment are placed at the core of the reform agenda, thedeeper engagement with the world, may not fulfill itsdevelopment promise. Policies will be needed to makeTunisia's deeper trade integration work for growth, andjobs: Strengthening the investment climate, by improvingeconomic governance; Improving the functioning of the labormarket; Strengthening the soundness of the banking systemand fostering the development of securities markets;Securing a robust medium-term fiscal framework; Enhancingthe efficiency of education policies; Strengthening theeffectiveness and sustainability of social sector policies;Lowering transactions costs for business entry, operation,and exit; Enhancing transparency and predictability of theregulatory framework; Enhancing market contestability, byreducing barriers to entry in key infrastructure services -and by strengthening competition policy - furtheringTunisia's international trade integration. The Tunisianbanking sector has better room for dynamic growth, thanks toa gradually reduced government ownership, in spite of highnon performing loans. Education is one of the principalpillars of Tunisia's strategy for development, as itaims to build the human capital necessary to compete in theglobal knowledge-based economy.
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