The Sustainability of External Adjustment Process in Tunisia: Lessons for Post "Arab Spring" Revolution Policies

Salem Kanoun

Asian Economic and Financial Review, 2014, vol. 4, issue 2, 211-225

Abstract: This paper highlights one of the first attempts in the empirical studies. It shall examine the sustainability of external adjustment policy using a quantitative approach. Using intertemporel and consistency approaches of deficits sustainability, our specific framework for Tunisia shows a positive required external adjustment over the entire period (1976-2010). A dynamic Error Correction Model is used to check short and long run relationships between primary current account deficits and the related sustainable thresholds. The evidence resulting from econometric model robustness checks indicates that adjustment forces are in operation to restore long-run equilibrium following a short run disturbance which involves authorities’ ability and willingness to adjust. As a guide to possible policy actions after the “Arab spring” revolution, the sustainability of past adjustment policy which had generated, amongst others, foreign buffers helps the government, to some extent, to support the post revolution sizeable official external financing flows and provides scope for the economy to operate at a higher level than would otherwise be the case, in order to sustain political transition. However uncertainty over the “rules-of-the-game” and the period of the political transition cannot be dismissed so easily which could put at risk the future of an already successful adjustment when the reversal in deficit trends becomes practically very difficult.

Keywords: Current account deficits; External adjustment; Sustainability; Error-correction models. (search for similar items in EconPapers)
Date: 2014
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