Fitch Ratings says that a smooth election of the Tunisian constitutional assembly this weekend and broad agreement on a new constitution are important steps towards the agency resolving the Negative Outlook on Tunisia's 'BBB-' rating.

The Negative Outlook is largely based on political uncertainty because the damage to the economy from the political uprising appears manageable.

Fitch would wait for the new constitutional assembly to agree on the length of its mandate, appoint an interim government and president and start making progress towards a written constitution before it reviewed the rating Outlook.

If progress stalls, Fitch may wait for elections under the new constitution to have greater clarity on the new government's policies.

Delays to the political transition and the eventual election of a government with a solid mandate that can implement sound economic and fiscal policies would mean investment will be slower to recover, leading to lower growth, higher unemployment, wider fiscal deficits and a less favourable economic climate for democratic reforms.

The economy suffered during and immediately after the regime change, with negative GDP growth during H111. Tourism and investment were worst affected.

One knock-on effect from a 45 per cent fall in foreign exchange earnings from tourism was a drop in the country's foreign currency reserves. The current economic environment is also likely to lead to a further increase in non-performing loans in an already stretched banking sector.

However, Tunisia's economy is starting to show signs of recovery. The head of the national statistics institute recently announced that real GDP grew 1.5 per cent year-on-year in Q3 and the export sector is holding up well. A stabilisation of Libya would benefit its neighbour given the strong trade relations between the two countries.

Along with other Middle Eastern countries that have changed their political regime, Tunisia stands to benefit from substantial external financial assistance.

The International Monetary Fund estimates real GDP growth in Tunisia could reach 7 per cent by 2016 if external financing of about US$5bn per year is put to good use. That would be enough to address many of the country's economic challenges, including its high graduate unemployment.