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When parliament this week approved a coalition government headed by Prime Minister Habib Essid which includes members of the secular Nidaa Tounes and the Islamist Ennahda party, it completed a transition that offers a chance for the survival of democracy in this last of the Arab Spring nations to still have one. This transition is obviously still fragile, but at least it provides a ray of hope that it will demonstrate how Western-style democracy and Islamism can coexist peacefully in an Arab state. The national unity government enjoys a comfortable parliamentary majority, allowing it to pass the laws needed for the economic reform program that is being demanded by international lenders.

One needs to keep in mind, though, that the administration has tough tasks ahead of it, in the economic arena as well as in the social and political spheres. The budget deficit has been swollen as successive governments have responded to social unrest with fourfold pay hikes and with the absorption of many unemployed into an already bloated public sector. Government debt has ballooned from 32% of gross domestic product to 50%. The so-called informal economy (heavily concentrated on smuggling) has gained in importance to where it now, reportedly, is equivalent to 40% of the registered one.

Full-year economic growth in 2014 is estimated to have fallen short of 3.0%, which is below pre-revolution levels and a far cry from the rates of 7%-8% the country would need to create enough jobs to satisfy the disillusioned youngsters who drove the uprising against the dictatorship of Ben Ali. Unemployment rose to 15.2% of the labor force in 2014 from 12.0% a year after the revolution, when the powers that be promised more freedoms and opportunities. One-third of those who are jobless are young graduates. This is a sensitive issue and the only way to address it effectively is to accelerate growth and attract foreign investment. In turn, this – quite aside from the commitments to creditors – requires the government to implement reforms. It calls for a thorough revamp of the tax and subsidies regimes, privatization, and a new investment code.

None of this will be easy to accomplish, the administration’s parliamentary majority notwithstanding. The steep drop in international oil prices will make trimming energy subsidies easier, but in other areas no such aid is available and popular opposition to any kind of fiscal belt-tightening will be fierce. Analysts often speak of two Tunisias, one that is concentrated along the coastal areas and is productive, and one that lies in the interior, where the revolution started, and in the badlands of the South, where smuggling is a way of life. The latter parts of the country are fertile ground for the recruitment of jihadis, who pose one of the more daunting problems for the administration.

Last month, the authorities arrested 32 militant Islamists who were planning “spectacular attacks” against vital installations, including the Interior Ministry, security stations and civilian buildings in Tunis. Ansar al-Sharia was among the most hardline movements calling for the establishment of an Islamic caliphate in Tunisia in the wake of the 2011 uprising. Now outlawed, it is working underground in an attempt to destabilize the nation. Despite its successful political transition, Tunisia has provided the largest contingent of fighters – believed to be in excess of 3,000 – to the Islamic State of Iraq and the Levant (ISIL).

This raises concerns of a serious problem when Tunisians with battle experience from Syria return home. By the official reckoning, perhaps 300 have already done so. Many of them have been tracked down and arrested, but the government will have to walk a fine line if it is to provide security without opening itself up to charges that it promotes a return of the heavy hand of the state. Jihadists across the region resent what this Sunni-Arab nation of 11 million now represents, namely the triumph of compromise over ideology. They will do what they can to try and undermine the new government. For Essid and his team, this could well turn out to be the greatest challenge of them all.

Under the circumstances, many wonder whether Essid, a US-trained agricultural economist, is a good choice for the premiership. He served in a variety of government positions under the ousted autocrat Zine el-Abidine Ben Ali and served as director of cabinet at the Interior Ministry from 1997 to 2001, some of the most brutal years of Ben Ali’s rule. But Ennahda leaders are, apparently, willing to give him the benefit of the doubt, saying they respect him “as a person and a professional.” He certainly has administrative experience and has indicated that he intends to govern for all Tunisians, regardless of their ethnic or religious background.

There are grounds for hope that Tunisia will succeed in consolidating its position, politically as well as economically. This would be a remarkable accomplishment, not only for Tunisia, but for the entire Levant. Tunisia – four years after the revolution that convulsed the Arab world – is now the only democratic survivor, Egypt being, once again, under the thumb of a military government and Libya, Yemen and Syria being rent by ethnic and religious strife.

The returning sense of stability was underscored last month with the first unassisted sale of government debt (meaning without guarantees by the US government, through the Agency for International Development, or Japan) since the self-immolation of a fruit vendor sparked revolutions across the Levant. International investors put in orders of more than USD 4 billion for the USD 1-billion bond, allowing Tunisia to borrow at a lower-than-anticipated rate of 5.875% over ten years. Later this year, the government is expected to issue its first Islamic government bond.

[March 9, 2015]