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Republic of Tunisia - Development Policy Review : Making Deeper Trade Integration Work for Growth and Jobs(Washington, DC, 2004-10) World BankGiven a steady pace of structural reforms, and sound macroeconomic management, Tunisia experienced a fast, and sustained growth. However, while forward-looking policies helped preserve external and internal balances, challenges remain in the context of a volatile external environment. High and pro-poor growth, contributed to a sharp reduction in poverty in the second half of the 1990s, yet, despite strong growth, unemployment remains high, at around 15 percent, partly reflecting demographic pressures, and partly the decrease in the employment intensity of growth. Moreover, weaknesses in economic governance, in particular regarding the predictability, and transparency of the regulatory framework, and market contestability, may be an important constraint to private investment. Tunisia faces a turning point where, unless coordinated efforts to improve the quality of economic governance, and stimulate private investment are placed at the core of the reform agenda, the deeper engagement with the world, may not fulfill its development promise. Policies will be needed to make Tunisia's deeper trade integration work for growth, and jobs: Strengthening the investment climate, by improving economic governance; Improving the functioning of the labor market; Strengthening the soundness of the banking system and fostering the development of securities markets; Securing a robust medium-term fiscal framework; Enhancing the efficiency of education policies; Strengthening the effectiveness and sustainability of social sector policies; Lowering transactions costs for business entry, operation, and exit; Enhancing transparency and predictability of the regulatory framework; Enhancing market contestability, by reducing barriers to entry in key infrastructure services - and by strengthening competition policy - furthering Tunisia's international trade integration. The Tunisian banking sector has better room for dynamic growth, thanks to a gradually reduced government ownership, in spite of high non performing loans. Education is one of the principal pillars of Tunisia's strategy for development, as it aims to build the human capital necessary to compete in the global knowledge-based economy.