The drought slowed down an already limited economic recovery in the first half of 2023 The sixth consecutive year of below-average rainfall compromised Tunisia’s agricultural production and slowed down further an already limited economic recovery. The Tunisian economy expanded in real terms by 1.2 percent in the first half of 2023, half the rate of 2022, and almost a quarter of the 2021 rate. The drought has compounded a difficult recovery, marred by uncertain external financing and continued regulatory barriers to growth, which have not been addressed by economic reforms. Tunisia exhibits a very modest economic recovery in comparison with other countries from the Middle East and North African region, with its GDP per capita still 4.7 percent below the pre-pandemic level. With limited economic growth, the unemployment rate increased slightly by the second quarter of 2023, stabilizing at the pre-Covid level, while the labor force participation rate remained below pre-Covid.Favorable terms of trade and the tourism recovery improved the current account deficit but external financing needs remain significant while external financing has declined Tunisia’s merchandise trade deficit declined by 39 per￾cent in the first 8 months of 2023 to TD 12.2 billion (7.5 percent of 2023 GDP), boosted by more favorable international energy and food prices. The energy def￾icit widened due to a drop in domestic production in spite of more favorable prices, continuing to account for the majority of the merchandise trade deficit.