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Tunisia: debt insurance hits record high

Tunisian debt insurance costs have risen by a quarter since the start of 2012, hitting new three-year highs on Monday in a reflection of investor unease over political instability and slow economic recovery.

Tunisia’s picture is not as worrying as in Egypt where five-year credit default swaps are at 600 bps and the political lockdown is raising fears of a devastating financial crunch. That means it costs $600,000 a year to insure $10 million of exposure to Egypt for five years.

But data from Markit shows Tunisian five-year CDS have jumped to 300 basis points, the highest since April 2009 and up 60 bps since end-2011. They have doubled since the Revolution of January 14.

“(The CDS rise) highlights concerns over a widening fiscal deficit, a large current account shortfall and uncertain political outlook as tensions gradually rise between conservative and secular forces,” said Samir Gadio, emerging markets analyst at Standard Bank.

The ruling Islamist Ennahda party is holding a meeting to re-elect its leader and an announcement due on Monday evening will be closely watched to see in which direction it will steer the country.

Ennahda is under intense pressure from some Muslim groups who want to introduce Islamic law, as well as secular opposition parties who worry about the potential Islamisation of the country and fear the party is too lenient with hardliners.


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