Fitch Ratings, on Tuesday, affirmed Tunisia’s Long-Term Foreign-Currency Issuer Default Rating (IDR) at ‘B+’ with a Negative Outlook.
It said Tunisia’s rating is constrained by high and growing public and external debt reflecting wide twin deficits, subdued economic growth and a challenging political and social environment.
The rating agency, however, highlighted the country’s structural features relative to ‘B’ peers, low GDP growth volatility and a clean debt service record.
On the Negative Outlook, Fitch said it reflects persistent pressures on external liquidity arising from large financing needs that will average 13.2% of GDP per year in 2018-2020 under its forecasts, deterioration in the terms of trade, low foreign-currency (FX) reserves and a high inflation differential with trading partners.
Fitch also noted that despite some progress towards budget consolidation, the implementation of unpopular fiscal reforms remains slow and there are pressures for wage increases amid high social discontent and deepening political divisions.
According to the rating agency, the lack of budgetary headroom and low external buffers amplify the economy’s high susceptibility to exogenous shocks, for example from a rise in oil prices, tighter international funding conditions, weaker European demand or security risks.
The main factors that may individually, or collectively, result in the Outlook being revised by Fitch Ratings to Stable include implementation of adjustment policies and reforms supporting macroeconomic stability and reducing downside risks for the economy and reduction in budget deficits consistent with stabilizing the public debt/GDP ratio over the medium term.
This revision will also depend on a sustainable improvement in Tunisia’s current account deficit, leading to lower external financing needs and stronger international liquidity buffers, said the rating agency.