Although the political and social environment remains fragile in Tunisia, the economy is expected to continue recovering gradually, supported by sound policy measures and concessional funding from the international community, says Moody’s Investors Service in a Special Comment published Monday.
Despite Tunisia’s progress in transitioning to democracy since last year’s “Jasmine revolution,” the continued political uncertainty and occasional civil unrest continue to constrain the country’s sovereign creditworthiness, as reflected in Moody’s negative outlook on Tunisia’s Baa3 government bond rating.
Nevertheless, Tunisia’s economy has been steadily recovering, supported by both fiscal and monetary policy measures as well as concessional funding from the international community. Tourism-related receipts increased by 35.8% over the first five months of 2012 compared to the same period last year. FDI recovered almost entirely from the 25.7% drop last year to increase 42.8% over the first five months of 2012.
Moody’s notes that additional funds have been earmarked by the government for development spending, an employment program and an increase in subsidies, which should support growth.
The main priorities set in the 2012 budget are in line with the “Jasmine Plan”, which was launched by the previous interim government and focuses on supporting investment in Tunisia’s deprived regions and promoting job creation.
Moody’s notes that Tunisia is expected to issue a USD350 million seven-year note in July 2012 with the full explicit guarantee of the US government on principal and interest, which will offer it a very low cost of funding.
In addition, Tunisia has also secured further concessional financing from the international community to finance its 2012 external borrowing needs, which were estimated at USD2.8 billion in the recent supplementary budget law.
Although Moody’s does not foresee material risks to Tunisia’s ability to finance its twin deficits at low cost, a further deepening of the crisis in Europe could negatively affect the country’s fragile recovery.