The Japanese rating agency R&I has downgraded Tunisia’s foreign currency issuer rating to ‘B’; outlook negative.
According to R&I, Tunisia has been going through a challenging economic situation in the face of deteriorating external environment and rising inflation triggered by Russia’s invasion of Ukraine. “In light of mounting fiscal pressures caused by this, it will likely take time for the government to ensure a steady reduction in the government debt ratio, which had jumped up to the current level under the COVID-19 pandemic,” said the agency.
R&I considered that in order for Tunisia to restore stability in terms of rating assessment, it is a minimum requirement to reach an agreement with International Monetary Fund (IMF) in the talks over the financial assistance sought by the Tunisian government. “Although the talks are in process at this point, it is difficult to see whether the government can ensure continuous access to the financial assistance of IMF even if they could reach an agreement, given the deepening political and social uncertainty,” the R&I pointed out.
It added that Russia’s military invasion of Ukraine is casting a shadow on the future of tourism, an important source of foreign exchange for the country.” The economy will likely slow down in comparison with the previous year and the government announced a downward revision on the forecast of real GDP growth rate for this year, which is now projected at 2.6%. The forecast of IMF is 2.2%.
“From 2023 onwards, the country is expected to see a GDP growth at a moderate pace of 2-3%, while it may change depending on the trend of external demand and the state of domestic politics.” reads the R&I statement.
The rating agency said the price hikes of energy and food will likely push the current account deficit up to the level of nearly 10% of GDP in 2022, in marked contrast to 2021 when the deficit had fallen to a 6% level reflecting the decrease in trade deficit resulting from the weak domestic demand under the COVID-19 pandemic among other factors.
It noted that the short-term external debt stands at a level which weighs very heavily on the foreign exchange reserve.