Moody’s Investors Service last Friday upgraded the Government of Tunisia’s issuer rating’s outlook to stable from negative and affirmed its rating at B2.
The stable outlook reflects the stabilization in the balance of payments and the debt burden that Moody’s expects to be maintained as tighter monetary policy stabilizes the currency and fiscal policy prudence is likely to remain, despite significant constraints to rapid consolidation.
Explaining the affirmation of the B2 rating, Moody’s said it reflects external vulnerability risk that remains elevated in light of large external financing needs and a high debt burden still vulnerable to potential currency and financing shocks.
A significant and sustained reduction in external and fiscal imbalances and high confidence in Tunisia’s ability to secure funding to meet its upcoming debt service payments over the next decade at favorable terms would likely lead to an upgrade.
Conversely, a downgrade would be likely if there were delays in the availability, or a marked increase in the costs, of external funding, fiscal overruns or the materialization of sizeable contingent liabilities, that would weaken Tunisia’s fiscal strength and foreign exchange reserves adequacy.
This could be the result of protracted policy paralysis or the inability to form a government that delays the implementation of outlined fiscal and business environment reforms, the rating agency said.
