Moody’s forecasts Tunisia’s economic growth to remain subdued at around 1.7%, below the Tunisian government’s forecast of 1.8% growth in 2023.
This weak economic growth results from declining economic activity in the euro area – which absorbs around two-thirds of Tunisia’s goods exports – and continuing constraints to investment, said Moody’s.
The rating agency stressed in its recent rating of Tunisia while the 2023 budget plans for a narrowing of the budget deficit (excluding grants) to 5.2% of GDP from 7.7% of the GDP in the supplementary 2022 finance law, fiscal consolidation relies on new revenue-raising measures and the initiation of gradual subsidy reform, the implementation of which is likely to face political and social resistance amid a weak growth environment and more elevated inflation.
Moody’s also pointed out that further delays in securing external financing will compound the pressures on Tunisia’s foreign exchange reserve adequacy. Hence, “beyond the role of the reserve buffer as a backstop for external debt service payments, preserving external stability has significant implications for Tunisia’s public debt dynamics in view of the high share of foreign currency-denominated public debt, equivalent to more than 60% of the total.”
It also noted that he external vulnerability indicator (the ratio between the sum of external debt payments due over the next year and non-resident deposits, and foreign exchange reserves) will remain above 200% this year and next, “indicating significant exposure to potential balance of payments disruptions to meet upcoming external liabilities.”