– Tunisian debt remains viable, despite vulnerability due to the high proportion of external debt. Tunisia has a moderate level of risk and its external debt remains sustainable in the medium term, an analysis of “Trends and sustainability of Tunisian public debt”, developed on the basis of the International Monetary Fund (IMF) projections, by the Tunisian Institute of Competitiveness and Quantitative Studies (ITCEQ).
However, the repayment profile of the 2015-2020 public debt service is affected by the burden of borrowing before 2015. The public debt maturity schedule will be loaded before 2020.
Indeed, the country will have to repay its creditors of 5.5 billion dinars in 2017 (including reimbursement of Qatar’s investment of 500 million US dollars – about 1.125 MTD- which is ultimately delayed) and 4.6 billion dinars in 2020 (US guaranteed issuance in 2012, worth US $ 485 million), according to the analysis released on Friday in the ITCEQ forum.
According to the state budget forecast for the financial year 2017, public debt is expected to reach approximately 62.660 MTD by the end of 2017, i.e. 63.8% of GDP against 63% at the end of 2016 and 54.9 % at the end of 2015. This debt is spread over 42% in Euros, 32.6% in dollars, 11.9% in yen and 3.3% in other currencies and 10.2% in disbursement rights.
As for the debt service, in 2017, it will amount to 5.825 MD (excluding the repayment of the principal of the debt of the bond loan contracted with Qatar), up by 575 MTD, or by 11% Compared to 2016. Financing needs amount to 8.505 MTD, including 6.045 MT will be mobilized using external debt and 2.460 MT through domestic indebtedness.
Recent Developments in Public Debt
This analysis highlights the significant increase in public debt in recent years. The debt ratio reached 53.9% in 2015. However, this rate can be described as low compared to countries in the region (Morocco, 63% and Greece, 176%).
The public debt ratio has worsened by almost 13 percentage points, from 40.7% in 2010 to 53.9% by the end of 2015. The stock of public debt reached 46.087 MD in 2015, i.e. about 4,150 dinars per capita, compared to 25.640 MTD in 2010, i.e. 2,430 dinars per capita. By 2015, external debt represents 34.9% of the Gross Domestic Products (GDP) and domestic debt, 19%.
The structure of the outstanding public debt shows the consolidation of the share of external debt, which rose from 60.7% to 66.2% between 2010 and 2015. By 2015, external debt comes to 32.2% of the international financial market, 49.3% of multilateral cooperation and 18.5% of bilateral cooperation.
Annual increase of 5% in spending allocated to debt repayment
According to this analysis, spending on debt repayments in principal and interest increased from MTD 3,618.4 million in 2010 to MTD 40,609.3 million in 2015, an average annual increase of nearly 5 percent. These expenditures declined by about 5.3% in 2015, compared with a 10% increase a year earlier. Domestic debt service increased substantially in 2013, due to the repayment of principal on T-Bill (Treasury Bill) and to higher interest rates on international markets.
External debt would remain viable, with the exception of a sharp depreciation of the exchange rate
Based on IMF projections, the ITCEQ analysts worked on the evolution of Tunisian external debt according to two scenarios.
In the first case, this analysis emphasizes that, according to the IMF, projections under the baseline scenario (the main scenario of debt evolution and macroeconomic variables) show that Tunisia’s external debt will continue its growth. The ratio of external debt to GDP will reach a peak in 2018 of 69.4% against 56.2% in 2014.
This ratio will begin to decline gradually in the medium term to reach 63.8%, in 2020 following a favourable dynamic of the current account. Gross financing requirements, which stood at 25.7% of GDP in 2014, will increase to 24.8% in 2017, and from 2018 will begin to fall to around 20%, mainly due to relatively long maturities and favourable conditions provided by the lenders.
This analysis refers, in a second case, to shock scenarios, revealing that “the ratio of external debt to GDP remains dependent on negative shocks”. Compared to the reference scenario, this dynamic could deteriorate significantly.
Nevertheless, according to the IMF, Tunisia seems relatively resistant to external shocks and confidence crises thanks to the long-term maturities of external debt and relatively low interest rates on external financial markets. Thus, external debt would remain viable, with the exception of a strong depreciation of the real exchange rate.
According to this analysis, the ratio of external indebtedness would be reduced to less than 70% according to the various types of shocks. For example, a positive shock of economic growth or the current account would increase this ratio to 68.3% of GDP by 2020, while an increase in the average interest rate would have a negligible impact (increase of one point only). A combined shock (of interest rate and growth) would lead to an increase in the external debt ratio to around 70% in 2020.
In the worst-case scenario, a real exchange rate depreciation of 30% relative to the baseline scenario would lead to a debt ratio of 97.3% in 2018 before falling to 90.2% by 2020, more than two thirds of the public debt is denominated in foreign currency.