Moody’s forecasts a growth of 2.8% in 2018 and 3% in 2019 from 1.9% in 2017 and a rise in the government debt ratio to 73% in 2019 in Tunisia.
The government debt ratio will reach 72% of GDP in 2018 and 73% in 2019, driven by a steady currency depreciation, persisting primary deficits and an increasing interest burden, Moody’s said in its report, “Government of Tunisia — B2 Stable, Annual credit analysis.”
“Tunisia’s debt ratio increased sharply to almost 70% of GDP at the end of 2017 and higher than anticipated spending pressures and a heavy public sector wage bill limit its budget flexibility,” said Elisa Parisi-Capone, a Moody’s Vice President — Senior Analyst and author of the report. “We have also witnessed delays in the implementation of IMF reforms.”
The report recalls that “In recent years, Tunisia’s elevated fiscal deficits have been one of the main contributors to the increase in government debt, which reached 69.9% of GDP in 2017, from 50.8% in 2014. Adverse foreign-exchange rate dynamics have also contributed to the rise as more than 68% of Tunisia’s government debt is denominated in foreign currency.”
“The recovery of the tourism industry, aided by the removal of travel agency restrictions, to have a multiplier effect for the economy and for the banking system given that many nonperforming loans, especially in public sector banks, are tied to the tourism industry,” Moody’s estimated.
The stable outlook on Tunisia’s sovereign rating reflects Moody’s assumption that the country will continue to meet its IMF objectives and retain official sector disbursements which finance almost 50% of the government’s total funding requirements.
Negative pressure on the rating would follow any further delays with the implementation of the IMF economic reform programme that impacted Tunisia’s access to official funding sources and deterred market appetite.