Fitch Downgrades Tunisia to ‘B’; Outlook Stable

Fitch Ratings has downgraded Tunisia’s Long-Term Foreign-Currency Issuer Default Rating (IDR) to ‘B’ from ‘B+’. The Outlook is Stable, Fitch Ratings reported Tuesday.

The downgrade reflects the aggravation in Tunisia’s persistent macroeconomic imbalances and deterioration in external and public debt trajectories due to economic disruptions from the coronavirus pandemic shock. Tunisia’s economy will witness its sharpest contraction on record in 2020 while the current account deficit (CAD) will fail to narrow amid a temporary halt in fiscal consolidation, prompting a further significant rise in net external debt (NXD) and general government (GG) debt ratios from already high levels. The Stable Outlook balances continued strong support from official creditors against ongoing external vulnerability from large funding needs and risks to fiscal reforms from entrenched social tensions.

The hit to global trade, manufacturing and tourism from the pandemic-related shock will severely affect Tunisia’s small open economy. Tourism is a major growth engine and has generated 4% of GDP in gross foreign-currency (FC) earnings over the last three years. The shock will halt most activity in the sector, putting around 10% of existing jobs into jeopardy, based on official estimates. The contraction in the world economy in 2020, and particularly a 7% decline in the eurozone’s GDP under our forecasts, will weigh on remittances which accounted for 4.8% of GDP over the last three years and on manufacturing exports, mainly from the automotive and textile sectors.


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