Tunisia: Moody’s upgrades outlook from negative to stable

Rating agency Moody’s maintained Tunisia’s long-term foreign and local currency rating at “Caa2”, while improving theoutlook from negative to stable. Moody’s attributes the decision to a significant reduction in the current account deficit compared to historical levels and the agency’s previous forecasts. In its foreword, the agency highlights that the Central Bank of Tunisia, thanks to a new law approved by Parliament, is now “responsible for payments on all government bonds”, underlining that “these debt instruments are issued on behalf of the government”.

In this regard, Moody’s underlines that the use of direct monetary financing highlights “the persistent financing constraints of the government and marks an erosion of the autonomy of the Central bank, although the government believes it is a one-off measure. More generally, the lack of visibility on financing increases the risks of greater arrears in domestic tax payments and a future draw on foreign exchange reserves.”

The level of Tunisia’s foreign exchange reserves, according to the New York-based agency, made it possible to repay two successive international loans in October 2023 and February 2024, worth 500 million euros and 850 million euros respectively . Moody’s believes that Tunisia’s rating reflects “a high degree of uncertainty about financing sources in a context of persistent and high need to raise liquidity”, with a “still high fiscal deficit and a challenging debt maturity profile”.

The country’s foreign exchange reserves amounted to $7,4 billion as of February 2024 – essentially unchanged from the January 2023 level and equivalent to approximately 3 months of import coverage. Moody’s expects the current account deficit to rise to around 4,5 percent of GDP this year as imports partially recover, which will remain below the average of nearly 8 percent of GDP recorded between 2011 and 2023, impacting overall external financing needs.

The rating of the Tunisia could be improved through “progress on structural reforms, anchored in external financial support”, thus resolving “some of Tunisia’s structural credit constraints, including those resulting from its weak fiscal and external position”. Conversely, the agency’s rating could worsen “if persistent constraints on the availability of financing impair the government’s ability to meet its debt payment obligations or result in a decline in foreign exchange reserves greater or more rapidly than expected.” 

Moody’s currently predicts, thus indicating a greater probability of default.” Furthermore, increased external vulnerability risks could lead to a “currency devaluation”, increasing the burden, eroding sustainability and increasing the likelihood of debt restructuring.


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