TUNISIA: Sovereign ratings affirmed, outlook ‘negative’

TUNIS (Capital Markets in Africa) – Fitch Ratings affirmed at ‘B+’ Tunisia’s long-term foreign and local currency Issuer Default Ratings, with a ‘negative’ outlook. It indicated that the ratings are constrained by fiscal and current account deficits, elevated public and external debt levels, a challenging political environment and subdued economic growth.

The agency expected economic activity in the 2019-21 period to be supported by higher investments and exports, strong tourism activity, as well as robust growth in the agriculture, mining, tourism and manufacturing sectors. It forecast the central government’s deficit, including grants, to narrow from 4% of GDP in 2019 to 3.3% of GDP in 2021, driven by better tax collection and further energy subsidy reforms, which will more than offset the impact of rising debt servicing costs. Also, it projected the general government’s debt level to peak at 82% of GDP in 2020, due to wide fiscal deficits and the depreciation of the dinar, as debt in foreign currencies accounts for 75% of total public debt.

In parallel, it forecast the current account deficit to narrow from 11.2% of GDP in 2018 to 9.3% of GDP in 2021, in case of an improvement in the terms of trade, and higher phosphate production and gas output. It forecast the country’s average external funding needs at 17% of GDP per year in the 2019-21 period, and projected the net external debt level to rise from 70.5% of GDP in 2018 to 91.4% of GDP in 2021. It said that international reserves reached 2.6 months of current account payments at end-2018, which raises vulnerability risks to higher global oil prices, tighter external funding conditions or slower Eurozone growth.