Tunisia: R&I downgrades country’s Foreign Currency Issuer Rating to B-

Japan’s Rating and Investment Information, Inc. (R&I) Tuesday downgraded Tunisia’s Foreign Currency Issuer Rating from B to B- with the Rating Outlook of Negative, the Central Bank of Tunisia (French: BCT) quoted R&I as saying.

“Relatively high fiscal deficits persist. The outlook for fiscal consolidation is uncertain, and the government debt ratio remains high,” the rating agency said in a press release.

The tax revenue is increasing steadily and the growth of wage expenditure is also under control, the agency said. That said, as there is an upside risk about expenditure for subsidies, it is yet to be seen whether the government is able to reduce its fiscal deficit as planned.

As the government has made efforts to secure foreign currency and hold a certain amount of foreign exchange reserves, there is little likelihood that the country may face immediate problems with foreign currency liquidity, the rating agency added.

Although the deficit is expected to narrow in 2023, the level of the deficit will remain large. The country’s external debt is large, making the economy highly vulnerable to external shocks.

Nonetheless, uncertainties are growing about the government’s capability of servicing foreign-currency debts over the medium-term, as there is no clear development to secure financial support from the International Monetary Fund (IMF).

R&I believes that the IMF support is a crucial factor not only to secure foreign currency liquidity but to achieve macroeconomic stability and boost economic growth through structural reforms

“To meet the requirements to receive IMF’s support, the government laid out a structural reform program as a condition of the financial support, including curbs on government spending for public employee wages, reforms of government subsidy system and state-owned companies, and improvement of business environment among other measures,” R&I further said.

The government and the BCT are working to secure financial supports from foreign governments and international organizations, and are expected to be able to raise enough funds for this year even without the IMF support.

The Japanese rating agency had downgraded Tunisia’s Foreign Currency Issuer Rating to ‘B’ with outlook negative on August 10, 2022.

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