Moody’s affirms Tunisia’s Ba3 rating, upgrades outlook to stable

By bne IntelliNews May 27, 2015

Moody's affirmed Tunisia's government issuer rating at Ba3 and upgraded the outlook to stable from negative on improving political and macro-economic outlook.  Moody’s underscored the significant decline in domestic political risk given the successful democratic transition and the forming of a broad unity government. Other factors supporting Tunisia’s ratings and outlook include reduced external funding challenges following the resumption of official financing and access to international capital markets and the gradual reduction in fiscal and external imbalances. Tunisia's recent Eurobond issuance also reflects improved investor confidence as a result of enhanced political stability, the ratings agency noted.

Moody's has also affirmed the debt rating of the central bank of Tunisia at Ba3 and changed the outlook to stable from negative.

On the fiscal side, Moody’s underscored that the fiscal consolidation process is supported by both revenue measures and expenditure restraint, implied by lower energy subsidies (among others) which are further supported by the recent fall in oil prices.

Moody's forecasts Tunisia’s fiscal deficit to reach 5.3% in 2015 before narrowing to 4.2% in 2016 as a result of the improving growth outlook.

On the external side, Moody's also expects a narrowing in the current account deficit from the peak reached in 2014 amid improving external demand from EU trading partners, lower oil prices and recent onshore oil discoveries that support the oil and gas production profile. Food exports following a record olive oil production season, will also support the current account balance.

Moody’s also warned that government liquidity risk remains a moderate constraint on credit quality in view of public gross funding requirements of around 10% of GDP over the next two years. Tunisia’s Ba3 rating also reflects vulnerabilities in the public banking sector which is undergoing a significant restructuring process. Moody’s underscored that while domestic political risk has receded significantly, recent terrorist activity in Tunisia highlights the security tensions the country remains exposed to, including from neighbouring Libya. 

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