Summary:

On 8 December 2023, Fitch Ratings issued a rating action commentary for Tunisia, affirming the current CCC- rating for Tunisia’s Long-Term Foreign Currency Issuer Default Rating. 

The commentary highlights concerns about the Tunisian government’s ability to meet its financing needs as it faces the simultaneous increase of those needs and the decline in financing opportunities. Fitch acknowledges that as external financing opportunities grow increasingly rare, the government will have to rely on domestic financing. However, based on the financing needs, Fitch assesses that further dependence on domestic lenders will be a “stretch to the domestic market capacity” that is perhaps beyond the domestic markets ability to “absorb the public sector financing needs.” 

The report also raises concerns about potential policy changes to the operations of the central bank that would allow direct financing of the government budget, stating this would “endanger the credibility of the central bank and raise pressure on prices and the exchange rate.” 

This affirmation follows the June 2023 decision by Fitch to downgrade Tunisia’s rating from CCC+ to CCC- as it became increasingly apparent that an International Monetary Fund (IMF) deal would not likely be considered. In late 2022, Fitch upgraded Tunisia’s rating in anticipation of a nearly $2 billion IMF loan deal that has since been delayed and largely rejected by the current administration. 

Outlook: 

As economic reforms remain politically untenable for the current administration, the Tunisian economy will move into 2024 in a precarious state. Large debt payments will come due in 2024, even as financing needs continue to rise and options for securing that financing grow increasingly limited. 

With most external creditors implicitly or directly tying future loans to an IMF deal, Tunisia’s options for external credit have narrowed to a few complicated allies, including Algeria and the Gulf States. Additional funds from these partners could come with guarantees of future cooperation on regional issues, including normalization with Israel. 

Without a significant change of direction for the Tunisian economy, the slow decline will continue into 2024, likely leading to growing frustration among Tunisian consumers who are already consistently experiencing shortages and rising prices for the goods they are able to find in stores. 

Explore our services or speak with our team of North Africa-based risk experts.