Summary:

On Thursday, 1 December 2022, Fitch Ratings released a comprehensive report, noting an overall upgrade from CCC to CCC+ for Tunisia’s Long-Term Foreign Currency Issuer Default Rating (IDR). The staff-level agreement with the International Monetary Fund (IMF) on a $1.9 billion funding deal was cited as a major driver of the increase. The IMF deal, as well as other deals cited with Saudi Arabia, the African Export-Import Bank and the Gulf Cooperation Council (GCC), are projected to make up the gaps in Tunisia’s budget. Furthermore, Fitch projected that inflation would likely continue to rise at a rate of 10% in 2023 and removed Tunisia from Under Criteria Observation (UCO) status.

Outlook:  

The updated ratings are based heavily on assumptions around the IMF deal, which has, in turn, provided a basis of confidence for other lenders to bigger deal negotiations. While the IMF deal is likely to be approved in December by IMF leadership, the Tunisian labor unions have affirmed their commitment to spoil meaningful reform of the public sector and subsidy system. While lending arrangements with Gulf countries may help meet short-term funding needs, the long-term economic outlook remains challenging from a domestic policy-making perspective.