Summary:

On 27 January, 2023, Moody’s announced a downgraded rating for Tunisia, moving it from Caa1 to Caa2 with a negative outlook. Moody’s assessed that the absence of financing to meet the government’s significant financial needs greatly increases the risk of default. The agency attributed the downgrade to poor governance and growing social risks in Tunisia and highlighted the necessity of securing external financing. In contrast, Fitch Ratings had raised their outlook on Tunisia slightly in late 2022, just prior to delays in the IMF loan deal process.

This rating ends the review period that began in September 2022.  Moody’s noted that the risk of bankruptcy of some domestic banks is growing due to the potential of government default on loans in the short term. AMEN Bank, Societe Tunisienne de Banque (STB), Banque de Tunisie (BT) and BIAT are most at-risk according to Moody’s.

The agency noted that following a decade of failure to implement meaningful economic reforms, even if IMF funding is secured, the risk of default will likely remain high. Additionally, slow economic growth and weak job creation were highlighted as concerning indicators.

Outlook:  

The downgrade reflects the social, political and institutional challenges that limit Tunisia’s prospects for implementing the reforms that would secure the much-needed external financing. The prolonged delay in securing IMF funding could lead to the erosion of foreign exchange reserves through debt service payments which would exacerbate balance of payments risks and increase the possibility of painful debt rescheduling for private lenders. We are closely watching perceptions of the integrity of the Tunisian financial system; particularly as domestic banks remain intertwined with the government and are leaned up heavily for financing. As the country continues to move forward without a clear path to economic recovery, the risk of highly disruptive economic fallout increases.

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