Moody's Investors Service has today downgraded the long-term issuer rating of the Government of Tunisia to B2 from B1. The outlook was changed to stable from negative.
Moody's has also downgraded the foreign currency senior unsecured debt rating of the Central Bank of Tunisia to B2 from B1 and changed the outlook to stable from negative, in addition to downgrading the senior unsecured shelf/MTN rating to (P)B2 from (P)B1. The Government of Tunisia is legally responsible for the payments on all of the central bank's bonds. These debt instruments are issued on behalf of the government.
The key drivers for the downgrade are Moody's expectations that the further erosion in fiscal strength and foreign exchange reserve buffers will not reverse significantly in the next few years:
1) Central government debt has risen to about 70% of GDP in 2017, and will edge up gradually in 2018-19, amid declining debt affordability;
2) The current account deficit will remain wide, from 10.4% of GDP in 2017, and the economy's external debt has risen further above 80% of GDP, weighing on reserves adequacy.
The stable outlook reflects Moody's expectations that Tunisia's credit metrics will remain consistent with a B2 rating. Fiscal consolidation is underway and will mitigate the rise in the government's debt burden, while the recovery in external demand for Tunisia's services, manufacturing and agriculture will help narrow the current account deficit slowly, preventing a further erosion of foreign exchange reserves. The stable outlook also reflects Moody's assumption that Tunisia continues to meet the objectives of the IMF program, ensuring the continuity of planned official sector disbursements which the government expects to cover almost 50% of fiscal funding requirements.
Moody's has also lowered the long-term local currency bond and bank deposit ceilings to Ba2 from Ba1. The long-term foreign currency bank deposit ceiling was lowered to B3 from B2, and the foreign currency bond ceiling to Ba3 from Ba2. The short-term foreign currency bond and bank deposit ceilings remain unchanged at NP.
