Link to Fitch Ratings' Report: Tunisia - Rating Action ReportLONDON, October 30 (Fitch) Fitch Ratings has downgraded
foreign currency Issuer Default Rating (IDR) to 'BB-' from 'BB+'
currency IDR to 'BB' from 'BBB-'. The Outlooks on both IDRs are
has also affirmed Tunisia's Short-term rating at 'B' and
downgraded the Country
Ceiling to 'BB' from 'BBB-'.
KEY RATING DRIVERS
The downgrade of Tunisia's IDRs reflects the following key
rating drivers and
their relative weights:
- The political transition has been further delayed and
uncertainty over the
ultimate success of the process has increased. The
assassinations of two
opposition leaders in February and July 2013 triggered a
paralysing decision making and delaying the political
transition. Attacks and
killings by terrorist groups have gained momentum in recent
security and stability.
- The presidential and parliamentary elections initially
expected in 2013 have
been postponed. The outcome of negotiations between the
opposition parties to form an interim government, which started
in late October,
remains uncertain. Elections are unlikely to take place any
sooner than H214.
Downside risks such as further delays in the political process
or escalation in
protests and violence are material. In addition, elections are
no guarantee of
future stability amid risk of social and political
- Delays in the political transition are damaging economic
growth prospects for
2013 and 2014. Fitch has revised down its real GDP growth
projections to 2.8% in
2013 and 3% in 2014, while inflation has risen and is expected
to reach 6% on
average in 2013.
- Fitch expects the current account deficit to remain high at
8.1% of GDP in
2013 and 7.7% in 2014. Net external debt is rising,
international reserves are
under pressure and the dinar has started depreciating. The
disbursement of a USD1.75bn standby agreement with the IMF in
June 2013 offers
some relief in 2013-2014, if the programme remains on track.
- The budget deficit will overshoot the budget target in 2013
and is likely to
exceed 7% of GDP. Fitch expects the authorities to opt for
consolidation in 2014 and for government debt to rise moderately
to around 50%
of GDP by end-2014, somewhat higher than its rating peers. With
around 60% of
government debt foreign currency-denominated, public finances
are exposed to
balance of payment shocks.
- The banking sector is weak, with high exposure to impaired
in the tourism sector, and will require recapitalisation by the
public sector in
- The authorities' budget and external financing flexibility has
official lending, which has been the main source of financing
since 2011, will
Tunisia's IDRs also reflect the following key rating drivers:
- Governance and development indicators, including GDP per
capita and human
development index, are in line with 'BB' rated peers.
- Tunisia has a history of resilience to external and domestic
Volatility of real GDP growth, inflation and fiscal revenues
favourably with peers despite the 2011 recession.
- Private external borrowing and external short-term debt are
the risk of sudden outflows of hot money. External debt service
favourably with peers given the large share of official debt.
The debt service
record is clean.
The Negative Outlook reflects the following risk factors that
or collectively, result in a further downgrade of the rating:
- An intensification in the political crisis, for example
leading to heightened
violence and political fragmentation.
- A failure to reduce significantly the budget and current
account deficits or
heightened uncertainty over deficit financing options.
- Material recapitalisation needs of the banking sector or
The current Outlook is Negative. Consequently, Fitch's
sensitivity analysis does
not currently anticipate developments with a material
or collectively, of leading to an upgrade. However, future
may, individually or collectively, lead to a revision of the
Outlook to Stable
- An easing of political and social tensions and improved
confidence in the
success of the transition process, for example related to the
organisation of elections and formation of a legitimate
- A demonstrated gradual unwinding of macroeconomic imbalances,
illustrated by a
reduction of budget and current account deficits, and improved
The ratings are sensitive to a number of assumptions:
Fitch assumes that progress towards political transition
continues without a
breakdown in the process or widespread violence, even if
progress is uneven and
amid continuing political and social tensions.
Fitch assumes that official creditors will remain supportive of
coming years. In particular, Fitch assumes that the IMF standby
on in June 2013 will be fully disbursed, financing a large share
public and external financing needs in 2014.
Fitch also assumes that the current authorities or the future
not repudiate external public debt contracted under the former
regime on grounds
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'Country Ceilings' dated 09 August 2013, are available at
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