January 27, 2014 / 12:05 PM / 4 years ago

RPT-Fitch: Tunisia constitution an important step, challenges remain

Jan 27 (Reuters) - (The following statement was released by the rating agency)

The adoption of a new constitution is an important step in reducing political uncertainty in Tunisia, Fitch Ratings says. But easing political and social tensions will be a long and challenging process. Tunisia’€™s National Constituent Assembly voted to adopt the new constitution yesterday. Prime Minister Mehdi Jomaa announced an independent technocratic government, which remains to be approved by the national assembly in coming days. Talks between the outgoing government and opposition parties to form the interim administration began in October.

Both the adoption of the new constitution and the formation of a non-partisan, technocratic government suggest that political dialogue and compromise are still viable in Tunisia despite the increase in social and political polarisation and terrorism seen in 2013.

However, Tunisia’s political transition will face another challenge when postponed elections are held. These will take the interim government several months to organise and are unlikely to take place before the second half of the year. The elections will test the extent to which social polarisation has permanently reduced political stability, and are no guarantee against further social and political fragmentation.

In the meantime, the interim government will face significant policy challenges, including implementing the 2014 budget. Tunisia’€™s IMF programme agreed in June last year will require the budget deficit to be curbed, but expenditure is increasingly inflexible and bank recapitalisation costs may materialise this year. Continuing political uncertainty may have affected fiscal receipts. Delays in transition have already damaged growth prospects, and prompted us to revise down our forecasts for real GDP growth last year, although the IMF package has provided some support to the sovereign’€™s public and external finances.

The delay to political transition caused by the assassinations of two opposition leaders and the resulting political crisis and postponement of elections were key drivers of our downgrade of Tunisia to ‘BB-'€™ from '€˜BB+'€™ at the end of October. The risks that political instability presents to economic growth and policy formulation and execution are reflected in the Negative Outlook on the rating. Our next scheduled review date is April 25.

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