Tunis’ sovereign rating is now on par with Ukraine and below Iraq, according to Fitch. The US rating agency cut its estimate of the country’s ability to repay its long-term debt by one notch, from B- to CCC. A harsh comparison, but not necessarily a surprise. Explanations.
“When you’re on the Titanic, it’s not an additional broken window that will change anything, illustrates Afif Chelbi, former minister and ex-president of the Council for Economic Analysis of Industry (2004-2011). The country’s situation is more than critical, but it is not new. “For the international rating agency Fitch Ratings, it dates from July 25, 2021. “The drop in the rating [souveraine] to CCC reflects heightened internal and external liquidity risks, amid further delays to an agreement for a new program with the IMF, following the July 2021 policy changes,” Fitch analysts explain in a report. released on March 18.
In other words, since the institutional coup by the President of the Republic, Kaïs Saïed, international fundraisers have been wondering. Discussions for a fourth loan – in ten years – have long been at a standstill and only resumed late between Washington and Tunis. However, Tunisia needs a signature with the International Monetary Fund to balance its budget, either by exiting the international markets or by bilateral loans. Saudi Arabia would be ready to help Tunisia substantially, on the condition of obtaining an agreement with the IMF. Time is running out: the Tunisian budget deficit should, according to American analysts, reach 8.5% of GDP in 2022, against 7.8% in 2021.
An impossible reform
Other countries rated “CCC” by Fitch include Argentina, which has a long history of defaulting on its debt, Ethiopia and Mozambique, plagued by internal armed conflicts, Congo-Brazzaville, whose indebtedness for a time exceeded the 100% of GDP mark, as well as Ukraine and Belarus, at the heart of the new clashes in Eastern Europe.
Fitch’s criticisms relate to the weight of the public wage bill, which represents 70% of state revenue, and that of energy and food subsidies, which weigh nearly 3% of GDP. However, the cost of these subsidies is expected to increase further. The finance law provided for a barrel price of 75 dollars, whereas it currently fluctuates around 95-100 dollars. Ukraine is the main wheat importer in Tunisia which heavily subsidizes the prices of bread, pasta and semolina. The government of former Prime Minister Hichem Mechichi was planning, during discussions with the IMF, to cut this aid. A reform now impossible at a time when discontent is mounting over the shortage of basic food products and with the approach of Ramadan.
If the new political system of President Kaïs Saïed slows down discussions with the IMF, it also cools private international investors. This is revealed by Fitch deploring a deterioration in the environmental, social and governance criteria. “These are not subordinate themes. They are very important for investment funds and institutional investors,” warns financial analyst Bassem Ennaifer.
Last month, the European Investment Bank announced that it would not disburse the full amount of a 19 million euro loan to the public company Groupe Chimique Tunisien (phosphates) due to delays in up-to-date environmental standards. “The authorities hope for an agreement with the IMF before this summer, but on July 25 the Tunisians must vote for a new Constitution of which we have, for the moment, not the slightest idea of the content, points out an observer. Does this make you want to invest in Tunisia? Neither does Fitch analysts. »