International rating agency Fitch has affirmed the long-term foreign currency rating of Tunisia at 'BBB', and the long-term local currency rating at 'A-' (A Minus). The short-term rating remains at F2. The outlook on the ratings is stable.
The Tunisian economy has absorbed a series of shocks over the past eighteen months without suffering any serious damage. Economic growth slowed sharply in 2002 due to falling tourism and weak domestic demand but prudent policy management resulted in a second successive year of deficit reduction, leading to a fall in general government debt to around 60 percent of Gross Domestic Product (GDP).
Slower economic growth allowed for a compression in the current account deficit, estimated at 3.4 percent GDP in 2002 against 4.3 percent a year earlier. Net external borrowing is still relatively high as the government continues to source a large part of its funding from abroad, but it enjoys good access to market financing and to international financial institutions.
External debt to GDP has moderated slightly, while the debt-servicing burden has stabilized at around 15 percent of export earnings.
This year should see further improvements in Tunisia's credit fundamentals. GDP growth is likely to increase thanks to a rise in agricultural output and a mild recovery in the tourism sector. This should allow the authorities to achieve a fiscal deficit of around 2.6 percent of GDP.
Stronger growth and a small primary surplus, combined with continued low real interest rates point to further reduction of the general government debt burden, which Fitch forecasts at 59 percent of GDP by year-end.
The current account deficit may widen in 2003 but should remain below four percent of GDP and at least half of this will be financed with foreign direct investment. External borrowing will remain significant, however, but we anticipate a further reduction of external debt to GDP by the end of the year.
The outlook remains stable. Further upgrades will hinge on deeper and sustained structural reform, improvements in the banking system and additional industrial restructuring and diversification.
The tourism sector will also need stronger investment and restructuring to withstand future challenges and competition. It is vital that fiscal consolidation continues apace, as government debt to revenue remains high relative to rating peers.
Growing strains in the social security system could pose problems for future fiscal policy, as could the tariff reductions earmarked under Tunisia's association agreement with the EU and the state development banks. — (menareport.com)
© 2003 Mena Report (www.menareport.com)
