(The following statement was released by the rating agency)
Oct 09 - Fitch Ratings says in a new report that political and economic uncertainties are keeping Tunisia's ratings under pressure.
Social and political unrest has undermined Tunisia since March 2012, when Fitch affirmed its Long-term foreign currency Issuer Default Rating (IDR) at 'BBB-' and Long-term local currency IDR at 'BBB' with a Negative Outlook. This factored in the smooth political transition in 2010-2011, the expectation that 2013 elections would bring comprehensive reform and the limited refinancing risks for public debt, thanks to high international support granted by multilateral and bilateral creditors.
Fitch identified triggers for a downgrade that include a resurgence of social and political unrest due to their potential impact on economic recovery; deteriorating public debt metrics as the level of public indebtedness is a rating weakness; and declining international support due to the large financing needs of Tunisia in coming years.
Since March, social unrest has surged, particularly in June and September 2012. This is mostly attributable to Salafi elements - a minority in the country with hardly any formal political representation but whose actions are highly visible and undermine the safety of the country's political transition.
The coalition government has also suffered several episodes of tension between the Islamic party Ennahda and the two leftist parties CPR and Ettakatol. The National Constituent Assembly (NCA) has experienced delays in the drafting of the constitution, resulting in a possible postponement of the legislative elections to later in 2013, rather than March 2013 as originally planned.
Although Fitch's central scenario remains one of smooth political transition, social and political tensions could undermine tourism and investment, notably foreign direct investment (FDI). Neither tourism nor FDI, two pillars of growth and foreign currency generation, have recovered to pre-crisis levels.
Fitch has also revised down its real GDP growth forecasts to 2.5% and 3.5% for 2012 and 2013 respectively, to reflect its more pessimistic view of prospects for the eurozone (Tunisia's main trading partner) and the weakness of both private and public investment. The agency now expects the budget deficit to reach 6.8% of GDP and the current account deficit 7% of GDP in 2012.
Net external financing needs are in excess of USD2bn. Some funds have already been secured by official bilateral and multilateral financing but financing the budget deficit will be increasingly challenging. This is made worse because the banking sector requires heavy recapitalisation of, according to the IMF, at least 3% of GDP and as much as 7% of GDP in an adverse scenario.
A bill at the NCA is considering setting up an audit committee to assess the legitimacy of public debt contracted under Ben Ali. If this bill were adopted - a remote risk at this stage - Fitch would not consider it a rating trigger, particularly if it were used by Tunisia to obtain partial cancellation of its official bilateral debt. However, in the even less likely event of a unilateral repudiation of debt service on sovereign bonds, Fitch would consider this a default. If the likelihood of such a repudiation were to increase, a sovereign downgrade would follow.
The report, "Tunisia: Political and Economic Uncertainties Keep Ratings under Pressure" is available from or by clicking on the link below.
Link to Fitch Ratings' Report: Tunisia: Political and Economic Uncertainties Keep Ratings Under Pressure