Fitch Affirms Tunisia at CCC-, Expects Growth to Fall to 0.9%

A square in the Tunisian capital (Reuters)
A square in the Tunisian capital (Reuters)
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Fitch Affirms Tunisia at CCC-, Expects Growth to Fall to 0.9%

A square in the Tunisian capital (Reuters)
A square in the Tunisian capital (Reuters)

Fitch Ratings on Saturday affirmed Tunisia's Long-Term Foreign-Currency Issuer Default Rating (IDR) at "CCC-," also expecting growth to fall to 0.9% of GDP in 2023 from 2.4% in 2022.
The agency said Tunisia's 'CCC-' rating reflects the heightened uncertainty around the government's ability to meet its large budget financing needs - revised up in the absence of progress on key subsidy reforms - and increasing debt maturities.
It added that the affirmation balances Fitch’s revised assumption that an IMF program is unlikely to be reached in 2024 with the better than expected resilience of international reserves despite the limited availability of external funding.
Also, Fitch expects GDP growth to fall to 0.9% of GDP in 2023 from 2.4% in 2022, as a result of the sharp contraction of the rain-fed wheat production, impacted by rain shortfalls.
“We project a mild recovery to 1.5% average in 2024-2025, supported by a favorable base effect,” it said.
The agency expects growth will remain constrained by the high sovereign risk impacting the business environment and investor sentiment, high inflation (expected to average 9.3% in 2023), and the increasing crowding-out impact on the private sector from the government's high financing needs.
Fitch also assumed that fiscal financing needs to be consistently at or over 16% of GDP (over $8 billion) per year in 2023-2025 compared with 14% (about $6 billion) in 2022, and well above the 2015-2019 average of 9%.
This, it said, results from persistent wide budget deficits, and increasing domestic and external debt maturities, at about 10% of GDP per year in 2024-2025.
The agency also noted that domestic maturities are pushed up by the government's increasing reliance on shorter-term domestic financing to compensate for scarce external financing. External maturities are higher, partly because of upcoming Eurobond repayments (850 million euro in February 2024, and $1 billion in January 2025).
Therefore, Fitch said it expects external financing to reach about $2 billion by year-end.
“We do not expect Tunisia to access an IMF program in 2024, constraining external financing prospects."
In its baseline assumptions, Fitch also said the Tunisian government would need to raise the equivalent of 12% of GDP in domestic financing in 2023-2024 to cover the financing gap.
“We see this as a stretch to the domestic market capacity to absorb the public sector financing needs. Exposure to the public sector already represents more than 20% of the banking system's total assets, reaching up to 40% for some public banks,” it said.
The agency then noted that the sector has limited liquidity and banks' ability to fund the government increasingly relies on central bank purchases of government debt on the secondary market.



Pakistan Sees Economy on Long-Term Recovery Path Under IMF Program

Pakistan's Prime Minister Shehbaz Sharif speaks during the World Governments Summit in Dubai, United Arab Emirates, Tuesday, Feb. 11, 2025. (AP Photo/Altaf Qadri)
Pakistan's Prime Minister Shehbaz Sharif speaks during the World Governments Summit in Dubai, United Arab Emirates, Tuesday, Feb. 11, 2025. (AP Photo/Altaf Qadri)
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Pakistan Sees Economy on Long-Term Recovery Path Under IMF Program

Pakistan's Prime Minister Shehbaz Sharif speaks during the World Governments Summit in Dubai, United Arab Emirates, Tuesday, Feb. 11, 2025. (AP Photo/Altaf Qadri)
Pakistan's Prime Minister Shehbaz Sharif speaks during the World Governments Summit in Dubai, United Arab Emirates, Tuesday, Feb. 11, 2025. (AP Photo/Altaf Qadri)

Pakistan's economy is on a path to long-term recovery, thanks to a stabilization program backed by the International Monetary Fund, Prime Minister Shehbaz Sharif said, ahead of a first review of a $7 billion bailout set for early in March.

The comments came in Sharif's meeting on Tuesday with managing director of the IMF, Kristalina Georgieva, on the sidelines of the World Government Summit (WGS) 2025 in Dubai, his office said in a statement.

Sharif underscored the progress made under the IMF's Extended Fund Facility (EFF), which has played a key role in stabilizing Pakistan's economy and set it on the path of long-term recovery, it added.

A three-member IMF mission is currently in Pakistan to conduct a Governance and Corruption Diagnostic Assessment under the country's 2024 Extended Fund Facility program.

On Tuesday, the team met with Pakistan's Chief Justice Yahya Afridi to get details regarding the judicial and regulatory system of the cash-strapped country.

In a post on X, Georgieva said, “I am encouraged by their strong commitment to Pakistan's IMF-supported reforms and support their decisive actions.”

These would help pave the way to higher growth and more jobs for Pakistan's youthful population, she added.

Ahead of the IMF review, the government and central bank have expressed confidence about meeting its targets, even as Pakistan struggles to navigate the recovery, following the bailout secured in September.

Tuesday's meeting focused on the macroeconomic stability brought by the government's reform agenda under the IMF program and efforts to maintain fiscal discipline, Sharif's office said.

He vowed to keep up the momentum for reform, particularly in areas such as taxes, energy efficiency and private sector development, it added.