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.



Washington Urges Israel to Extend Cooperation with Palestinian Banks

A West Bank Jewish settlement is seen in the background, while a protestor waves a Palestinian flag during a protest against Israel's separation barrier in the West Bank village of Bilin in 2012. (AP)
A West Bank Jewish settlement is seen in the background, while a protestor waves a Palestinian flag during a protest against Israel's separation barrier in the West Bank village of Bilin in 2012. (AP)
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Washington Urges Israel to Extend Cooperation with Palestinian Banks

A West Bank Jewish settlement is seen in the background, while a protestor waves a Palestinian flag during a protest against Israel's separation barrier in the West Bank village of Bilin in 2012. (AP)
A West Bank Jewish settlement is seen in the background, while a protestor waves a Palestinian flag during a protest against Israel's separation barrier in the West Bank village of Bilin in 2012. (AP)

The United States on Thursday called on Israel to extend its cooperation with Palestinian banks for another year, to avoid blocking vital transactions in the occupied West Bank.

"I am glad that Israel has allowed its banks to continue cooperating with Palestinian banks, but I remain convinced that a one-year extension of the waiver to facilitate this cooperation is needed," US Treasury Secretary Janet Yellen said Thursday, on the sidelines of a meeting of G20 finance ministers in Rio de Janeiro.

In May, Israeli Finance Minister Bezalel Smotrich threatened to cut off a vital banking channel between Israel and the West Bank in response to three European countries recognizing the State of Palestine.

On June 30, however, Smotrich extended a waiver that allows cooperation between Israel's banking system and Palestinian banks in the occupied West Bank for four months, according to Israeli media, according to AFP.

The Times of Israel newspaper reported that the decision on the waiver was made at a cabinet meeting in a "move that saw Israel legalize several West Bank settlement outposts."

The waiver was due to expire at the end of June, and the extension permitted Israeli banks to process payments for salaries and services to the Palestinian Authority in shekels, averting a blow to a Palestinian economy already devastated by the war in Gaza.

The Israeli threat raised serious concerns in the United States, which said at the time it feared "a humanitarian crisis" if banking ties were cut.

According to Washington, these banking channels are key to nearly $8 billion of imports from Israel to the West Bank, including electricity, water, fuel and food.