In a significant move, Fitch Ratings announced Friday it has upgraded Tunisia’s Long-Term Foreign- and Local-Currency Issuer Default Ratings (IDR) to ‘B-‘ from ‘CCC+’, assigning a Stable Outlook. The upgrade signals a reduced immediate risk of default, reflecting a strengthened external financial position, though the agency cautions that the North African nation’s economy remains highly vulnerable.
The decision is primarily driven by a continued improvement in Tunisia’s external accounts. Fitch highlighted narrower current account deficits, resilient foreign direct investment (FDI), and crucial financial disbursements from international partners. These factors have helped bolster foreign exchange reserves, providing a critical buffer for the country which has been locked out of international bond markets since 2021.
“Tunisia’s ratings are constrained by still limited access to external financing… and high vulnerability of the budget and external accounts to commodity price shocks, absent a reform of subsidies,” Fitch noted, underscoring the fragile nature of the progress.
Key Drivers of the Upgrade:
- Stronger External Position: The current account deficit has shrunk dramatically from its historical average, supported by a robust services sector and strong remittance inflows from abroad.
- Resilient Financing: Despite the lack of an active IMF program, Tunisia has managed to secure funding from multilateral and bilateral partners. FDI has also proven surprisingly resilient and is projected to rebound in 2025.
- Declining Financing Needs: Fitch forecasts that the government’s high fiscal financing needs will gradually decline over the medium term, aided by support from the central bank.
Persistent Challenges and Risks:
The upgrade comes with serious caveats. Public debt remains alarmingly high, projected at 83% of GDP in 2025. The national budget is described as “rigid and vulnerable to external shocks,” with nearly all government revenue consumed by public sector wages, interest payments, and costly subsidies.
Fitch explicitly warned that the rating could be downgraded again if the government fails to reduce its financing needs or if external pressures cause a sharp depletion of foreign reserves. Conversely, a sustained reduction in the fiscal deficit and debt burden, or a continued build-up of reserves, could lead to a future positive rating action.
The report also assigned Tunisia low scores for Governance, citing political instability, a weakening rule of law, and moderate institutional capacity as significant negative factors for the country’s credit profile.
TunisianMonitorOnline (Editorial staff)
