Rabat – Moody’s Investors Service downgraded Tunisia’s long-term foreign currency and local currency issuer ratings to Caa1 from B3.
The drop in the country’s rating is due to “the weakening governance and heightened uncertainty regarding the government’s capacity to implement measures that ensure renewed access to funding” to meet Moody’s high financing requirements over the next few years, the agency said in a statement issued on October 14.
The rating, made on a scale from AAA to C, reflects the experts’ negative medium-term outlook, which means that the rating is likely to be lowered again as the agency said in its statement.
The statement referred to Tunisia’s “large external imbalances and reliance on continued inflows,” which limits the degree to which reserves can be drawn down further without jeopardising national currency and price stability.
Tunisia’s external and domestic liquidity conditions have worsened in the wake of the constitutional crisis, which erupted on July 25.
According to the New York-based ratings agency, Tunisia is “at risk of a default,” an assessment caused by high liquidity pressure in the highly probable scenario in which the north african country cannot secure “significant” funding.
Tunisia’s access to such fundings from international financial institutions such as the IMF is complex, and so far unlikely.
Moody’s attributes this reluctance to grant funding in its statement to “the negative outlook of Tunisia.” As the country lives through unresolved crises, its economic outlook will continue to fuel “downside risk predictions related to possible protracted delays in reforms and reform-dependent funding.”
The downgrade takes the North African country seven levels below investment grade, reflecting the myriad of economic challenges facing Tunisia today.
Financial risk management experts are concerned with the country’s “bloated public wage bill, high unemployment and loans coming due from foreign lenders.”
These problems are unfortunately exacerbated by the central bank’s worries about “an acute shortage of external financial resources and foreign currency,” according to Moody’s.
