Tunisia-Moody’s downgrades Tunisia’s ratings to Caa1, maintains negative outlook

Moody’s Investors Service (“Moody’s”) has today downgraded the Government of Tunisia’s long-term foreign-currency and local-currency issuer ratings to Caa1 from B3 and maintained the negative outlook, reads a statement issued by the agency.

Moody’s has also downgraded the Central Bank of Tunisia’s senior unsecured ratings to Caa1 from B3 and the senior unsecured shelf rating to (P)Caa1 from (P)B3 and maintained the negative outlook. The Central Bank of Tunisia is legally responsible for the payments on all of the government’s bonds. These debt instruments are issued on behalf of the government.

The downgrade to Caa1 reflects weakening governance and heightened uncertainty regarding the government’s capacity to implement measures that would ensure renewed access to funding to meet high financing requirements over the next few years. There is a risk that, if significant funding is not secured, high liquidity pressure may lead to default. This risk is partly mitigated by the past build-up of the foreign exchange reserve buffer that provides some backstop to upcoming external debt service payments in the short term, adds the same source.

The negative outlook captures downside risks related to possible protracted delays in reforms and reform-dependent funding which would erode FX reserves through drawdowns for debt service payments, thereby exacerbating balance of payment risks. In this scenario, the probability of a public sector debt restructuring that would entail losses for private sector creditors would rise.

According to the agency, Tunisia’s country ceilings have been lowered by one notch. Namely, Tunisia’s local-currency country ceiling was lowered to B1 from Ba3. The three-notch gap to the sovereign rating reflects weakening institutions, a broadening public sector footprint, external competitiveness constraints and a challenging political and social environment which hamper the business environment. The foreign currency ceiling was lowered to B3 from B2. The two-notch gap to the local currency ceiling reflects persistent external imbalances and reliance on foreign inflows which increase firms’ exposure to potential transfer and convertibility risks.