Summary:

This week, New York-based Fitch Ratings downgraded Tunisia’s long-term foreign currency issuer default rating from CCC+ to CCC-, further confirming the country’s lack of creditworthiness.

The downgrade fully confirmed Tunisia’s status as a “junk” investment – an investment that is characterized by a high possibility of default, but potentially offers higher interest rates.

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Fitch characterized Tunisia’s economy as having been battered by overlapping crises, including the war in Ukraine, the COVID-19 pandemic, and an unsustainable level of public debt and wage bill. Fitch had upgraded Tunisia in December when an International Monetary Fund (IMF) loan deal appeared all but completed.

Meanwhile, the Central Bank reported that Tunisia’s foreign currency reserves have fallen to their lowest levels in four years, reaching just 91 days of imports. At the same point in 2022, foreign currency reserves were at 123 days of imports.

Tunisia continues to struggle to import the basic products subsidized by the government and upon which the Tunisian economy runs, including flour, sugar, milk, and fuel.

Outlook:  

The ongoing delays in the IMF loan process and the lack of interest in pursuing a potentially painful reform program have taken a toll on the Tunisian economy.

Tunisian’s in the country’s rural areas have been particularly hard hit as the country has battled a multi-year drought that is impacting agricultural production.

Thus far, Tunisians have not shown a willingness to express their frustration in large-scale protests, but disillusionment is growing among the working class. General stability is likely in the short- and medium-term as Europe remains committed to supporting Tunisia through this season of transition, however, further extending the period without relief for the economy could increase the possibility of unrest.

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