Moody’s cuts Tunisia sovereign rating to Ba1

Turmoil threatens economy: cbank

NICOSIA, Feb 28, (AFP): Moody’s Investors Service on Thursday downgraded Tunisia’s sovereign rating from Baa3 to Ba1, citing the country’s grave political crisis and its deteriorating credit fundamentals.

It put the rating on review for a possible further downgrade.

“The main driver ... is the increase in political risk” following the Feb 6 assassination of opposition figure Chokri Belaid and the subsequent collapse of Hamadi Jebali’s government, it said.

“In particular, the failure to form a technocratic government to speed up the country’s democratic transition — as advised by the country’s outgoing government — highlighted the deep divisions within the ruling coalition ...

“Moody’s highlights the growing polarisation and divide within the coalition itself and between the coalition and opposition parties.”

Coupled with that have been “further delays in adopting the new constitution and organising elections, which are prerequisites for any sustainable economic recovery,” Moody’s said.

Credit

It also pointed to the “continued deterioration in Tunisia’s credit fundamentals” since its 2011 revolution.

Moody’s said it expected the debt/GDP ratio, which had already risen to 40.8 percent of GDP at the end of 2010, to climb as high as 49 percent at the end of 2013.

“So far, the administration has been able to finance twin deficits at low costs thanks to the strong support of the international community. However, the deterioration in its credit fundamentals leaves the country more vulnerable.”

Meanwhile, Tunisia’s ongoing political crisis may harm the economy, the central bank warned on Thursday, when it also said economic growth rebounded to 3.6 percent in 2012 after the 2011 revolution plunged the country into recession.

The assassination of secular politician Chokri Belaid on Feb 6 provoked the biggest street protests in Tunisia since the overthrow of strongman Zine al-Abidine Ben Ali two years ago.

Political uncertainty had put negotiations on a $1.78 billion loan from the International Monetary Fund on hold and prompted Standard and Poor’s to lower its long-term foreign and local currency sovereign credit rating on Tunisia on Tuesday.

Afall in foreign currency reserves in December underscored the economic stresses the country faces.

President Moncef Marzouki on Friday asked Interior Minister Ali Larayedh to form a government within 15 days, following the resignation of Prime Minister Hamadi Jebali.

Slowdown

“Recent negative developments on the national scene... would lead to a slowdown in economic activity and the increasing pressure on the financial internal and external balances, “it added.

“Positive indicators gradually continued in almost all sectors, especially energy and services, to achieve a 3.6 percent growth rate during the year 2012 compared to 3.5 percent expected,” the bank said in a statement.

Tunisia’s economy shrank 1.8 percent in 2011 as political instability closed factories and spooked tourists and investors.

It now faces problems as a result of the crisis in the euro zone, the main market for its exports and the source of most of its tourists and because the conflict between Islamists and secularists.

The Tunisian central bank said on Thursday it held its main interest rate at 3.75 percent, in the face of a rise in consumer price inflation to 6.0 percent in January — its highest since April 2008 — from 5.9 percent in December.

The central bank is not targeting a particular inflation rate but the most that should be tolerated would be 5 percent, the governor of central bank Chadli Ayar said.

“Foreign reserves fell to 11.38 billion dinars, or the equivalent of 107 days of imports compared to 12.576 million dinars and 119 days at the end of 2012,” the bank said.