Tunisia assault to sap reserves

DUBAI, June 29, (RTRS): An assault on a Tunisian resort, which killed 39 people, has sent holidaymakers fleeing and dealt a major blow to the country’s tourism industry, but the broader economy should be robust enough to withstand the shock.

European tour operators are evacuating thousands of tourists after Friday’s attack by a lone militant on a beach in Sousse and many foreigners are likely to shun Tunisia in the months ahead until they feel it is safe to return.

This, in turn, will hit Tunisia’s foreign exchange reserves and could lead to a weakening of its currency.

However, analysts say the economy should avoid a repeat of the recession which followed the 2011 revolution. Inflation appears steady below 6 percent, tax collection is improving and authorities have started to rein in spending, which may offset the blow from any tourism slump.

Just as importantly, elections in late 2014 led to a ruling coalition with a large parliamentary majority. This may let the government push through long-delayed reforms to attract more investors.

Shocks

“Although over the short term there will be negative shocks to tourism income, the economy has made some important positive steps,” said John Sfakianakis, Riyadh-based director for global fund manager Ashmore Group.

“The parliamentary majority should enable approval of structural reforms delayed by the 2011-14 political transition, including financial sector reforms and laws on competition, bankruptcy and public-private partnerships.”

Financial markets reopened on Monday after the attack and indicated investors weren’t panicking. The stock market dropped 1.0 percent and the dinar fell only modestly against the dollar.

Arnaud Louis, director at Fitch Ratings, which in March raised its outlook for Tunisia’s BB- foreign debt rating to stable from negative, said the attack would slow economic growth and damage a key source of foreign exchange.

But he said that it would not necessarily halt the country’s recovery, and would not have direct impact on Tunisia’s credit worthiness. “We are comfortable with the current rating.”

The turmoil unleashed by Tunisia’s 2011 revolution slashed foreign currency tourism receipts by a third.

By 2014 they had regained their prerevolution level, but 2015 has been a dire year for the industry. An attack on the Bardo museum in Tunis in March killed 23 people, scaring away some tourists. Then came the Sousse killings.