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Fitch: Bond Bolsters Tunisia Liquidity as IMF Delay Shows Risks
March 10, 2017 / 9:53 AM / 9 months ago

Fitch: Bond Bolsters Tunisia Liquidity as IMF Delay Shows Risks

(The following statement was released by the rating agency) LONDON, March 10 (Fitch) The postponed disbursement following an IMF programme review highlights reform implementation challenges faced by Tunisia's government, Fitch Ratings says. Near term financing risks have been mitigated by the EUR850 million bond market issuance in February, further reform delays could increase uncertainty around Tunisia's financing outlook. A disbursement under Tunisia's May 2016 IMF programme, equivalent to around USD320 million, was due following a programme review in November. But the Tunisian authorities have confirmed that the payment was postponed because of delays in a number of areas, including civil service and tax reform. Political opposition in 2016 resulted in the withdrawal of a freeze on public sector wages in the proposed 2017 budget. We now expect the wage bill to be near 15% of GDP by year-end. The Tunisian authorities have since committed to a voluntary redundancy scheme for civil servants, which the government hopes will remove at least 10,000 employees from the public payroll by 2020. The government is also considering share sales, including in the state-owned banks. A successful review following the IMF's next visit, expected by the government by the end of March, would result in a disbursement before end-1H17. We project a deficit of around 6% for this year, following a 2016 general government deficit we estimate at 6.4% of GDP. We think Tunisia needs to borrow the equivalent of 7% of GDP in foreign currency to meet its 2017 budget and amortisation needs. Domestically, we estimate Tunisia will borrow the equivalent of 2.8% of GDP. The EUR850 million market issuance last month eases foreign financing needs in the short term. The seven-year Eurobond was priced to yield 5.75%, and represented Tunisia's first standalone market issuance in over two years. We estimate that net proceeds of EUR842 million would cover around 60% of 2017 foreign-currency principal amortisation and interest payments. This estimate assumes a loan extension from Qatar on USD500 million due in April, in line with an agreement with the Qatari authorities. Tunisia is mainly relying on multilateral funding to cover the remaining financing gap, including from the IMF (around USD640 million), World Bank (around USD500 million), African Development Bank (around USD300 million), and European Union (EUR500 million). Fitch expects multilateral lenders to remain committed to Tunisia's ongoing transition. But as the IMF delay shows, financing risks related to disbursement delays (due to non-compliance) cannot be ruled out. This would leave Tunisia reliant on less predictable or more expensive market financing. Fitch downgraded Tunisia to 'B+' from 'BB-' in February due to weaker economic growth performance and prospects in the context of heightened security risks, and the spill-overs to external and public finances. Improvements to the country's security apparatus could contribute to a normalisation of economic conditions. GDP grew by 1.2% in 2016, with Fitch projecting an acceleration to around 2.5% over the next two years, reflecting higher private consumption and a projected pick-up in investments that will be aided by the adoption of a new investment law in September 2016, and the positive momentum generated in last year's "Tunisia 2020" conference. Contact: Maria Malas-Mroueh Director, Sovereigns +44 20 3530 1081 Fitch Ratings Ltd 30 North Colonnade London E14 5GN Mark Brown Senior Analyst, Fitch Wire +44 203 530 1588 Media Relations: Elaine Bailey, London, Tel: +44 203 530 1153, Email: The above article originally appeared as a post on the Fitch Wire credit market commentary page. 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