What does lowering Tunisia’s credit rating mean and what are its implications?

Economic analysis

Tunisia- Experts believe that Fitch Ratings downgrade Tunisia’s credit rating It harms its reputation with international donors due to the high risk of defaulting on its debts in the absence of a final agreement with the International Monetary Fund, but the downgrade “intensifies the European Union’s efforts to mediate an agreement between Tunisia and the Fund.”

Fitch Ratings downgraded Tunisia to a “CCC-negative” level, attributing this to the disruption of the agreement with the IMF, its inability to mobilize the necessary borrowing resources to finance its budget this year, and the erosion of the hard currency stock, which increases the possibility of defaulting on its debts.

Fitch believes that the scarcity of external financing for Tunisia increases pressure on its foreign exchange reserves, and data from the Central Bank of Tunisia revealed this week that the stock of hard currency decreased to 21 billion dinars ($ 6.78 billion), just enough to cover imports for only 91 days.

hard hit

Economist and former Trade Minister Mohsen Hassan says, in a statement to Al-Jazeera Net, that the reduction Credit rating Tunisia by the Fitch Agency has dire repercussions, noting that the agency punished Tunisia for not reaching an agreement with the IMF and its inability to mobilize external loans.

Tunisia’s borrowing needs this year amount to about 25 billion dinars ($8 billion), distributed between internal loans from banks of about 9.5 billion dinars ($3 billion), and external loans worth 14.8 billion dinars ($5 billion), according to the state budget report. Tunisia for the year 2023.

Regarding the repercussions of downgrading Tunisia, Hassan says that it deals a severe blow to the country’s financial reputation with international donors and for foreign investment, considering that this makes it difficult for Tunisia to obtain foreign financing on easy terms and acceptable benefits in light of the breakdown of the agreement with the IMF.

Because of the difficulty of accessing the global financial markets as a result of the successive downgrading of Tunisia’s credit rating, the risk of defaulting on its foreign debts increases, and its ability to provide imported commodities and basic materials such as medicines, grains and fuels declines, which creates an acute shortage of commodities in the country.

Tight conditions

Hassan says, “Due to its inability to collect sufficient funds to meet its large financial requirements, financial difficulties will exacerbate, which will make foreign suppliers, whether countries or institutions, tighten their conditions. They will not accept bank guarantees due to the high risks.”

And about the effect of reduction Credit rating For Tunisia on its relations with the European Union, Al-Hassan asserts that this will lead to further intensification of contacts by European officials to mediate forcefully between Tunisia and the IMF, noting that the Union fears an economic collapse in Tunisia that will cause an influx of migrants to the continent.

Tunisia and the IMF did not reach an agreement due to Tunisian President Kais Saied’s opposition to axes in his government’s economic reform program, foremost of which is the removal of subsidies on basic commodities, including fuel, and the loss (privatization) of public institutions.

But Hassan says that Tunisia has no choice but to reach an agreement with the IMF with a review of some conditions, in addition to forming a financial rescue government to provide resources for the state from hard currency in the short term, and to carry out economic reforms in an atmosphere of political and social stability.

European support

For his part, economist Reda El Shakandali told Al Jazeera Net that Fitch lowered Tunisia’s credit rating as a result of its failure to reach an agreement with the IMF and its inability to raise sufficient financing to meet its large financial requirements.

He added, “As for the Fitch Agency, even if Tunisia reached an agreement with the IMF, it excludes the mobilization of foreign loans that it estimated in the 2023 budget, which pushes the country to borrow more from the inside.”

There is no significant change in the financial and economic situation of Tunisia as a result of the downgrading of Tunisia’s credit rating because the country is facing great difficulties in terms of accessing foreign financing or the decline in foreign investment, according to Al-Skandali, who hopes to reach an agreement with the IMF.

Al-Skandali believes that further downgrading Tunisia’s sovereign rating will intensify the European Union’s efforts to mediate an agreement between Tunisia and the IMF.

He pointed out that one of the main points that the European Union is working on with Italy is to stop the bleeding of irregular migration coming mainly from Tunisia, expecting that the Union will play a supportive role for Tunisia so that it does not collapse in return for Tunisia implementing its policy to combat irregular migration.