Tunisia is raising concern. The CDS premium on 5-year sovereign bonds has risen from less than 730 basis points (bps) at the end of November to 1072 bps currently. At this level, the country is joining the category of emerging issuers considered to be close to default by investors. There are many reasons for this.
Two years after the shock of the pandemic, Tunisia is now being hit hard by the consequences of the conflict in Ukraine. The rise in commodity prices is leading to a dangerous deterioration in external accounts and public finances. Inflation is at historically high levels, weighing further on economic activity, which has already been struggling to recover since the 2020 crisis [...]
With real GDP contracting by 8.5% in 2020, Tunisia was one of the region’s most severely hit economies. The prospects of a recovery are highly uncertain. The economy is threatened by the resurgence of the pandemic, but the government no longer has the manoeuvring room that it had in 2020. The budget deficit and public debt have soared to alarming levels, which calls for a difficult consolidation of public finances [...]
The government’s 2019 budget growth target of 3.1% is clearly out of reach. Indeed, real GDP growth stood at only 1.1% during the first six months of the year. Except tourism and to a lesser extent agriculture, most sectors have stalled, or even contracted (industry). Headwinds will remain powerful in the coming months, starting with the subdued demand from European countries [...]
The Tunisian economy has begun to show signs of stabilisation. Inflation is falling, exchange rate pressures are easing and the government finally managed to uphold its commitment to fiscal consolidation in 2018. Yet the country’s prospects are still very fragile. Although the support of international donors is reassuring, the persistence of major external imbalances exposes the economy to shocks [...]
The year 2017 ended with record high twin deficits, which brought the exchange rate and inflation under fierce pressure. Strengthening macroeconomic stability will be hard to achieve. The authorities have very little manoeuvring room. Foreign exchange reserves have fallen below the threshold of three months of imports [...]
The worsening of Tunisia’s external position is a source of concern. From 5% of GDP in 2010, the current account deficit has widened to 9% in 2016, and the situation deteriorated further during the first nine months of the year despite the rebound of tourism. Rising external imbalances put the exchange rate under pressure. The dinar has lost 25% of its value against the euro since 2016. The ability of the central bank to defend the currency is reducing more and more [...]
Tunisia is small open economy with strong ties to Europe. Several years of political turmoil have put the country into a fragile position. Recession in 2020 was severe. The pandemic has exacerbated structural weaknesses, in particular low investment and job creation, high unemployment and informality. The policy room to manoeuvre is limited (huge government debt and wage bill, significant external imbalances). Reviving the economy will prove to be challenging despite a well-educated labour force and a relatively diversified manufacturing base.
