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Analyst
Shen Yuefeng
shenyuefeng@dagongcredit.com
Sovereign Credit Rating
Local
currency/outlook BBB+/stable
Foreign currency/outlook BBB+/stable
Rating time October,2010
Rationale
Dagong assigns “BBB+” to the local currency and foreign currency credit
ratings for the Republic of Tunisia (“Tunisia”), which are based on Tunisia's
stable political situation, strong fiscal consolidation willingness and
sufficient external financing support, but still underdeveloped economic and
financial strength.
In recent years, Tunisian government debt keeps increasing. As of the end of
2009, the debt amounted to 25.06 billion dinars. However, due to the rapid
economic growth over the same period, the government’s debt-to-GDP ratio
declined from 59.4% in 2004 to 46.9% in 2009. Since the government would still
maintain the expansionary fiscal policy in 2010, the fiscal deficit is expected
to expand to 2 billion dinars, or about 3% of GDP. Coupled with about 2.5 to 2.8
billion dinars of principal reimbursement of the same year, Dagong expects that
the government’s debt financing requirement will maintain in the range of
4.5~4.8 billion dinars, which is about 8% of GDP. Hence, the debt level is
expected to expand continuously, but can be controlled below 50% of GDP. The
government will restore prudent fiscal policy from 2011, therefore, both fiscal
deficit and government debt financing requirement are expected to decline
gradually.
On the whole, the capacity of Tunisian government's foreign and local
currency debt repayment can be guaranteed, and the main reasons are as
follows:
The stable political situation, high credibility of the government, clear
national development strategies, as well as favorable international relations
provide a beneficial internal and external environment for economic
development;
As a low-medium revenue economy, Tunisian economy is small and
develops steadily. The over-dependence on European market and capital, as well
as serious unemployment constitute the main uncertainties for economic
development;
Financial stability of Tunisia improves continuously in recent years, but the
fact of high level non-performing loans, as well as low rate of provisions are
noteworthy;
The government debt lies in the medium to high level among peer
countries, but the interest burden is moderate. In addition, the government has
shown strong willingness on fiscal consolidation. Hence, it is likely for the
government to control fiscal deficit and cut debt in the future;
Tunisia’s foreign exchange reserves are sufficient and the government has
good external financing support, so government’s solvency on its external debt
can be guaranteed.
Outlook
Tunisia’s political situation is stable, and the economy is undergoing the
recovery phase. Therefore, Dagong expects the country will steadily develop in
accordance with its set vision. Fiscally, the expansionary policy implemented in
this year will lead to the expansion of debt deficit, but a prudent policy
starting from the next year will help the government control the deficit and cut
debt gradually. In the next few years, with the steady liberalization of capital
account, the overseas expansion pace of the financial sector will be
accelerated. In this process, Tunisia’s real economy will benefit from the
financial integration; meanwhile the possibility of potential external shocks
will also increase as well. However, sufficient reserves and good external
financing support will help Tunisia withstand relevant risks. Therefore, Dagong
keeps a stable outlook to both local and foreign currency credit ratings of
Tunisia in the next 1~2 years.
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