Growing stability in Tunisia earns stable ratings – Moody’s

In its annual report on Tunisia, Moody’s Investors Service said the growing strength and stability of the Tunisian economy has been a key factor underpinning the Baa2 government bond rating and stable outlook.

The bond rating and Moody’s assessment of a low risk of a payments moratorium in the event of a government bond default form the basis for Moody’s A3 foreign currency country ceiling for bonds.

“Over the last decade, the Tunisian real sector has demonstrated a high level of resilience to external shocks, and this has a great deal to do with structural reform and macroeconomic stability championed by the authorities,” said Moody’s Vice President Sara Bertin-Levecq, author of the report. “And, while the government’s forward-looking technical team deserves credit, the state is still very prominent in the political and economic life of the country.”

She said Tunisia‘s strong rate of GDP growth is representative of a converging economy, a forward-looking and responsive economic policy, and is the result of domestic demand supported by a large middle class. The economy has been growing over the last decade by an annual average of 5%, and Bertin-Levecq expects acceleration this year to 5.5% of GDP.

“Also, Tunisia‘s general government debt ratios are on a downward trend that we expect to continue in 2007,” said Bertin-Levecq. “The structure of the mostly long-term external debt compares well with other Baa2 countries and confirms the resilience of the country to external shocks or confidence crises, and, if the pattern continues over the medium term, the foreign and local currency government bond ratings could encounter upward pressure.”

While Tunisia’s structural fiscal expenditure is still high, she said, the government’s fiscal deficit of over 3% deteriorated in 2005 and 2006 on account of higher subsidies due to oil prices.

“We are forecasting a fiscal deficit below 3% in 2007 as increases in petroleum prices are now partly passed on to the population,” said Bertin-Levecq. “Fiscal consolidation should continue in 2008.”