Tunisia: Fitch Ratings warns of further delays in reforms

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    The postponed disbursement of the third tranche of the IMF equivalent to USD 320 million highlights reform implementation challenges faced by Tunisia’s government, Fitch Ratings said in a recent statement published on its website.

    A disbursement under Tunisia’s May 2016 IMF program, equivalent to around USD320 million, was due following a program 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,” said the ratings agency.

    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, Fitch reported.

    It, however, said 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.

    The ratings agency estimates that net proceeds of EUR842 million would cover around 60% of 2017 foreign-currency principal amortization 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.

    Moreover, Fitch projected a deficit of around 6% for this year, following a 2016 general government deficit we estimate at 6.4% of GDP.

    It believed Tunisia needs to borrow the equivalent of 7% of GDP in foreign currency to meet its 2017 budget and amortization needs.

    Domestically, it estimates Tunisia will borrow the equivalent of 2.8% of GDP.

    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.

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