Tunisia: IMF agreements helped mitigate external liquidity risks in frontier markets (Fitch)

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    Support from the IMF has helped to mitigate external liquidity risks and reduced the medium-term default risks in several frontier markets that entered into new programs in 2016, Fitch Ratings said on Friday, citing among these markets, Tunisia and Egypt.

    However, the ratings agency said « Egypt and Tunisia are still dealing with underlying tensions and security risks.”

    “IMF loans should alleviate external liquidity pressures and reduce the risk of sovereign default, particularly where IMF assistance has been supported by other multilateral assistance or has improved access to global bond markets,” Fitch Ratings stressed in an analytical note titled: “IMF Deals Ease Frontier Market Pressures; Compliance Key”

    It said these countries that went through political revolutions in 2011 still have either large current-account or fiscal deficits, or both.

    “Reducing these vulnerabilities will be key to stabilizing or improving their ratings,” the agency pointed out, believing that “without sustained commitment from the authorities, long-standing weaknesses may remain unaddressed, and there is a risk that governments will back away from reforms in the face of public opposition.”

    Fitch Ratings recalled that in the two years leading up to their IMF loans, it took negative rating action on five of the eight sovereigns that entered Standby Arrangements or Extended Fund Facilities in 2016 – Iraq, Kenya, Sri Lanka, Suriname and Tunisia.

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