Tunisia's central bank governor said on Friday that a debt downgrade of the North African country by Fitch Ratings was "bad news" caused by political instability, and called for clear government decisions on subsidies and wage reforms.
Fitch Ratings has downgraded Tunisia's Long-Term Foreign-Currency Issuer Default Rating (IDR) to 'B-' from 'B'. The Outlook is Negative.
The fragmented political landscape and entrenched social opposition curtail the government's ability to enact strong fiscal consolidation measures.
"I call for progress in reform programs with the International Monetary Fund, and for clear decisions to be taken, especially on wage bloc and subsidies reforms," Tunisian Central Bank Governor Marwan Abbasi said.
The downgrade to 'B-' and Negative Outlook reflect heightened fiscal and external liquidity risks in the context of further delays in agreeing on a new program with the IMF, which is necessary for access to most official creditors' budget support.
“We forecast the central government deficit to remain high at 8.9 percent of GDP in 2021,” Fitch said.
“We forecast the budget deficit to narrow to 6.7 percent of GDP in 2022 and 5.5 percent in 2023,” it added.
“We expect Tunisia's current account deficit to widen in 2021 to close to 8 percent of GDP and remain at this level in the medium term, from 6.8 percent in 2020,” Fitch said.
Fitch forecasts Tunisia's economy to grow by 3.4 percent in 2021 after a contraction of 8.8 percent in 2020.
The Tunisian economy shrank three percent in Q1 of 2021. Official data showed a hike in annual inflation that reached 5.7 percent in June, compared to around five percent in May.
The government kicked off on May 18 negotiations with the IMF over getting a new loan.
