(TAP) – Fitch Ratings said Thursday that it believes the reported agreement between the government and The Tunisian General Labour Union (UGTT) on public-sector wages removes a key hurdle to an International Monetary Fund (IMF) lending programme. Fitch Ratings views this programme «as key to Tunisia’s external liquidity and credit rating,» according to the statement.
“Tunisia will continue to benefit from international support, in our view. Our forecasts assume the country will secure an IMF deal in the second half of the current year, unlocking additional financing from official creditors in November-December,» the rating agency said.
The government and the UGTT, on Thursday, inked an agreement on a 5% increase in gross wages in the public sector over the period 2023-2025, after months of negotiations.
The agreement comes after Tunisia’s underlying budget performance improved in the first half of the year, although the reported low deficit figure was flattered by delays in subsidy compensation payments.
According to FR, the government made headway in managing the underlying fiscal position in the first half of 2022, even if tight liquidity may have played a role. Revenue collection was strong, while wage expenditure appears to be tracking close to budgeted levels for 2022 and will likely be contained over the medium term as a result of the deal with the unions.
«The government reported a budget deficit of TND471 million in the first half of 2022, equivalent to 0.3% of our forecast for full-year nominal GDP in 2022,» the agency said.
Substantial new funding committed or accelerated by official creditors since March has already enabled Tunisia to start catching up on delayed subsidy compensation payments, FR added.
«The Grain Office, in charge of buying food products on international markets and distributing them at lower prices in Tunisia, did not receive new transfers from the government to cover subsidy costs between March and June and resorted to borrowing from public banks with a government guarantee.»
«The central government also delayed some subsidy compensation payments to STEG, which provides subsidised electricity and gas. Arrears accumulated during the second quarter of 2022 amounted to at least TND800 million, or 0.6% of GDP.»
The rating agency expects that overall subsidy spending in 2022 will be equivalent to 8.2% of GDP, compared to the 1.5% reported in June for the first half of 2022. This, along with a rise in capex in the second half of the year, will underpin a much wider fiscal deficit at the end of the year. The agency estimates that if spending on subsidies had been equal to its 2021 level, the full-year 2022 deficit would be closer to 4.5% of GDP, compared to forecasts of 8.5%, and the 7.1% recorded in 2021.
Although it expects the agreement between Tunisia and the IMF to be signed in November-December, Fitch Ratings points out that its baseline scenario carries risks.
“Further delays in agreeing on a deal with the IMF or in implementing reforms, causing a further worsening of Tunisia’s debt sustainability metrics, could lead the IMF to require Tunisia to restructure its debt,» FR mentioned.
«Signs that a default was becoming more probable could result in a downgrade to Tunisia’s ‘CCC’ rating.»
Source: TAP News Agency