Release of first tranche of IMF funding expected before end of 2Q23 (Fitch Ratings)

The International Monetary Fund (IMF) would release the first tranche of funding for Tunisia before the end of the second quarter of 2023, Fitch Ratings said Friday.

It pointed in Fitch Wire, Tunisia’s progress on policies required under the Staff Level Agreement (SLA) for a new IMF 48-month USD1.9 billion Extended Fund Facility (EFF).

This progress is translated in essentially in the amendment of the law on public-sector enterprises, passed by the Council of Ministers on February 9, according to Fitch Ratings.

The agency also pointed to the authorities’ progress in finalising an updated financing plan.The latter have improved the prospects for IMF board approval.

However, the country’s external financing risk remains high, warns Fitch Ratings, adding recent delays to the SLA’s approval have highlighted risks to the programme’s implementation.

It said under the updated financing plan, Tunisia would receive over USD5 billion of external funding, mostly from official creditors in Europe and the Gulf. This would be equivalent to around 65% of 2023 government financing needs, which Fitch estimates will total around 16.9% of GDP

Fitch estimate of the government’s financing needs assumes that the fiscal deficit is reduced to 5.7% of GDP in 2023, from 7.3% in 2022, through measures such as control of the wage bill and subsidy spending.

The remaining financing could be provided mostly by local banks, it said, expected that this would put significant pressure on their liquidity.

Risks to external financing remain

The rating agency believes external liquidity remains “tight”, stressing that prolonged delays in external funding disbursement or a significant increase in Tunisia’s import bill would add “significantly” to external pressures, given large current-account deficits, estimated at USD3.4 billion in both 2023 and 2024.

Besides, a decline in foreign-exchange reserves available for debt repayment could put downward pressure on the rating.

Even if the EFF is approved, external financing strains could quickly reappear if Tunisia deviates from the IMF programme objectives, Fitch cautions. This would lead to the suspension of further disbursements under it and also impede bilateral financing disbursements.

It added that the government’s ability to implement reform commitments under the EFF could be challenged if social instability increases, and some reforms, such as those for state-owned enterprise and subsidies, may generate strong opposition from the influential Tunisian General Labour Union (UGTT).

Fitch Ratings upgraded Tunisia’s Long-Term Foreign-Currency Issuer Default Rating (IDR) to ‘CCC+’, from ‘CCC’ in December 2022.

It said this upgrading of the rating to “CCC+” reflects its assessment that the SLA reached with the IMF in October for a new 48-month USD1.9 billion Extended Fund Facility (EFF) would unlock substantial official creditor funding and support fiscal consolidation, despite uncertainty over Tunisia’s adherence to IMF programme.

Source: Agence Tunis Afrique Presse