Moody's revised its outlook on Tunisia's issuer ratings to negative from stable and affirmed the ratings at B2, citing the country's weak foreign exchange reserves position, slower pace of net capital flows and worsening trade balance.
The rating agency noted a rise in external vulnerability risks as foreign exchange reserves declined to 2.5 months of goods imports cover at the end of September from 3.3 months a year earlier. It also noted the effect of rising oil prices which weigh on the country's external accounts.
Trade balance declined to 13.3% of estimated full-year GDP over the first nine months of 2018 compared to 11.9% of full-year GDP over the same period last year. Current account deficit is expected to stand at 9.7% of GDP at the end of 2018 and 8.5% in 2019, from 10.2% in 2017. Moody's said FDI inflows at about 2% of GDP finance only a small part of the current account deficit.
"In light of economy-wide external financing needs at over 30% of GDP over the next two years, Moody's estimates external liabilities maturing over the following year (plus foreign currency long-term deposits) to amount to over 250% of foreign exchange reserves by the end of 2019 from 220% in 2018, a much lower reserves coverage than for most B-rated sovereigns," the agency said.
The agency said sustained reduction in external and fiscal imbalances and prospects of a steady increase in foreign exchange reserves would support a change in outlook to stable. Conversely, a downgrade would be likely if there was a marked increase in the costs of external funding.