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Moody's cuts Tunisia's rating to B2, changes outlook to stable

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Moody's cuts Tunisia's rating to B2, changes outlook to stable

Moody's lowered its long-term issuer rating on Tunisia to B2 from B1, citing "continued deterioration" in the country's fiscal strength and wide external imbalances. The rating agency also changed its outlook to stable from negative.

Moody's projects that central government debt will reach 73% in 2019, from an estimated 70.2% in 2017 and 61.9% in 2016.

The debt burden remains exposed to the potential impact of guarantees on debts of state-owned enterprises amounting to about 13% of GDP, Moody's said.

Further, the country's debt trajectory is prone to a marked depreciation of the Tunisian dinar as more than 65% of government debt is denominated in foreign currency.

Moody's also said Tunisia's external vulnerability is high, with the country's current account deficit rising to 10.4% of GDP in 2017 from 8.8% in 2016. External debt was also high, growing to more than 80% of GDP in 2017 from 68.6% in 2016.

Moody's noted that the country's net international investment position was a negative 120% of GDP, giving it one of the largest liability positions among the sovereigns the debt watcher evaluates.

Looking ahead, the current account deficit is projected to gradually narrow to 9.5% of GDP in 2018 and 8.3% in 2019.

Moody's estimates GDP to grow 2.8% and 3.0% in 2018 and 2019, respectively, after expanding 1.9% in 2017.

Meanwhile, the rating agency said the stable outlook reflects expectations that Tunisia's credit metrics will remain consistent with a B2 rating, and that the country will continue to meet International Monetary Fund goals.

Moody's said a continued improvement in fiscal and external imbalances would be credit positive. The rating agency warned, however, that further delays in the implementation of economic reforms could result in a downgrade.