Moody s B1 / S&P NR / Fitch B+ 1 Economy: Agriculture 10%, Industry 26%, Services 63%

Transcription

1 Tunisia Summary Moody s B1 / S&P NR / Fitch B+ 1 Economy: Agriculture 10%, Industry 26%, Services 63% Tunisia is the only country in the region to achieve democracy following the Arab Spring, demonstrating political maturity and stability. The key challenge will be implementing economic reforms to increase the long-term growth potential. Tunisia has an IMF program in place under which fiscal consolidation is a priority. However, Tunisia has rigid expenditures public wages are the single largest item and local idiosyncrasies complicate budget negotiations. Debt levels are increasing, but most new debt is concessional in nature. Unemployment is structurally high, particularly among the youth, and needs to be addressed. Finally, the security situation has a major impact on the economy as it continues to adversely impact not only tourism, but also FDI. Despite areas of macroeconomic fragility, an important mitigating factor is the high level of political and economic support that Tunisia enjoys from international financial institutions. Economic Indicators F 2018F Population (Millions) GDP per Capita (USD) 4,248 4,329 3,884 3,749 3,518 3,429 Nominal GDP (USD Billions) Real GDP (%) Year-End CPI (%) Fiscal Balance (% of GDP) Interest (% of Revenues) FC Debt/Public Debt (%) Government Debt (% of GDP) Government Debt (% of Revenue) Current Account (% of GDP) FDI (% of GDP) External Debt (% of GDP) Foreign Reserves/External Debt (%) Foreign Reserves (Mo. of imports) Foreign Reserves (% of GDP) As of November 2017 Forecasted or estimated results do not represent a promise or guarantee of future results and are subject to change. Source: Lazard, Central Bank, IMF, National Statistics, and Treasury 539

2 Lazard Emerging Markets Debt Rating History Below is a history of the country s foreign and local currency ratings by the major agencies dating back to We have also included a chart of the country s hard currency external debt spread and the JP Morgan EMBI Global Diversified Index spread for comparison. Rating History Hard Currency Local Currency BBB+ A BBB BBB- BB+ A- BBB+ BBB BBB- BB BB BB- B+ B BB BB- B+ B Moody's S&P Fitch Moody's S&P Fitch As of December 2017 Performance represents past performance. Past performance is not a reliable indicator of future results. Source: Bloomberg, Fitch, Moody s, Standard and Poor s Bond Spreads Tunisia 2012 EMBIGD 2017 As of December 2017 Performance represents past performance. Past performance is not a reliable indicator of future results. Source: JP Morgan 540

3 Tunisia Strengths From Arab Spring to Successful Democratic Transition Tunisia is the only country in the region that achieved democracy following the Arab Spring, demonstrating political maturity and stability in an otherwise unstable region. Political polarization has been a feature of local politics, especially during the transition period. The parties were fundamentally divided over key aspects of the transition, such as deciding on a parliamentary or presidential system, the role of Islam in politics and society, and the fate of former regime figures. Fortunately, the political parties and other stakeholders have compromised since the adoption of the 2014 constitution and held peaceful legislative elections in October The centrist and secular Nidaa Tounes (Call for Tunisia) party won 86 parliamentary seats (out of 217), while the Islamist Ennahda party, which had been governing since 2011, obtained only 69 seats. The Nidaa Tounes party includes businessmen, trade unionists, and some politicians from the government of Zine El Abidine Ben Ali ( ). Presidential elections followed in November 2014, marking the final step toward Tunisia s democratic transition. Because of its successful democratic transition, Democracy advocacy group Freedom House has listed Tunisia as free, the first Arab country to achieve this status in 40 years. 2 In 2016, the Tunisian Parliament passed a vote of no confidence for former Prime Minister Habib Essid. Essid indicated that the debate for the no-confidence vote consecrated Tunisia s nascent democracy 3 and ensured a smooth transition to the new prime minister, Youssef Chahed, who was appointed in August 2016 and remains in power. Government Reform Agenda with Multilateral Support The Tunisian government, with the support of multilateral organizations, has been embarking on important and much needed economic reforms. The agenda includes a series of reforms meant to increase the country s long-term growth potential by creating a better business environment to attract more FDI and private investments. Failure to make significant advances contributed to the vote of no confidence for former Prime Minister Essid, and now the challenge rests with Prime Minister Chahed, whose main focus will be the economy and security. Implementation of structural economic reforms will be not only a top priority, but also a necessary financing condition for further assistance from the international community. Tunisia enjoys the support of multilateral organizations such as the IMF, which approved a four-year $2.9 billion Extended Fund Facility (EFF) program in 2016 to help Tunisia address structural weaknesses that have led to low growth and external imbalances. 4 However, the IMF delayed the disbursement of a second $320 million loan tranche in December 2016 due to lack of progress on cutting public expenditures. 5 The IMF reinstated the program after Tunisia agreed to accelerate fiscal reform plans. 6 Leading Olive Producer Tunisia is one of the world s largest producers and exporters of olive oil, most of which goes to the European Union, in particular Italy and Spain. 7 Tunisia has an estimated 65 million olive trees, ranking fourth worldwide by number of trees and second in terms of acreage. 8 The sector accounts for roughly 40% of agricultural revenues and 5% of all exports. 9 However, the sector is dependent on weather conditions, and climate change may undermine future production. Moreover, olive crops are alternate-bearing fruits that can produce a large crop in one year but not the next. 541

4 Lazard Emerging Markets Debt Continued Strong International Support Tunisia benefits from a high level of international political and economic support. For instance, in May 2015, President Obama indicated his intention to designate Tunisia as a major non-nato ally of the United States, 10 promising financial and security assistance to ensure the success of Tunisia s transition to democracy. Other international institutions supporting Tunisia include the IMF, which approved a $2.9 billion Extended Fund Facility program in 2016; the World Bank, which has committed a budget of $5 billion; 11 the European Bank for Reconstruction and Development (EBRD); and the European Commission. The Trump administration has proposed reducing the amount of aid to Tunisia as part of a broader cost reduction initiative, but this measure was not well received and US officials have vowed to help restore aid to Tunisia. 12 Weaknesses Structural Fiscal Deficit Tunisia s fiscal balance has deteriorated since the Arab Spring, making fiscal consolidation and containing current expenditures a top priority. On the expenditure side, containing wages and salary increases is a major challenge as wages represent the government s single largest expense, accounting for almost 14% of GDP. Wage negotiation is complicated in Tunisia because of the unique role that the General Union of Tunisian Workers (l Union générale tunisienne du travail, or UGTT) plays in the country. The UGTT is deeply entrenched in Tunisian society, with more than 800,000 members (7% of the population), and it has enormous economic and political influence. For instance, the UGTT teachers union was the headquarters of the revolt against Bel Ali in 2011, and served as the mediator to settle political rivalries ahead of Tunisia s democratic transition. As part of the IMF-supported fiscal consolidation plan, the government plans to curb wage increases for 2018, 13 including by laying off 16,500 of the 700,000 total public sector workers in Banking Sector The banking system is comprised of 22 banks, five of which are state-owned: Societe Tunisiene de Banque (STB), Banque Nationale Agricole (BNA), Banque d l Habitat (BH), Banque Tunisiene de Solidarite (BTS), and Banque de Financement des PME (BFPME). Bank assets total 98% of GDP, and public-sector banks account for 35% 40% of banking assets. The financial sector remains an economic bottleneck for Tunisia due to a legacy of undercapitalization, lending to government cronies due to lax supervision, and risk control. Most of NPLs are concentrated in three public sector banks with NPLs ratios in the 30% range: STB, BNA, and BH, compared to private-sector banks that have NPL levels of around 9%. The high level of NPLs contributes to inadequate access to finance, which constrains growth. Increasing Debt Level Because of its fiscal deficit, Tunisia s debt-to-gdp ratio has increased from 39% in 2010 to an expected 72% in However, credit risk is lower because a large portion of external debt, is owed to multilateral (World Bank and African Development Bank), bilateral (primarily to France and Japan) entities or guaranteed by a third party such as the US government. Borrowing from the international capital markets is limited, Tunisia issued a US$1 billion sovereign bond in January 2015 and another 850 mn Eurobond in February As a result, the debt profile can be characterized as having low interest rates, a large concessional component and long maturity, which mitigates significantly Tunisia s credit risk. 542

5 Tunisia Moreover, the IMF highlights that Tunisia s external debt can withstand most shocks except for a large exchange rate depreciation. 16 Libyan Impact Since the Libyan revolution in 2011, Tunisia has received a wave of refugees estimated at 1 million (10% of population) to 1.8 million. Borders with Libya generally remain open because of a 1973 agreement allowing Libyans to freely cross the border, live, and work in Tunisia. The large influx of refugees strains Tunisia s infrastructure and increases fiscal costs, although tensions have remained subdued. In the past, Libya provided up to 25% of Tunisia s oil imports at subsidized prices, but since the ousting of General Muammar Gaddafi s regime in 2011, Libyan oil exports have declined from 1.3 million barrels per day (bpd) to 200,000 bpd, as many oilfields shut down due to the violence. While migration adds pressure to government finances, Libyans annual spending of roughly $1 billion from Libyans partially offsets the strain. Security Issues Spillover Sporadic terrorist attacks contribute to economic instability. Recent examples include the 2015 attack in the beach resort of Sousse that killed 38 people, mostly European tourists, as well as the Bardo Museum attack in Tunis that killed another 19 people. Tourism is an important source of revenue for Tunisia, and following the 2015 terrorist attack, tourism fell significantly to 4.5 million visitors compared to 6.9 million in Tourism is expected to recover in 2017, with an anticipated increase of 30% in the number of tourists following two years of sharp declines. 18 Heightened security risk also negatively affects the level of FDI, which has averaged 2.5% of GDP and has led to additional defense expenditures at the expense of development projects. 19 Regional Wealth Disparity and High Unemployment Regional imbalances within Tunisia, in particular the contrasting wealth of the Mediterranean coasts and the poor interior, also contribute to continued tension. Poverty rates in the north-west and center-west, where the revolution started, are 26% and 32%, respectively, whereas poverty in the capital and the northern coastal regions is 8%. In the impoverished interior regions, where an estimated one-third of the population lives, agriculture is the main source of income for half of residents. Agricultural productivity remains low according to the Food and Agricultural Organization of the United Nations. To increase productivity, Tunisia will need to modernize, as many farmers still use century-old techniques. Along with regional wealth disparity, high unemployment is another concern. The unemployment rate increased from 12% 13% before 2010 to more than 18% during the Arab Spring. While unemployment has gradually decreased to 15% it continues to affect the young in particular, creating a potential source of social unrest. 543

6 Lazard Emerging Markets Debt Country Background Size Capital Population 163,610 KM 2 (94th) Tunis 11.4 Million Religion Muslim 99.1%, Other 0.9% Median Age 31.6 Years Literacy Rate 81.8% Independence 20 March 1956 Political System Government Leadership Next Election 2019 Legislative Branch Parliamentary Republic President Beji Caid Essebsi; Prime Minister Youssef Chahed Unicameral Assembly Economy Agriculture 9.9%, Industry 26.2%, Services 63.3% Labor Force Agriculture 14.8%, Industry 33.2%, Services 51.7% Merchandise Exports Clothing, Semi-Finished Goods and Textiles, Agricultural Products, Mechanical Goods, Phosphates and Chemicals, Hydrocarbons, Electrical Equipment Export Partners France 30.1%, Italy 19.3%, Germany 10.7%, Spain 5.2%, Libya 4.3% Currency Tunisian dinar (TND) As of November 2017 Source: CIA 544

7 Tunisia Country Timeline 1956 Tunisia becomes independent with Bourguiba as prime minister The monarchy is abolished, and Tunisia becomes a republic First multi-party parliamentary elections since independence. President Bourguiba's party wins by a landslide Bloodless palace coup: Prime Minister Zine El Abidine Ben Ali has President Bourguiba declared mentally unfit to rule and takes power himself Ben Ali wins presidential elections. He goes on to be re-elected four more times, the last time in President Ben Ali goes into exile amid continuing protests. Prime Minister Ghannouchi resigns, responding to demands by demonstrators calling for a clean break with the past. Ennahda Islamist party wins parliamentary elections but falls short of an outright majority Prime Minister Jebali resigns after Ennahda party rejects his proposals to form a government of technocrats after the killing of an opposition anti-islamist leader. Ennahda rejects opposition allegations that it was behind the killing of Chokri Belaid, whose death prompted violent protests Parliament passes the country's first constitution since President Ben Ali was ousted in Nidaa Tounes, which unites secularists, trade unionists, liberals, and some players from the Ben Ali era, wins largest bloc of seats in parliamentary election, overtaking the Islamist Ennahda. Nidaa Tounes candidate Beji Caid Essebsi becomes president after decisively beating outgoing president Moncef Marzouki in run-off elections. Source: BBC Notes 1 As of December, Welsh, Teresa, Tunisia s Wobbly Democracy, U.S. News and World Report, 13 November 2015, accessed on 2 December 2015, accessed 10 November Tunisia Gets $2.9 billion IMF Loan to Strengthen Job Creation and Economic Growth en/news/articles/2015/09/28/04/53/sonew060216a accessed 10 November accessed 31October accessed 31 October Putinja, Isabel, Tunisian Olive Oil Exports Reach Record High, Olive Oil Times, 20 July 2015, accessed on 2 December 2015, 8 Olive growing in Tunisia, Republic of Tunisia, Ministry of Industry and Technology, Tunisia-oliveoil.com, accessed on 8 December 2015, 9 Souissi, Mounir, Climate change threatens Tunisia olive farming, Yahoo News, 30 November 2015, accessed on 2 December 2015, 10 Designation of Tunisia as a Major Non-NATO Ally, U.S Department of State, Media Note, 10 July 2015, accessed on 2 December 2015, accessed 10 November Accessed 31October accessed 31 October

8 Lazard Emerging Markets Debt and accessed 31October WEO Outlook Data, IMF October Facility-Request-for-Waivers-of-NonObservance accessed 31October accessed 31 October idUSKBN16S1K1 accessed 31 October UPDATE 1-Tunisia cuts 2015 growth forecast after militant attacks, Reuters, 30 July 2015, accessed on 2 December 2015, 546

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