Tunis - Fitch Ratings has upgraded Tunisia's Long-Term Foreign- and Local-Currency Issuer Default Ratings (IDR) to 'B-' from 'CCC+'. The Outlook is Stable.

In a statement, the agency said the upgrade reflects a continued improvement in Tunisia's external position, with lower current account deficits (CADs), resilient net foreign direct investments (FDI) and disbursements from multilateral and bilateral partners.

However, it reminds that Tunisia's ratings are constrained by still limited access to external financing in the absence of market access and high vulnerability of the budget and external accounts to commodity price shocks, absent a reform of subsidies.

Fitch said it forecasts the CAD will widen to 2.2% of GDP in 2025 and 2.8% in 2027, from 1.5% in 2024, due to lower olive oil prices and higher goods imports.

This remains much lower than the 2010-2022 average of 7.9%, driven by a significant improvement in the balance on services, from 10% of GDP in 2018 to 14% of GDP in 2023 and 2024 and remittance inflows (from 4% of GDP in 2018 to 6% in 2023 and 2024).

With regard to external financing, Fitch Ratings stressed that the net FDI inflows, at 1.4% of GDP in 2024, have proven resilient to political and external shocks (2010-2019 average: 2.1% of GDP).

“We anticipate a rebound in FDI inflows in 2025 (1H25: +54% in US dollar terms compared with 1H24) and continued disbursements from multilateral and bilateral partners through 2025-2027,” said Fitch ratings.

The rating agency also anticipates a narrowing of net external financing outflows. Hence, external financing flows will narrow from a record 3.7% of GDP in 2024 to 1% in 2027.

It also said it expects fiscal financing needs, excluding short-term debt roll-over, will decline from 18% of GDP in 2024 to 16% in 2025, 15% in 2026 and 13.5% in 2027

It noted that the stability of domestic amortisations is partly due to the zero-interest loans provided by the central bank to the government in 2024 (4.4% of GDP) and 2025 (4.1%), which have 10-year maturity with a three-year grace period.

"We forecast the government will require 9% of GDP in long-term domestic financing excluding central bank financing in 2025 and 8% in 2026, from 10% in 2024."

The rating agency also underscored the increased sovereign-bank nexus, insofar as the domestic banking sector could help meet the sovereign's financing needs.

In addition to a reduction in fiscal deficits, the rating agency expects the wage bill to be contained in 2025.

Public debt is projected to remain high, at 83% of GDP in 2025 from 84.5% in 2024. The small decline is mostly due to a weakening of the US dollar against the dinar.

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