Tunisia: Risk Assessment
Country Risk Rating
|B||Political and economic uncertainties and an occasionally difficult business environment can affect corporate payment behavior. Corporate default probability is appreciable.|
Business Climate Rating
|B||The business environment is mediocre. The availability and the reliability of corporate financial information vary widely. Debt collection can sometimes be difficult. The institutional framework has a few troublesome weaknesses. Intercompany transactions run appreciable risks in the unstable, largely inefficient environments rated B.|
Slight recovery in 2016
After a sluggish growth in 2015, Tunisia's economy has recovered at the beginning of 2016. According to estimations from the National Institute of Statistics, growth in the first quarter has reached 1% year on year. The activity benefited from the upturn in the manufacturing sector whose growth reached 1.4% for the first three months of 2016, fueled by industrial branches such as chemical (+28%), the construction and ceramic materials (+4.2%). Nevertheless, the agro-food sector registered a sharp decline due to adverse weather conditions which keep constraining the prospects of the agricultural and olive sector. The tertiary sector stands out as well with subdued growth at 1% (year over year) owing to a rise in the value-added of posts and telecommunications and financial services. The falling of 12% in the hotel and catering sector prevent the modest recovery in tertiary activity to be more dynamic. The downturn in foreign tourist arrivals has picked up in March 2016 (-36.2% year over year, against -7.6% in March 2015). Furthermore, during the first semester, tourism receipts have recorded a fall of 38% compared to 2015.
However the weak recovery is likely to continue in the course of the year and would be accompanied by the implementation of several reforms. Indeed in the summer of 2016, the government is expected to present the new strategic development plan for 2016-2020, whose objective would be to outline the main features of the economic policy for the next five years. In addition, in July the last version of the Investment code has been presented in front of the Assembly of People's Representative, it is expected to enter in force during the summer of 2016.
Stabilization of twin deficits
Despite the consolidation of the public accounts established with IMF support under the Stand-By Arrangement agreed in 2013, the deficit observed in 2015 widened. In spite of the adverse economic situation, the public deficit is expected to reduce slightly in 2016 but to a lesser extent than expected with the Finance Act of 2016. During the first semester of 2016, receipts grew by 7%, partly bolstered by the contribution of indirect taxes whereas direct taxes declined compared to the first semester of 2015. Expenditures have increased by 23% compared to the previous budgetary year, owing to a rise in expenditure attributed to payroll and debt service. Public debt should continue to increase, especially external debt. The authorities should be able to borrow in order to finance some of the public debt, particularly from Islamic banks.
The low commodity prices have had very little impact on the external accounts. Although the energy balance was in surplus, the fall in exports and the drop in tourism income led to a sizable current account deficit. In 2016, tourism income will struggle to recover, although Tunisia could benefit from the slight growth upturn in Europe, to which it directs 70% of exports.
In 2015, the recapitalization of the state-owned banks has helped limit the risk of bankruptcy which was weighing on the most fragile of these banks. However, they are still very exposed to the risk of default in the tourism sector. The ratio of non-performing loans in the sector has reached 25% of the claims held by the banks and could rise in 2016.
Political transition completed but growing terrorist threat
The Nobel Peace Prize given to the Tunisian national dialog quartet in October 2015 was the final step in the country's political transition. The 2014 parliamentary and presidential elections enabled the formation of a coalition government which included representatives from the majority Nidaa Tounes Party and the Ennahda opposition party. Given the many challenges faced by Tunisia, in January 2016 a new government was formed, still under the leadership of Habib Essid.
The various attacks on Tunisian soil in March, May and November 2015 and in March 2016 underline the growing security risk. Tunisia remains subject to the Jihadist threat on its territory and these pressures are likely to grow as the situation in Libya deteriorates.
Meanwhile, although there is political consensus on the government's broad goals, the majority Nidaa Tounes Party is weakened by internal struggles, which could lead to a possible dissolution. The country is moreover gripped by widespread social unrest which could increase as a result of the economic slowdown.