Moody's Upgrades Tunisia's Credit Rating, Citing Improved External Debt Repayment Capacity
Credit rating agency Moody's has upgraded Tunisia's financial rating from CAA2 (highly speculative, unsuitable for investment) to CAA1 (high-risk) with a stable outlook, citing improvements in the country's ability to meet its external financial obligations.
In its report released Friday, Moody's highlighted that Tunisia is making steady progress in financial stability, with the new rating serving as recognition of its increasing ability to manage financial risks.
As part of this reassessment, Moody's also upgraded the Central Bank of Tunisia's debt rating from CAA2 to CAA1, applying the same methodology used to evaluate the country's sovereign obligations.
Key Factors Behind Financial Improvement
The report attributed the rating upgrade to several factors, including:
- Improved private sector capacity to service external debt
- Stable foreign exchange reserves over the past two years
- Declining external financing needs, which Tunisia is increasingly able to cover through its foreign currency reserves
Additionally, Moody's emphasized that Tunisia's ongoing reduction in its budget deficit has significantly lowered the risks associated with repaying external debt, despite some remaining financial challenges.
Remaining Challenges
While the stable outlook reflects progress, Moody's noted that Tunisia still faces constraints in its budget's ability to absorb financial shocks due to its high debt levels and strong interdependence between public financing and the central bank.
Despite the overall positive assessment, the report also warned that socioeconomic risks could hinder the implementation of necessary reforms, which are crucial for further fiscal stability.
Potential for Further Improvement
Moody's concluded that Tunisia could see further enhancements in its access to external financing if it continues to reduce its fiscal deficit at a faster pace than currently projected.
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