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Saudi Arabia to give Tunisia $500m as soft loan and grant

Tunisia market Reuters/Zoubeir Souissi
Despite Saudi Arabia's injection of funds, Tunisia faces challenges in managing its financial position
  • Saudi to provide $400m in loans and $100m grant
  • Tunisia is in a spiralling debt crisis
  • Bailout will not completely rectify country’s problems

Saudi Arabia has agreed to provide Tunisia with a $500 million package of financial assistance as the country faces a mounting financial crisis.

The Gulf state will give the North African country $400 million as a soft loan and $100 million as a grant, the Saudi Press Agency reported on Thursday.

The agreement was signed in Tunis by Saudi minister of finance Mohammed Al Jadaan and his Tunisian equivalent Sihem Boughdiri.

The Saudi ambassador in Tunis Abdul Aziz Bin Al-Saqr said “the agreement is meant to support the Tunisian economy”, adding that the kingdom’s financial support to Tunisia “exceeds $2.2 billion dollars and covers several areas including energy, health and agriculture”.

The ambassador also highlighted Saudi’s $500 million loan to Tunisia in 2019, saying that support to Tunisia will continue with the aim of consolidating bilateral relations.

Tunisia has more than $2 billion of foreign exchange debt repayments due in the fourth quarter of 2023 and the first quarter of 2024, and concerns are mounting that it may not be able to make the repayments.

Saudi TunisiaReuters/Ahmed Yosri
The agreement was signed in Tunis by Saudi minister of finance Mohammed Al Jadaan

Ali Metwally, economist and risk analyst at Infospectrum, told AGBI: “This amount will contribute towards servicing a significant portion of Tunisia’s debt obligations for the year, including a circa $534 million Euro bond debt maturing in October and a circa $168 million yen dominated bond due in August.”

He added that these figures are considerable, with Tunisia’s economy valued at around $46 billion and its total external debt standing at $42.5 billion in Q4 2022.

“Despite this injection of funds, Tunisia still faces challenges in managing its financial position,” Metwally said.

“The government is yet to unveil a clear plan for addressing this deficit without accumulating additional high-risk debt.” 

Tunisia’s foreign reserves stand at $7.3 billion, covering just over three months of imports, but the reserves have been on a declining trend since early 2021.

Fitch Ratings downgraded Tunisia’s credit rating in June to CCC–, warning of “uncertainty around Tunisia’s ability to mobilise sufficient funding to meet its large financing requirement”.

It warned of “increased signs that a default is probable, for example, because of the inability to obtain funding from the International Monetary Fund (IMF) and unlock associated official creditor financing”.

The country struck a deal with the IMF in late 2022 for a $1.9 billion bailout but later rejected the agreement. 

At the time, President Saied said: “Regarding the IMF, foreign diktats that will lead to more poverty are unacceptable.”

The deal with the IMF would have required Tunisia to eliminate subsidies on food and fuel, make cuts to public services, incorporate sectors of the informal economy into the tax system, reform state-owned enterprises, and devalue the national currency, the Tunisian dinar.