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Tunisia debt default could cost country’s banks billions

Ferid Belhaj, World Bank vice president for the Middle East and North Africa Reuters/Amr Abdallah Dalsh
Ferid Belhaj, World Bank vice president for the Middle East and North Africa

A sovereign debt default by Tunisia could cost the country’s banking system billions of dollars, experts say.

Tunisia is suffering a financial crisis that led to it seeking a $1.9 billion loan from the International Monetary Fund (IMF) in exchange for unpopular reforms, including cutting food and energy subsidies.

S&P Global Ratings credit analyst Mohamed Damak said any debt default could hit the banking sector by as much as $4.1 billion to $7.6 billion, or 8 – 14.8 percent of forecast nominal GDP at year-end 2023.

“Our calculations exclude the potential effects of a sharp depreciation of the Tunisian dinar, which might add to these costs,” he said.

The Covid-19 pandemic and prevailing political uncertainty have weighed heavily on Tunisia’s economic activity in recent years. 

According to the IMF, the country’s economic growth is expected to reach 1.6 percent in 2023, while its fiscal and external deficits will likely total a cumulative 13 percent of GDP. 

Speaking at the World Government Summit in Dubai last week, Ferid Belhaj, the World Bank’s vice-president for Mena said there are particular concerns in the Middle East and North Africa region about Lebanon and Tunisia and, to a lesser extent, Egypt and Jordan.

“We have a number of tensions in those countries, including debt levels and high inflation,” Belhaj said.

Tunisia’s cumulative external debt servicing edged up 25.8 percent to over TND1.2 billion ($380 million) on February 10, compared with the same period last year, financial and monetary data released by the Central Bank of Tunisia showed. 

This was almost offset by tourism receipts and cumulative labour income, which grew respectively 74 percent to TND441 million and 10 percent to TND819 million.

Public debt servicing exceeded TND12 billion in the first 11 months of 2022. The overall volume of external debt amounted to almost TND5 billion, according to data from the Finance Ministry.

Tunisia’s economy witnessed growth of 2.4 percent in 2022, as per the National Institute of Statistics, down from the 4.3 percent registered in 2021.