January 20, 2022

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Bond Market, IMF Among Tunisia’s Options as Virus Chokes Economy

(Bloomberg) — Tunisia may tap the debt market to shore up its finances and will shortly start talks on a new program with the International Monetary Fund as its economy careens toward one of the biggest recessions in the Middle East amid the global coronavirus pandemic.

The North African country is rushing to regain the confidence of markets with its Eurobonds trading close to levels investors consider to be distressed, which would make it difficult and expensive to issue new securities. A new government is also having to contend with a crisis that’s been especially damaging to tourism and agriculture, industries vital to an economy the IMF expects to shrink 4.3% this year in the deepest contraction since independence from France in 1956.

An international bond offering is “one of the options,” Tunisian Finance Minister Nizar Yaiche said in an interview with Bloomberg TV on Tuesday. “We are hoping to start as soon as possible a discussion about a new program that would reflect the vision, the strategy of the new government.”

Tunisia was already struggling before the virus outbreak, hobbled by years of political infighting, sporadic terror attacks and labor strikes. While authorities agreed on a $2.9 billion loan with the IMF in 2016, they struggled to enact some of the fund’s cost-cutting recommendations. The 2016 program has since been halted, Yaiche said in March.

The IMF on April 10 approved a $745 million emergency loan to support Tunisia’s response to the outbreak and ensure international reserves remain adequate. Tunisia has reported 726 cases of the disease, including 34 deaths. Its reserves are currently sufficient to cover 115 days of imports, above the critical level of three months.

Given the way the discussions have gone until now, “I am very confident the next phase will be very positive with the IMF,” said Yaiche, who once worked for PWC France before becoming the finance minister in late February.

Tunisia’s Eurobonds, like those of many other developing nations, have sold off heavily since the coronavirus pandemic roiled markets. The yield on Tunisia’s euro-denominated bond due 2026, which it issued last July, has almost doubled to more than 10%, from the all-time low of 5.8% reached in February.

While Tunisia stood to gain from the recent crash in oil, the World Bank warned last week that “a sharp reversal” in oil prices could worsen pressure on its current account and the budget. In its latest regional economic update, the lender forecast the current account will run a deficit of 7.2% of gross domestic product this year and expects the fiscal gap to widen to 5%.

“The new government faces an economic situation that is highly vulnerable to a deterioration of the global economy due to the coronavirus pandemic and volatile oil prices,” the World Bank said. “Tunisia has high twin deficits and debt, and limited buffers, whereas growth is anemic, employment stagnant, and inflation relatively high.”

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