Moodys -govt of tunisia--annual credit analysis-report

SOVEREIGN AND SUPRANATIONAL
ISSUER IN-DEPTH
2 July 2018
RATINGS
Tunisia
Foreign
Currency
Local
Currency
Gov. Bond Rating B2/STA B2/STA
Country Ceiling Ba3 Ba2
Bank Deposit Ceiling B3 Ba2
TABLE OF CONTENTS
OVERVIEW AND OUTLOOK 1
CREDIT PROFILE 2
Economic strength: Low (+) 2
Institutional strength: Moderate 6
Fiscal strength: Very Low (+) 10
Susceptibility to event risk: High (-) 14
Rating range 19
Comparatives 20
DATA, CHARTS AND REFERENCES 21
Contacts
Elisa Parisi-Capone +1.212.553.4133
VP-Senior Analyst
elisa.parisi-capone@moodys.com
Patrick Cooper +1.212.553.3811
Associate Analyst
patrick.cooper@moodys.com
Matt Robinson +44.20.7772.5635
Associate Managing Director
matt.robinson@moodys.com
Marie Diron +65.6398.8310
MD-Sovereign Risk
marie.diron@moodys.com
Government of Tunisia – B2 Stable
Annual credit analysis
OVERVIEW AND OUTLOOK
The credit challenges of Tunisia (B2 stable) include the structural deterioration in its fiscal
strength, with the debt ratio having increased sharply to almost 70% of GDP at the end of
2017 from 61.9% in 2016. Moreover, higher than anticipated spending pressures and a heavy
public sector wage bill (14% of GDP or 55% of total revenues) limit its budget flexibility, and
we have witnessed delays in the implementation of IMF reforms. Current account dynamics
continued to deteriorate in 2017, exacerbating external funding pressures and weighing on
foreign-exchange reserve dynamics.
Tunisia's credit strengths include the nascent economic recovery driven by tourism,
agriculture and manufacturing. We expect annual growth of 2.8% in 2018 and 3.0% in 2019,
as the significant improvement in the security environment in the aftermath of the 2015
terror attacks and the depreciation of the Tunisia dinar support continued growth in tourism
and manufacturing exports. Tunisia's structural adjustment policy is supported by a four-year
Extended Credit Facility (ECF) approved in June 2016.
The stable outlook reflects our assumption that Tunisia will continue to meet its IMF
objectives and retain official sector disbursements which finance almost 50% of the
government's total funding requirements. A sustained improvement in fiscal and external
imbalances from a marked and durable economic recovery that eases demands on
government spending and boosts export revenues and foreign exchange reserves would be
credit positive.
Further delays with the implementation of the IMF economic reform program that impacts
Tunisia's access to official funding sources and deters market appetite could lead to a
downgrade. In general, renewed fiscal overruns, the materialization of sizeable contingent
liabilities and/or continued erosion of foreign exchange reserves would put downward
pressure on the rating.
This credit analysis elaborates on Tunisia’s credit profile in terms of economic strength,
institutional strength, fiscal strength and susceptibility to event risk, which are the four main
analytic factors in Moody’s Sovereign Bond Ratings methodology.

MOODY'S INVESTORS SERVICE SOVEREIGN AND SUPRANATIONAL
CREDIT PROFILE
Our determination of a sovereign’s government bond rating is based on the consideration of four rating factors: economic strength,
institutional strength, fiscal strength and susceptibility to event risk. When a direct and imminent threat becomes a constraint, that can
only lower the preliminary rating range. For more information please see our Sovereign Bond Ratings methodology.
Economic strength: Low (+)
Scale VH+ VH VH- H+ H H- M+ M M- L+ L L- VL+ VL VL-
+ Indicative Final -
Factor 1: Sub-scores
weight 50% weight 25% weight 25%
Score for Tunisia Median of countries with B2 rating
Factor 1: Overall score
Tunisia Low (+)
Economic strength evaluates the economic structure, primarily reflected in economic growth, the scale of the economy and wealth, as well as in
-term economic robustness and shock-absorption capacity. Economic strength is adjusted in case
excessive credit growth is present and the risks of a boom-bust cycle are building.
score of economic strength.
Note: In case the Indicative and Final scores are the same, only the Final score will appear in the table above.
SCALE OF THE
ECONOMY NATIONAL INCOMEGROWTH DYNAMICS
Average real GDP (% change) Volatility in real GDP growth (ppts) Global Competitiveness index Nominal GDP (US$ bn) GDP per capita (PPP, US$)
VERY HIGH
HIGH
MODERATE
LOW
VERY LOW
GROWTH DYNAMICS
We assess Tunisia’s economic strength at “Low (+)”, which combines a relatively diversified economy with a significant slowdown in
potential growth seven years after the “Jasmine revolution”. Pronounced regional disparities and labor market inefficiencies add to
social tensions which weigh on the country's investment climate. The deviation from the indicative “Moderate (-)” score indicates
that, despite the improving growth outlook, economic activity remains too slow to absorb the large number of unemployed people,
particularly young people with a university degree. Tunisia shares the same economic strength score with Armenia (B1 positive), Ghana
(B3 stable), Lebanon (B3 stable), and Swaziland (B2 negative).
Tunisia L+ Median Armenia Swaziland Montenegro Zambia Jordan Kenya
B2/STA B1/POS B2/NEG B1/STA B3/STA B1/STA B2/STA
Final score L+ L+ L+ L L M- M-
Indicative score M- L+ L+ L+ L M M-
Nominal GDP (US$ bn) 40.3 23.0 11.6 4.6 4.8 25.7 40.4 75.0
GDP per capita (PPP, US$) 11,446.7 9,777.2 9,455.9 12,356.5 17,996.1 3,907.7 12,494.4 3,476.6
Average real GDP (% change) 2.5 3.6 4.2 2.5 3.3 4.5 2.6 5.9
Volatility in real GDP growth (ppts) 1.8 2.4 6.3 1.3 3.6 2.5 1.7 2.1
Global Competitiveness Index 3.9 3.9 4.2 3.4 4.2 3.5 4.3 4.0
Peer comparison table factor 1: Economic strength
Growth resumes on the back of security improvements since 2015
The improvement in the security environment since the three terror attacks in 2015, and fewer instances of social unrest especially in
the mining sector (after the government agreed to implement investment and employment programs) are laying the foundations for
a growth recovery. The economy grew 2.5% year-on-year in the first quarter driven by agriculture, manufacturing and services. The
2 2 July 2018 Government of Tunisia – B2 Stable: Annual credit analysis

mining and energy sectors remained under pressure, but energy production indicators may show a bottoming-out of the decline in
production this year (see Exhibit 1).
Although the economic recovery will be contained (we forecast growth of 2.8% in 2018 and 3% in 2019 from 1.9% in 2017), the
growth drivers show a clear shift toward market-based growth as opposed to public sector demand that has prevailed over the past few
years. In particular, the manufacturing sector has regained some competitiveness from recent dinar depreciation and is benefitting from
improved external demand from the EU (particularly Italy and France), Tunisia's main trading partner (Exhibits 3 and 4). In addition,
the tourism industry has recovered significantly from terrorist attacks in 2015, aided by the removal of travel agency restrictions. We
expect a multiplier effect for the economy and for the banking system given that many nonperforming loans especially in public sector
banks are tied to the tourism industry.
Exhibit 1
Real GDP growth continues to recover...
Exhibit 2
…but mining and energy production continue to face challenges
(2010 = 100)
-2.0%
-1.5%
-1.0%
-0.5%
0.0%
0.5%
1.0%
1.5%
2.0%
2.5%
3.0%
3.5%
Agriculture Manufacturing
Non-Manufacturing Services
FISIM Non-Marketbased
PlusTaxesLessSubisidies GDP
Source: Tunisia Statistics Office, Moody's Investors Service
0
20
40
60
80
100
120
Aug-10
Dec-10
Apr-11
Aug-11
Dec-11
Apr-12
Aug-12
Dec-12
Apr-13
Aug-13
Dec-13
Apr-14
Aug-14
Dec-14
Apr-15
Aug-15
Dec-15
Apr-16
Aug-16
Dec-16
Apr-17
Aug-17
Dec-17
Energy Mining Manufacturing Total
Source: Tunisia Statistics Office, Moody's Investors Service
Exhibit 3
External demand from Europe is driving market-based growth...
(%)
Exhibit 4
…supported by the real effective depreciation of the Tunisian dinar
(Real effective exchange rates, CPI-deflated, December 2007 = 100)
-4
-2
0
2
4
6
8
2010 2011 2012 2013 2014 2015 2016 2017
Market based Non-market based Real GDP
Source: Tunisia National Statistics, Haver Analytics
0
20
40
60
80
100
120
140
160
180
200
Jordan Egypt Morocco
Tunisia Lebanon
Source: “Real effective exchange rates for 178 countries: a new database,” Bruegel
Minister of Tourism, Selma Elloumi Rekik, said that visitors will surpass eight million in 2018, with growth coming from the Russian and
Chinese markets as well as Tunisia's traditional markets. Arrivals surpassed 2.3 million in the year to 20 May 2018, which is up 21.8%
from the same period last year and 5.7% higher than for the same period in 2010. Sector revenue was $357 million (€305 million), up
31.8% year-on-year over the first five months of the previous year, which however remains is below 2010 levels. The return of tour
operators including TUI France and the UK's Thomas Cook, which pulled out after the 2015 attacks, has also supported the rebound in
visitor numbers (see Exhibit 5).

Exhibit 5
Tourism indicators are improving
Exhibit 6
Net FDI and labor income receipts are also rising
0
5000
10000
15000
20000
25000
30000
0
1000
2000
3000
4000
5000
6000
7000
2014 2015 2016 2017
Non-resident arrivals (thousand, LHS)
Non-resident global nights (thousand units, RHS)
Source: Tunisia Ministry of Finance
0
5000
10000
15000
20000
25000
30000
0
1000
2000
3000
4000
5000
6000
7000
2014 2015 2016 2017
Non-resident arrivals (thousand, LHS) Non-resident global nights (thousand units, RHS)
0
5000
10000
15000
20000
25000
30000
0
1000
2000
3000
4000
5000
6000
7000
2014 2015 2016 2017
Non-resident arrivals (thousand, LHS)
Non-resident global nights (thousand units, RHS)
0
500
1000
1500
2000
2500
2010 2011 2012 2013 2014 2015 2016 2017
Net FDI (million $) Labor Income Receipts (million $)
Sources: Tunisia National Statistics, Haver Analytics
Our growth forecasts are also based on the assumption that the adoption of the investment law last year and recent public-private
partnership (PPP) legislation will improve investment incentives and access to official and private foreign funding sources. For instance,
the “Tunisia 2020 Investor Conference” has resulted in pledges of about $15 billion (two-thirds of which from multilateral and
bilateral donors, and the remainder in form of FDI mostly backed by multilateral donors) for projects which are consistent with the
government's Five-Year Development Plan. Tunisia was also one of the first five countries to sign up for the “G20 -- Compact with
Africa” initiative which is tailored to promote private investment projects in each country with the cooperation of international
financial institutions. Net FDI inflows in US dollar terms have shown signs of stabilization (and potentially a turnaround) since 2017 (see
Exhibit 6).
Decline in foreign investment also reflects a significant loss in global and regional competitiveness
Since 2010/11, Tunisia has fallen 63 positions in the World Economic Forum's Global Competitiveness Indicator rankings to 95th
out of 137 in the 2017/18 survey. Inefficient government bureaucracy, corruption and policy instability were highlighted as the most
problematic factors for doing business. The main obstacles to an improved business environment still apply and will take time to
be addressed. Meanwhile, the growth recovery remains structurally too weak to absorb new entrants in the labor market, especially
among the educated youth (see Exhibit 8).
Exhibit 7
Tunisia has experienced a sharp deterioration in competitiveness...
(World Economic Forum Global Competitiveness Index Rank, lower =
better)
Exhibit 8
… as reflected in the structural increase in unemployment
(% of the labor force)
0
20
40
60
80
100
120
140
Jordan Morocco Tunisia Egypt Lebanon
2010-11 2011-12 2012-13 2013-14 2014-15 2015-16 2016-17 2017-18
out of 137 - 144
Source: World Economic Forum
0%
2%
4%
6%
8%
10%
12%
14%
16%
18%
20%
1/1/2007 1/1/2009 1/1/2011 1/1/2013 1/1/2015 1/1/2017
Egypt Jordan Morocco Tunisia
Sources: National Statistics, Haver Analytics

Low wealth levels and the very small size of the economy also constrain creditworthiness
In a global comparison, Tunisia's economy is very small at $40 billion, and wealth levels – as measured by growth in GDP per capita in
PPP terms – have stalled (see Exhibits 9 and 10). Regionally, Tunisia's economy is about the same size as Jordan, but wealth growth has
lagged Jordan's over the past few years.
Exhibit 9
GDP per capita growth is stalling
($, PPP basis)
Exhibit 10
The Tunisian economy is very small relative to global peers
(billion $)
0
2,000
4,000
6,000
8,000
10,000
12,000
14,000
2013 2014 2015 2016 2017
Tunisia B Median Regional Median
Source: Moody's Investors Service
0
100
200
300
400
500
600
700
2018
Argentina Median Regional Tunisia Median B
Regional peers are Morocco, Egypt, Lebanon, Jordan. Argentina qualifies as “Very High” on
the global scale.

Institutional strength: Moderate
+ Indicative Final -
Moderate Median of countries with B2 ratingScore for Tunisia
weight 75% weight 25%
debt. A related aspect of institutional strength is the capacity of the government to conduct sound economic policies that foster economic growth and
prosperity. Institutional strength is adjusted for the track record of default. This adjustment can only lower the overall score of institutional strength.
Tunisia
POLICY CREDIBILITY AND EFFECTIVENESSINSTITUTIONAL FRAMEWORK AND EFFECTIVENESS
Worldwide Government
Effectiveness index Worldwide Rule of Law index
Worldwide Control of Corruption
index Inflation level (%)
Inflation volatility (standard
deviation)
VERY HIGH
HIGH
MODERATE
LOW
VERY LOW
We assess Tunisia’s institutional strength as “Moderate”, a level shared with Armenia (B1 positive), Rwanda (B2 stable), and Serbia (Ba3
stable). Despite a unity government and an emphasis on consensus-building, Tunisia's institutional effectiveness is constrained by a
track record of recurring delays with the implementation of its IMF structural reform program. We have therefore adjusted Tunisia's
score of institutional strength downwards to “Moderate” from an indicative score of “Moderate (+)”.
Tunisia M Median Armenia Rwanda Bahrain Morocco Sri Lanka Albania
B2/STA B1/POS B2/STA B1/NEG Ba1/POS B1/NEG B1/STA
Final score M M M M+ M+ M- M-
Indicative score M+ M- M H+ H- L+ M+
Gov. Effectiveness, percentile [1] 33.0 46.6 38.3 48.8 58.6 40.6 32.3 42.8
Rule of Law, percentile [1] 51.1 45.8 45.1 54.1 63.1 42.8 48.8 30.8
Control of Corruption, percentile [1] 50.3 38.3 24.8 70.6 51.8 49.6 42.8 33.8
Average inflation (%) 5.2 3.8 3.2 4.1 2.5 1.6 5.1 2.3
Volatility in inflation (ppts) 0.9 2.4 3.3 4.2 1.1 1.0 5.7 0.8
[1] Moody's calculations. Percentiles based on our rated universe.
Peer comparison table factor 2: Institutional strength
Delays with IMF program implementation highlight Tunisia's institutional constraints
Our assessment of Tunisia’s institutional strength is informed by its scores in the Worldwide Governance Indicators (WGI) (see Exhibits
11 and 12). Tunisia performs in line with the 50th percentile among all rated sovereigns with respect to the rule of law and control
of corruption. Recent initiatives in this segment include the establishment of the High Anti-Corruption Authority and the Good
Governance Authority. According to the IMF, parliament will need to select its staff next and build the necessary infrastructure to
investigate high-level or complex corruption cases (for example, access to databases including asset declarations of public officials and
mechanisms for information sharing with other agencies).
That said, government effectiveness has been on a declining trend since 2010, reflecting successive governments' difficulty in
implementing IMF reform programs. The IMF's second review under the four-year Extended Fund Facility (EFF) approved in May 2016,
found that as of March 2018, the authorities had only met two out of 14 structural benchmarks, and an additional one with delay. The

remaining structural benchmarks were reprogrammed. Among the priorities for the conclusion of the third review tentatively scheduled
for early July, the IMF has highlighted the following: (1) pressing ahead with efforts to reduce energy subsidies that disproportionately
favor the better-off; (2) containing the public-sector wage bill, which is among the highest in the world as a share of GDP at about
14%; (3) and adopting the pension reform bill to improve the financial viability of social security. As a mitigating measure, the
authorities will focus on direct transfers to mitigate the reform impact on the less wealthy parts of the population.
Exhibit 11
Tunisia's institutional strength is in line with “moderate” peers...
Worldwide Governance Indicators (2016)
Exhibit 12
… but government effectiveness remains on a declining trend
(percentile rank among Moody's rated sovereigns)
0
20
40
60
Political Stability
Government
Effectiveness
Ruleof Law
Control of Corruption
Voiceand
Accountability
Regulatory Quality
Tunisia Morocco
Median - B Median - ModerateF2
Sources: Moody's Investors Service, World Bank
0
10
20
30
40
50
60
70
2007 2008 2009 2010 2011 2012 2013 2014 2015 2016
Government Effectiveness Rule of Law
Control of Corruption
Source: Moody's Investors Service, World Bank Worldwide Governance Indicators
Food prices, depreciation pass-through and cash in circulation drive inflationary pressures
We also measure policy credibility and effectiveness in terms of price stability. Food prices, import pass-through from currency
depreciation, as well as recent energy price and administered price increases are responsible for an increase in consumer price inflation
to 5.7% in August 2017, from a low of 3.2% in February 2016. Importantly, core inflation is running at an even higher 8.1% as of
March 2018 from 7.7% the previous month and as compared to 5.8% the year before. This dynamic indicates mounting underlying
inflationary pressures which increase the probability that the Banque Centrale de Tunisie will continue to tighten monetary policy to
anchor inflation expectations and return price dynamics to the 6% threshold (see Exhibit 13).
Exhibit 13
Inflationary pressures are building despite monetary policy
tightening...
(%, y/y)
Exhibit 14
… fueled also by currency depreciation pressures
0
2
4
6
8
10
12
2010 -
Jan
2011 -
Jan
2012 -
Jan
2013 -
Jan
2014 -
Jan
2015 -
Jan
2016 -
Jan
2017 -
Jan
2018 -
Jan
Food CP (%, y/y) CPI (%, y/y) Policy Rate
Sources: Banque Centrale de Tunisie, Haver Analytics
0.0
0.5
1.0
1.5
2.0
2.5
3.0
3.5
2010 -
Jan
2011 -
Jan
2012 -
Jan
2013 -
Jan
2014 -
Jan
2015 -
Jan
2016 -
Jan
2017 -
Jan
2018 -
Jan
TND/EUR TND/$
Sources: Banque Centrale de Tunisie, Haver Analytics

The central bank hiked the monetary policy rate to 6.75% in June 2018 from 4.25% in March 2017, but the real policy rate remains
negative. The new central bank governor Marouane El Abassi (former professor at the University of Carthage and former World Bank
representative in Libya) was appointed in February 2018 and indicated his commitment to bringing the real policy rate into positive
territory in order to safeguard price stability. The central bank governor has also indicated that he will take forceful action to comply
with the EU’s anti-money laundering and terrorist financing regulations, with the goal of having Tunisia removed from the EU’s list by
the end of 2018.
Box 1: Tunisia's structural reform agenda under the IMF's extended fund facility
The EFF is based on four pillars: (1) consolidating fiscal and external stability; (2) reforming government institutions, including state-owned
enterprises (SOEs); (3) reforming the banking sector; (4) reforming the business climate and developing the private sector. The structural
reform agenda is as follows:
» Banking reform: Tunisia has already recapitalized the country's three public sector banks and adopted the central bank law
(establishing greater autonomy and a lender of last resort framework), the banking law (including a banking resolution
framework and a deposit guarantee scheme) and the bankruptcy laws (allowing for active NPL resolution via write-offs
at public banks). Required legislative changes currently face delays to the effect that the implementation of restructuring
plans depends on the resolution of legacy NPLs. Bank resolution and supervision needs to be enhanced further following the
introduction of a resolution committee.
» Fiscal reform: The government has made progress with respect to energy subsidy reform and the expansion of the household
compensation mechanism. A comprehensive tax reform aimed at greater equity and efficiency has been designed and is
gradually being implemented (reducing the difference between onshore/offshore corporate taxation, broadening VAT tax base
by reducing exemptions and applying two VAT rates at 6% and 18% instead of three). The EFF focuses on comprehensive
civil service reform to reduce the public sector wage bill to create space for investment as well as to improve performance
management and a more even provision of services across regions. It also calls for the signature of performance contracts for
the five largest SOEs, as well as the adoption of an organic budget law and of a medium-term debt strategy within the first
year.
» Business climate: The government has already adopted the competition, PPP, and bankruptcy laws, and the long-delayed
investment law. The EFF will focus on the implementation decrees for the aforementioned laws. It also envisions the creation of
an independent anti-corruption authority by early 2018 and the creation of a databank for vulnerable households to strengthen
the existing cash transfer system for poor households.
» Labor market and pension reform: The public sector retirement and social security funds still record a deficit and will require
a fiscal transfer of about 0.6% of GDP in 2017, according to the IMF. A tri-partite national social dialogue on pension reform is
ongoing but will require a broad consensus from all stakeholders over the medium term - the same is true for the finalization
of a national employment strategy. The tripartite commission is expected to put together an all-encompassing pension reform
strategy in September 2017.
We expect the implementation of this reform agenda to have a positive impact on Tunisia's institutional strength over the program horizon by
increasing government effectiveness. That said, renewed implementation delays following the latest government reshuffle on 11 September,
and in view of local elections scheduled for December 2017, cannot be ruled out.
Given the high degree of exchange rate pass-through via import prices, Tunisia's exchange rate dynamics also inform the monetary
policy stance. Exhibit 14 highlights the return to a more managed TND/EUR exchange rate after the sharp depreciation during the first
half of 2017 with repercussions not only on imported inflation, but also in public debt dynamics given the significant share of foreign-
currency debt (68.7%). According to the IMF's latest assessment in June 2018, staff reiterated that the real exchange rate remained
overvalued by about 10-20% at the start of 2018 even after the bout of depreciation in 2017. Given the persisting decline in Tunisia's

foreign exchange reserve buffer, we expect a reduced capacity to directly intervene in the currency market to smooth the value of the
exchange rate. Instead, we expect an increased focus on the monetary policy rate as the central bank's main policy tool to inform price
stability.
Extended fund facility builds on progress achieved under the stand-by agreement
In May 2016, the IMF board agreed on a four-year extended fund facility (EFF) for a total of $2.9 billion (6.9% of GDP). The EFF follows
the two-year $1.75 billion stand-by agreement (SBA), which expired in 2015 and received mixed reviews from staff due to delays in
reform implementation. Adherence to the new EFF is critical for Tunisia's continued access to financial support from the international
community, which it needs to cover its sizable financing needs. Box 1 takes stock of the cornerstones of the new EFF which leverages
the government's five-year development plan.

Fiscal strength: Very Low (+)
+ Final -
weight 50%
Fiscal strength captures the overall health of government finances, incorporating the assessment of relative debt burdens and debt affordability as
well as the structure of government debt. Some governments have a greater ability to carry a higher debt burden at affordable rates than others.
Fiscal strength is adjusted for the debt trend, the share of foreign currency debt in government debt, other public sector debt and for cases in which
public sector financial assets or sovereign wealth funds are present. Depending on the adjustment factor the overall score of fiscal strength can be
lowered or increased.
Tunisia
weight 50%
Very Low (+) Score for Tunisia Median of countries with B2 rating
General government debt (% of GDP) General government debt (% of revenues)
General government interest payments (%
of revenue)
General government interest payments (%
of GDP)
VERY HIGH
HIGH
MODERATE
LOW
VERY LOW
DEBT AFFORDABILITYDEBT BURDENDEBT BURDEN
We assess Tunisia’s fiscal strength at “Very Low (+)”, which is a score it shares with sovereigns such as Suriname (B2 negative), Belize
(B3 stable), and the Republic of the Congo (Caa2 negative). While the government's debt-to-GDP ratio is higher than the median of B-
rated peers, its debt affordability remains in line with peers. The government remains exposed to contingent liabilities from guaranteed
debts for financially challenged state-owned enterprises, amounting to 13% of GDP, which are not included in the central government
debt ratio. Moreover, a high share of foreign-currency debt exposes the sovereign to adverse debt dynamics in case of a sharp currency
depreciation.
Tunisia VL+ Median Suriname Belize Jordan Tanzania
Dominican
Republic
Kenya
B2/STA B2/NEG B3/STA B1/STA B1/NEG Ba3/STA B2/STA
Final score VL+ VL+ VL+ L- L- VL VL
Indicative score VL+ VL- VL VL L- VL VL
Gen. gov. debt/GDP 69.9 71.8 59.5 95.5 95.0 40.0 39.6 56.4
Gen. gov. debt/revenue 284.9 309.9 356.3 309.9 367.3 252.5 266.5 304.7
Gen. gov. interest payments/GDP 2.3 2.9 3.0 2.9 3.3 1.5 3.0 3.5
Gen. gov. int. payments/revenue 9.4 9.5 18.0 9.3 12.8 9.8 20.3 19.0
Peer comparison table factor 3: Fiscal strength
Fiscal consolidation is gradual and focused on reducing the public sector wage bill
2017 budget execution indicates that the government was able to meet the 6.1% fiscal deficit target, which was set in line with the
2016 deficit. This is an important achievement after fiscal overruns in the wake of the 2015 terrorist attacks. We expect the deficit to
narrow gradually to 4.8% of GDP in 2018 and 4.4% in 2019 as the government implements a fiscal consolidation plan broadly in line
with the IMF program objectives.
The 2018 budget introduces both revenue and spending measures to reduce the fiscal deficit and improve the structural composition
of the budget by reducing the share of current spending in total revenue. Revenue-enhancing measures include a 1% VAT rate hike and
social solidarity contributions aimed at filling pension and healthcare funding shortfalls, which the IMF estimated at 2.5% of GDP at the

end of 2016. On the expenditure side, the main focus is on curtailing the public sector wage bill, which, at about 14.8% of GDP in 2017,
is among the highest worldwide and compares to an average of about 8% among emerging markets. We expect the effective hiring
freeze and early retirement programs introduced in 2017 will reduce this ratio to 14.2% in 2018 based on our GDP forecast.
Exhibit 15
2018 budget introduces both revenue and structural spending measures
(% of GDP)
2016 2017F 2018F 2016 2017F 2018F
Direct taxes 8.4% 9.4% 9.3% Wages and Salaries 14.5% 14.7% 14.2%
Trade taxes 1.0% 1.0% 0.8% Goods and Services 1.9% 1.1% 1.1%
VAT 5.7% 6.0% 6.5% Interest Payments 2.2% 2.3% 2.7%
Excise 2.4% 2.5% 2.7% Transfers 2.2% 2.6% 2.3%
Other taxes 3.5% 3.5% 4.0% Subsidies 2.4% 3.6% 3.4%
Nontax Revenue 1.9% 1.9% 1.8% Capital Expenditure 5.3% 5.9% 5.5%
Grants 0.6% 0.3% 0.3% Other Expenditure 1.0% 0.4% 1.2%
Total 23.5% 24.6% 25.4% Total 29.5% 30.7% 30.4%
Fiscal Balance -6.1% -6.1% -4.9%
Current Spending/Toral Revenues 103.0% 100.8% 98.0%
Wages and Salaries/Total Revenues 61.7% 60.2% 55.9%
Sources: Tunisia Ministry of Finance, International Monetary Fund, Moody's Investors Service
The achievement of the targeted wage share reduction remains contingent on wage negotiations between social partners that started
in April 2018. That said, the effective hiring freeze (except for security personnel, and voluntary early retirement) introduced in 2017
will slow the increase in nominal wages. The budget limits growth in nominal wages at 3-4% against an expected average inflation rate
of 7.2% in 2018, according to the central bank’ estimates. Under the current 2015-19 wage agreement, negotiated under the “Pacte
de Carthage” between the government and the main labor unions, the government aims to reduce the wage share to 12% of GDP by
2020.
Exhibit 16
Hiring freeze will help reduce the wage share but wage negotiations are key
0
5,000
10,000
15,000
20,000
25,000
30,000
8.0%
9.0%
10.0%
11.0%
12.0%
13.0%
14.0%
15.0%
16.0%
2010 2011 2012 2013 2014 2015 2016 2017 2018F
Wages Share/GDP New Hires (RHS)
Source: Tunisia Ministry of Finance
Although the government has tried to improve the structure of the budget before, the authorities appear committed to permanent
revenue increases rather than one-off measures, particular VAT increases and corporate taxes to rebalance the fiscal accounts. This
effort is supported by the IMF and by the international donor community which has increased the pressure on Tunisia to comply with
the reform commitments agreed in the four-year EFF.

High foreign-currency share of public debt is mitigated by favorable lending terms
Tunisia’s elevated fiscal deficits in recent years have been one of the main contributors to the increase in government debt, which
reached 69.9% of GDP in 2017, up from 50.8% in 2014. Adverse foreign-exchange rate dynamics have also contributed to the rise
because over 68% of Tunisia’s government debt is denominated in foreign currency. Though fiscal consolidation will help slow the
pace of the increase, we forecast that the government debt ratio will rise to 72% of GDP in 2018, followed by 73% in 2019, driven by a
steady currency depreciation, persisting primary deficits and by an increasing interest burden.
Exhibit 17
We project the fiscal deficit will decline from 2018 onwards...
Fiscal deficit, % of GDP
Exhibit 18
… but with the primary deficit will delay debt stabilization
Primary deficit, % of GDP
-8.0
-7.0
-6.0
-5.0
-4.0
-3.0
-2.0
-1.0
0.0
2013 2014 2015 2016 2017 2018 2019
Tunisia Median B
-6.0
-5.0
-4.0
-3.0
-2.0
-1.0
0.0
2013 2014 2015 2016 2017 2018F 2019F
Tunisia Median B
Exhibit 19
Debt affordability is projected to weaken relative to peers
Interest expenses as % of revenue
Exhibit 20
We expect the debt ratio will continue to increase over the next
two years
Debt as a % of GDP
0
2
4
6
8
10
12
14
2013 2014 2015 2016 2017 2018F 2019F
Tunisia Median B
0
10
20
30
40
50
60
70
80
2013 2014 2015 2016 2017 2018F 2019F
Tunisia Median B
Whereas domestic debt remains broadly stable at around 20% of GDP (reflecting Tunisia's smaller domestic funding base via its
banking system), foreign-currency-denominated debt has increased rapidly in recent years, which is a key credit constraint. However,
the favorable lending terms from multilateral and bilateral lenders, which account for about half of external government debt, mitigate
the related risks (see Exhibits 21 and 22).
Despite the favorable terms of a large share of Tunisia’s external public debt, the increased recourse to commercial debt is reducing
debt affordability to levels consistent with the B-rated median. Tunisia’s debt stock carries an average maturity of almost 7 years (7.4

years for external debt, 5.9 years for domestic debt) with an effective annual average cost of 4.0% (2.8% external and 6.4% domestic).
This debt composition contributes to Tunisia’s manageable, albeit declining debt affordability, as measured by the debt-to-revenue
ratio and the interest-to-revenue ratios, which stood at 284.9% and 9.4% respectively in 2017, and in comparison to peers (see Exhibit
23).
Exhibit 21
Small domestic debt base represents a key credit constraint
(% of GDP)
Exhibit 22
Increasing recourse to international capital markets drives interest
costs
(share of central government external debt by source, December 2017)
24.7
25.9 28.1
26.6
30.5 36.2
40.1
48.0
16.0 18.7 16.6 20.0 20.3 19.2 21.8 21.9
0
10
20
30
40
50
60
70
80
2010 2011 2012 2013 2014 2015 2016 2017
Domestic Debt External Debt
Source: Ministere des Finances Tunisie
Multilateral
50%
Bilateral
14%
International
Financial Markets
36%
Exhibit 23
Central government debt risk indicators
(December 2017)
% of GDP Annual Avg. Cost Avg. Maturity
Total Debt/GDP 69.9 4.0% 6.9 years
External Debt/GDP 48.0 2.8% 7.4 years
Domestic Debt/GDP 21.9 6.4% 5.9 years
State-owned enterprises expose the government to contingent liabilities
Tunisia’s debt dynamics remain exposed to the materialization of contingent liabilities. Guaranteed debts of state-owned enterprises
(SOE) amount to about 13% of GDP and are not included in the central government debt ratio. The IMF considers SOEs to represent
a significant fiscal risk, “exacerbated by poor performance and frequent budgetary transfers to cover cash shortfalls.” In response, the
government has started to adopt performance contracts for 2016-2020 with four major SOEs and an interim contract for Tunisair in
order to increase operational efficiency. The government has also increased oversight over the 20 largest SOEs. Information submitted
by the government regarding four major SOEs indicates some progress toward financial viability but we expect them to remain
dependent on transfers from the government amounting to about 2.2% of GDP.

Susceptibility to event risk: High (-)
Scale VL- VL VL+ L- L L+ M- M M+ H- H H+ VH- VH VH+
+ Final -
Median of countries with B2 ratingScore for TunisiaTunisia High (-)
, thus increasing the
. Such risks include political, government liquidity, banking sector and external vulnerability risks. Susceptibility of event
risk is a constraint which can only lower the preliminary rating range as given by combining the first three factors.
DEBTBURDENPOLITICAL
RISK
GOVERNMENT LIQUIDITY RISK BANKING SECTOR RISK EXTERNAL VULNERABILITY
RISK
Political risk
Gross borrowing
requirements/GDP
Non-resident share
of gen. gov. debt (%)Market-implied rating
Average baseline
credit assessment
(BCA)
Total domestic bank
assets/GDP
Banking system
loan-to-deposit ratio
(Current account
balance + FDI
inflows)/GDP
External vulnerability
indicator (EVI)
Net international
investment
position/GDP
VERY HIGH
HIGH
MODERATE
LOW
VERY LOW
We assess Tunisia’s susceptibility to event risk as “High (-)”, driven by banking sector risk and external vulnerability risk. Other
sovereigns with a “High (-)” score for susceptibility to event risk are Bahrain (B1 negative), Egypt (B3 stable), Lebanon (B3 stable), and
Vietnam (B1 positive).
Political risk remains susceptible to political deadlock and security incidents
Tunisia Armenia Maldives Argentina Egypt Jordan Turkey
B2/STA B1/POS B2/STA B2/STA B3/STA B1/STA Ba2/RUR
Final score M+ M M+ M+ H- M H-
Geopolitical risk M+ -- M L VL M M H-
Domestic political risk M+ -- L M+ M+ H- L+ H-
Peer comparison table factor 4a: Political risk
Seven years after the Jasmine Revolution of 2011, Tunisia remains the only Arab Spring country to introduce a constitutional
democracy sanctioned by both parliamentary and presidential elections. However, it has also experienced terrorist attacks in Sousse
and Tunis, a split in the previous majority Nidaa Tounes party and numerous social protests.
In August 2016, a unity government, including representatives from the employer and labour unions, was put in place under the
auspices of Prime Minister Youssef Cahed's “Pacte de Carthage”. That said, frequent government changes and cabinet reshuffles
continue to distract from the reform agenda and timeline agreed with the IMF.
On the geopolitical front, the improved security environment since the 2015 terrorist attacks is palpable, although further incidents
--albeit low probability events--would represent a very high impact event given the sovereign's reduced shock-absorption capacity.
The country remains exposed to returning fighters trained abroad, and from the civil unrest in neighboring Libya. According to earlier
estimates, about 5,000 Tunisian nationals were fighting abroad in Syria, Libya and Iraq.

Tunisia is receiving international assistance to enhance its security capabilities, especially from the US, which has singled out Tunisia as
a key partner in regional counterterrorism efforts and intends to designate Tunisia as a major non-NATO ally. The US has continued to
commit security assistance to Tunisia.
Higher gross borrowing requirements and an increasing reliance on external financing reduce funding visibility
Tunisia M+ Median Kenya Swaziland Bahrain
Republic of
the Congo
Egypt Turkey
B2/STA B2/STA B2/NEG B1/NEG Caa2/NEG B3/STA Ba2/RUR
Final score M+ M+ M+ H- H- M M
Indicative score M- L+ VL- M+ VL L L+
Gross borrowing req./GDP 9.6 12.7 20.7 3.6 36.2 5.4 36.3 5.1
Gen. gov. ext. debt/gen. gov. debt 68.7 60.0 51.4 48.5 48.9 66.3 18.1 39.9
Market funding stress indicator B3 B3 -- -- B3 -- B1 B1
Peer comparison table factor 4b: Government liquidity risk
Government liquidity risk remains “Moderate (+)” given the need for increasing official funding support to meet budget deficit funding
needs and upcoming principal payments. The shallow domestic funding base (as highlighted by the low domestic debt share) exposes
Tunisia to changes in the external funding environment from official and/or private funding sources to meet its gross borrowing
requirements of about 10% of GDP in 2018 and 2019. Looking forward, higher interest costs and less favorable funding terms will
increase borrowing needs if not compensated by lower fiscal deficits. The final score at “Moderate (+)” is higher than the indicative
“Moderate (-)” due to the significant dependence on official disbursements amid domestic policy inertia.
Exhibit 24
Gross financing needs remain contained at about 10% of GDP...
(% of GDP)
Exhibit 25
…with an increased reliance on official funding sources
(% of GDP)
0.0
2.0
4.0
6.0
8.0
10.0
12.0
2017 2018F 2019F
Primary Deficit Interest Payments
External Amortization Domestic Amortization
Source: Tunisia Ministry of Finance, Moody's Investors Service
0.0
2.0
4.0
6.0
8.0
10.0
12.0
2017 2018F 2019F
International Capital Markets Multilateral Bilateral Domestic
Source: Tunisia Ministry of Finance, Moody's Investors Service
The IMF's program monitoring and fund disbursements typically unlock other multilateral funding sources, on which the sovereign is
highly dependent to meet its funding needs. Other multilateral funding sources include the World Bank (IBRD, Aaa stable), the African
Development Bank (Aaa stable), the Kreditanstalt fuer Wiederaufbau (KfW, Aaa stable), and the Arab Monetary Fund (unrated), in
addition to the European Union (Aaa stable).
The stable outlook on Tunisia's B2 rating reflects our assumption that Tunisia will continue to meet its IMF program objectives,
ensuring the continuity of planned official sector disbursements, even if they are occasionally delayed. Any shortfall in expected
disbursements would need to be met by costlier funding in international capital markets in addition to the planned Eurobond issues for
this year and next.

External imbalances persist and foreign-exchange reserves are deteriorating
Tunisia H- Median Mongolia
St. Vincent
and the
Grenadines
Barbados Belarus Bahrain Tajikistan
B2/STA B3/STA B3/STA Caa3/STA B3/STA B1/NEG B3/STA
Final score H- H- H- H H M+ M+
Indicative score H- M VL+ H- H- M+ H
(Curr. acc. bal. + FDI inflows)/GDP -8.0 -0.1 4.4 -2.8 -- 0.6 -2.4 4.1
External vulnerability indicator (EVI) 189.4 99.6 141.9 57.2 170.3 442.1 1,651.2 698.2
Peer comparison table factor 4d: External vulnerability risk
Since 2011, the current account deficit has structurally widened on account of: (1) a worsening energy deficit following reduced
domestic energy production because of the maturation of oil fields and reduced exploration during the revolution period; (2) reduced
external demand from the EU until last year, a region that accounts for 65% of trade with Tunisia (cyclical component); (3) negative
supply shocks in the phosphate mining sector because of labor disruptions and social unrest; and (4) reduced FDI inflows and tourism
revenue in the wake of the 2015 terror attacks. These factors have driven the current account deficit to 10.4% of GDP in 2017 with
foreign exchange reserves declining to 71 days of import cover as of June 2018 (see Exhibits 26-29).
Exhibit 26
Current account deficit deteriorated in 2017…
(% of GDP)
Exhibit 27
…and FX reserves declined to below 3 months of imports
(% of GDP)
-10.4% -10.5%
-13.6% -12.8% -14.0%
-11.7% -11.4%
-13.2%
5.6%
3.3% 4.3% 3.5% 3.0%
0.7% 0.7% 0.9%
-10.4%
-20%
-15%
-10%
-5%
0%
5%
10%
2010 2011 2012 2013 2014 2015 2016 2017
Goods Services Income
Current Transfers Current Account
Source: Central Bank of Tunisia, Moody's Investors Service
3.0%
0.9%
3.5%
2.3% 2.2% 2.2% 1.5% 2.0%
-5%
0%
5%
10%
15%
20%
25%
2010 2011 2012 2013 2014 2015 2016 2017
Capital Account FDI Portfolio
Other Investment BoP FX Reserves
Source: Central Bank of Tunisia, Moody's Investors Service
Exhibit 28
The deteriorating energy balance drives the trade deficit...
(% of GDP)
Exhibit 29
… leading to continued declines in FX reserves
($ million)
-2.0% -2.1% -2.3% -2.3% -2.5%
-0.7% -1.9% -2.1%
-0.8% -1.8% -2.8% -3.4% -4.5%
-4.0% -3.0% -4.2%
-10.4% -7.7%
-8.9% -7.6%
-7.1%
-6.6% -6.1%
-6.0%
-5.2%
-5.6%
-5.9% -5.9% -5.7%
-5.1% -5.3%
-5.8%
-25%
-20%
-15%
-10%
-5%
0%
5%
10%
2010 2011 2012 2013 2014 2015 2016 2017
Agriculture Mines Textiles
Energy Mechanic and Electric Other Manufacturing
Source: Haver Analytics, Tunisia National Statistics
-6,000
-4,000
-2,000
0
2,000
4,000
6,000
8,000
10,000
12,000
14,000
2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018F 2019F
Difference CA Balance $ million Reserves $ million
Source: Central Bank of Tunisia, Haver Analytics, Moody's Investors Service

We expect a gradual improvement in the current account deficit to 9.5% of GDP in 2018, followed by 8.3% in 2019. The main drivers
include: (1) increased net manufacturing and agricultural exports to Europe, supported by improved competitiveness following the
recent real depreciation of the dinar; (2) an increase in tourism revenue based on the significantly improved security environment and
the lifting of travel warnings by several countries, including the UK; (3) higher remittance inflows from Europe reflecting the cyclical
upswing there; (4) bottoming out of the decline in energy production in 2018 and the coming on stream of the Nawara natural gas
project starting 2019, which will cover 10% of domestic natural gas needs and allow for reduced imports from Algeria.
Regarding our projections for the level of foreign exchange reserves, the relationship between the current account and foreign exchange
dynamics indicates that the bottom should have been reached in 2017 in annual terms, assuming that the current account deficit
improves (as we expect it will, albeit only gradually). Assuming unchanged access to external funding sources, we forecast unchanged
FX reserves at $5.2 billion at the end of 2018, followed by $5.5 billion in 2019.
The level of foreign exchange reserves has implications for the External Vulnerability Indicator (EVI) which measures external debt
maturing over the next year (including the stock of short-term non-resident deposits and non-resident deposits with maturity greater
than one year) in comparison with the stock of foreign exchange reserves at the end of the previous year. Based on our assumptions,
the EVI will stabilize at below 200% in our central scenario, indicating a significant exposure to potential balance of payment
disruptions to meet upcoming debt payments.
Banking sector risk at High (-) reflects persistent asset quality pressures
Tunisia H- Median Iraq Lebanon Vietnam Turkey Jordan Belize
B2/STA Caa1/STA B3/STA B1/POS Ba2/RUR B1/STA B3/STA
Final score H- H H- H- M+ M+ H
Indicative score H- M- H- H H- M L-
Baseline credit assessment caa1 b2 -- b3 b2 b1 ba3 --
Total dom. bank assets/GDP 113.9 203.7 94.2 424.5 -- -- 171.1 88.5
Loan-to-deposit ratio 119.1 88.1 108.0 43.7 -- -- 99.7 76.7
Peer comparison table factor 4c: Banking sector risk
The banking sector risk score at “High (-)” indicates continued asset quality issues at the three state owned banks, even after their
recapitalization. This is due to past political interference, directed lending, weak underwriting standards and large exposures to the
problematic tourism sector (1/4 of system nonperforming loans (NPLs)). Also the supervision has been very weak. System NPLs remain
high at around 15% as of December 2017 (around 23.9% for public banks and 9.9% for private banks).
Tunisia’s banking system consists of 23 banks, including three majority state-owned institutions, which together account for about
34.5% of total banking assets. Société Tunisienne de Banque was created in 1958, shortly after the country’s independence, Banque
Nationale Agricole (BNA, unrated) was established in 1959, and Banque de l’Habitat (BH, unrated) was established in 1989.
These three public banks feature more severe asset quality deficiencies as compared to their privately owned peers, especially after the
introduction of stricter provisioning rules for NPLs in 2013 and increasingly more stringent haircuts on loan collateral for refinancing
operations with the central bank. For 2018, we expect NPLs to account for about 15% of gross loans. Most NPLs were concentrated in
the tourism industry, affecting STB in particular. The gradual phasing-out of tourism loan forbearance measures introduced after the
terrorist attacks in 2015 will further require an improved loan resolution process.
From the liquidity perspective, the banking system's reliance on central bank funding has been increasing and represented over 8% of
assets as of February 2018 from below 4% in December 2014, a trend we expect to continue in 2018. Lending growth thus remains at
risk if inflationary pressures rise and the authorities decide to tighten monetary policy, either through policy rates or via a reduction in
access to central bank funding.
The strengthening of bank resilience and improved financial intermediation are cornerstones of the EFF and of the previous SBA. As of
October 2015, all three public banks have been recapitalized, thus increasing the government's stake (direct and indirect ownership)
to around 80% from 51%. The most recent capital injection of TND68 million was completed in January 20018. Following the
recapitalizations, public banks have begun to restructure their operations and new management teams were appointed. In response to

the impact of the 2015 attacks on the tourism sector, the central bank introduced a forbearance measure via a circular that facilitated
the rescheduling of new loans to active tourism establishments originally scheduled to expire in 2017 before getting extended to 2018.
The government has indicated that it has decided against a privatization of the three major public institutions, which puts the relative
costs of another eventual capital injection on the government’s balance sheet. The last capital injection in 2015 cost the government
0.8% of GDP. In September last year, Banque de l'Habtat received shareholder approval for a capital injection of TND102 million, of
which TND57.8 million will come from the public sector.
The required updated business plans at these institutions aims for a rapid resolution of NPLs including via the write-off of fully
provisioned loans as foreseen in the recently approved bankruptcy law (and which awaits the adoption of implementation decrees).
Instead of adopting an external asset management company model proposed under the previous SBA to deal with legacy loans, under
the EFF the government has opted for the introduction of dedicated internal structures in public banks to deal with NPLs.
Over the medium term, technical and strategic partners will be able to invest in the equity of the three banks as the government sells
parts of its own stake. This should result in stronger overall governance.

Rating range
Combining the scores for individual factors provides an indicative rating range. While the information used to determine the grid mapping is mainly historical, our ratings incorporate
expectations around future metrics and risk developments that may differ from the ones implied by the rating range. Thus, the rating process is deliberative and not mechanical,
meaning that it depends on peer comparisons and should leave room for exceptional risk factors to be taken into account that may result in an assigned rating outside the indicative
rating range. For more information please see our Sovereign Bond Rating methodology.
Exhibit 30
Sovereign rating metrics: Tunisia
VH+ VH VH- H+ H H- M+ M M- L+ L L- VL+ VL VL-
+ -
+ -
+ - VH+ VH VH- H+ H H- M+ M M- L+ L L- VL+ VL VL-
+ -
+ -
VL- VL VL+ L- L L+ M- M M+ H- H H+ VH- VH VH+
+ -
B2 - Caa1
B2
Economic
strength
How strong is the economic structure?
How robust are the institutions and how predictable
are the policies?
Sub-factors: institutional framework and effectiveness,
policy credibility and effectiveness
How does the debt burden compare with the
government's resource mobilization capacity?
Assigned rating:
Institutional
strength
Fiscal
strength
Susceptibility
to event risk
What is the risk of a direct and sudden threat to debt
repayment?
Economic resiliency
Government financial strength
Sub-factors: growth dynamics, scale of the economy, wealth
Sub-factors: debt burden, debt affordability
Sub-factors: political risk, government liquidity risk,
banking sector risk, external vulnerability risk
Rating range:

Comparatives
This section compares credit relevant information regarding Tunisia with other sovereigns that we rate. It focuses on a comparison with sovereigns within the same rating range and
shows the relevant credit metrics and factor scores.
On factor 1 (economic strength), Tunisia's wealth levels are in line with B1-rated peers, while its average growth outlook is lower driven by the relative loss in competitiveness. On
factor 2 (institutional strength), Tunisia performs better than most peers in spite of the political upheaval it endured during its revolution, albeit at the cost of policy implementation
effectiveness. On factor 3 (fiscal strength), Tunisia’s difficulty in reining in its fiscal deficit in the face of a quickly increasing debt ratio, and its high foreign-currency debt share
underpin the more challenging fiscal outlook than for B1-rated peers. On factor 4 (susceptibility to event risk), banking sector risk reflects the persistent asset quality pressures
with the government's high risk exposure to materializing contingent liabilities. Moreover, Tunisia’s large external borrowing requirements and comparatively thin reserve position
compared to its B1 peers account for the country’s higher external vulnerability.
Exhibit 31
Tunisia key peers
Year
Tunisia Armenia Swaziland Fiji Honduras Jordan B2 Median
Middle East & North
Africa Median
Rating/Outlook B2/STA B1/POS B2/NEG Ba3/STA B1/STA B1/STA B2 Baa3
Rating Range B2 - Caa1 Ba3 - B2 Ba3 - B2 Ba1 - Ba3 Ba2 - B1 Ba2 - B1 B1 - B3 Baa2 - Ba1
Factor 1 L+ L+ L+ L+ L+ M- L+ H-
Nominal GDP (US$ bn) 2017 40.3 11.6 4.6 5.1 23.0 40.4 22.7 121.6
GDP per capita (PPP, US$) 2017 11446.7 9455.9 12356.5 9777.2 5561.5 12494.4 4930.5 36340.1
Avg. real GDP (% change) 2013-2022 2.5 4.2 2.4 3.1 3.6 2.6 4.5 2.9
Volatility in real GDP growth (ppts) 2008-2017 1.8 6.3 1.3 2.2 2.0 1.7 2.6 3.3
Global Competitiveness index 2017 3.9 4.2 3.4 -- 3.9 4.3 3.9 4.4
Factor 2 M M VL+ L+ VL+ H- VL+ H-
Government Effectiveness, percentile [1] 2016 33.0 38.3 21.8 30.0 9.7 49.6 21.1 49.6
Rule of Law, percentile [1] 2016 51.1 45.1 33.0 36.0 3.7 58.6 24.8 58.6
Control of Corruption, percentile [1] 2016 50.3 24.8 31.5 58.6 21.8 61.6 10.9 51.8
Average inflation (% change) 2013-2022 5.2 3.2 5.2 2.4 4.8 2.3 4.9 2.4
Volatility in inflation (ppts) 2008-2017 0.9 3.3 2.4 2.3 2.4 4.4 4.3 3.3
Factor 3 VL+ L M+ M M- L- L+ M+
Gen. gov. debt/GDP 2017 69.9 58.6 31.0 45.6 40.4 95.0 40.5 58.0
Gen. gov. debt/revenue 2017 284.9 256.4 103.2 167.0 151.8 367.3 218.5 176.3
Gen. gov. interest payments/revenue 2017 9.4 8.3 7.7 11.4 8.3 12.8 8.6 6.2
Gen. gov. interest payments/GDP 2017 2.3 1.9 2.1 3.1 2.2 3.3 1.9 1.5
Gen. gov. financial balance/GDP 2017 -6.1 -4.7 -8.1 -2.2 -0.4 -2.6 -4.2 -3.2
Factor 4 H- M M+ M- M- M+ M+ M
Current account balance/GDP 2017 -10.4 -3.5 13.1 -4.4 -1.7 -10.5 -4.6 -3.5
Gen. gov. external debt/gen. gov. debt 2017 68.7 74.8 39.4 28.5 73.3 36.2 68.0 37.7
External vulnerability indicator (EVI) 2019F 189.4 115.0 33.1 17.2 42.7 100.1 45.0 88.1
[1] Moody's calculations. Percentiles based on our rated universe.
Sources: Moody’s Investors Service, IMF, national authorities

DATA, CHARTS AND REFERENCES
Chart pack: Tunisia
Exhibit 32
Economic growth
Exhibit 33
Investment and saving
0.0
0.5
1.0
1.5
2.0
2.5
3.0
-3.0
-2.0
-1.0
0.0
1.0
2.0
3.0
4.0
5.0
2008
2009
2010
2011
2012
2013
2014
2015
2016
2017
2018F
2019F
Real GDP volatility, t-9 to t (ppts) (RHS)
Real GDP (% change) (LHS)
Sources: Moody's Investors Service, IMF, national authorities
0
5
10
15
20
25
30
2008
2009
2010
2011
2012
2013
2014
2015
2016
2017
2018F
2019F
Gross investment/GDP Gross domestic saving/GDP
Exhibit 34
National income
Exhibit 35
Population
0
2000
4000
6000
8000
10000
12000
14000
2008
2009
2010
2011
2012
2013
2014
2015
2016
2017
2018F
2019F
GDP per capita (US$) GDP per capita (PPP basis, US$)
0.00
0.50
1.00
1.50
2.00
2.50
3.00
9.5
10.0
10.5
11.0
11.5
12.0 2008
2009
2010
2011
2012
2013
2014
2015
2016
2017
2018F
2019F
Population (Mil.) (LHS) Population growth (% change) (RHS)
Exhibit 36
Global Competitiveness Index
Rank 95 out of 137 countries
Exhibit 37
Inflation
0 20 40 60 80 100 120 140
Swaziland (B2/NEG)
Honduras (B1/STA)
Tunisia (B2/STA)
Kenya (B2/STA)
Armenia (B1/POS)
Jordan (B1/STA)
Source: World Economic Forum
0.0
0.2
0.4
0.6
0.8
1.0
1.2
1.4
0.0
1.0
2.0
3.0
4.0
5.0
6.0
7.0
2008
2009
2010
2011
2012
2013
2014
2015
2016
2017
2018F
2019F
Inflation rate volatility, t-9 to t (ppts) (RHS)
Inflation rate (CPI, % change Dec/Dec) (LHS)

Exhibit 38
Institutional framework and effectiveness
Exhibit 39
Debt burden
-0.4
-0.3
-0.2
-0.1
0.0
0.1
0.2
0.3
0.4
0.5
0.6
2007
2008
2009
2010
2011
2012
2013
2014
2015
2016
Government Effectiveness[1] Rule of Law[1] Control of Corruption[1]
Notes: [1] Composite index with values from about -2.50 to 2.50: higher values suggest
greater maturity and responsiveness of government institutions.
Sources: Worldwide Governance Indicators, Moody's Investors Service
0
50
100
150
200
250
300
350
0
10
20
30
40
50
60
70
80
2008
2009
2010
2011
2012
2013
2014
2015
2016
2017
2018F
2019F
Gen. gov. debt/GDP (%) (LHS)
Gen. gov. debt/gen. gov. revenue (%) (RHS)
Exhibit 40
Debt affordability
Exhibit 41
Financial balance
0.0
2.0
4.0
6.0
8.0
10.0
12.0
14.0
0.0
0.5
1.0
1.5
2.0
2.5
3.0
2008
2009
2010
2011
2012
2013
2014
2015
2016
2017
2018F
2019F
Gen. gov. interest payment/GDP (%) (LHS)
Gen. gov. interest payment/gen. gov. revenue (%) (RHS)
-8
-7
-6
-5
-4
-3
-2
-1
0
1
2 2008
2009
2010
2011
2012
2013
2014
2015
2016
2017
2018F
2019F
Gen. gov. financial balance/GDP (%)
Gen. gov. primary balance/GDP (%)
Exhibit 42
Government liquidity risk
Exhibit 43
External vulnerability risk
0
10
20
30
40
50
60
70
80
0
10
20
30
40
50
60
70
80
2008
2009
2010
2011
2012
2013
2014
2015
2016
2017
2018F
2019F
Gen. gov. debt/GDP (%) (RHS)
Gen. gov. external debt/total gen. gov. debt (%) (LHS)
0
50
100
150
200
250
0
20
40
60
80
100
120
140
160
180
200
2008
2009
2010
2011
2012
2013
2014
2015
2016
2017
2018F
2019F
External debt/CA receipts (%)(LHS)
External vulnerability indicator (%)(RHS)

Rating history
Exhibit 44
Tunisia[1]
Foreign Currency Local Currency Outlook Long-term Short-term Long-term Short-term Date
Rating Lowered B2 B2 Stable Ba3 -- B3 -- Mar-18
Rating Lowered B1 B1 Negative Ba2 -- B2 -- Aug-17
Outlook Changed -- -- Negative -- -- -- -- Nov-16
Outlook Changed -- -- Stable -- -- -- -- May-15
Rating Lowered Ba3 Ba3 Negative Ba1 NP B1 -- Nov-13
Rating Lowered Ba2 Ba2 Negative Baa3 -- Ba3 -- May-13
Rating Lowered &
Review for Downgrade
Ba1 Ba1 RUR- Baa2 -- Ba2 NP Feb-13
Rating Lowered Baa3 Baa3 Negative Baa1 P-3 Baa3 P-3 Jan-11
Rating Raised -- -- -- A3 P-2 -- -- May-06
Rating Raised Baa2 -- Stable Baa2 -- Baa2 P-2 Apr-03
Rating Assigned Baa3 -- -- -- -- -- -- Oct-00
Outlook Changed -- -- Positive -- -- -- -- Feb-00
Rating Assigned -- Baa2 -- -- -- -- -- Jun-99
Outlook Assigned -- -- Stable -- -- -- -- Mar-97
Rating Assigned -- -- -- -- -- Ba1 NP Oct-95
Rating Assigned -- -- -- Baa3 -- -- -- Apr-95
Bonds & Notes Bank Deposit
Government Bonds Foreign Currency Ceilings
Notes: [1] Table excludes rating affirmations. Please visit the issuer page for Tunisia for the full rating history.

Annual statistics
Exhibit 45
Tunisia
2008 2009 2010 2011 2012 2013 2014 2015 2016 2017E 2018F 2019F
Economic structure and performance
Nominal GDP (US$ bil.) 44.8 43.5 44.1 45.8 45.0 46.2 47.6 43.2 42.1 40.3 41.9 43.8
Population (Mil.) 10.3 10.4 10.5 10.7 10.8 10.9 11.0 11.1 11.4 11.5 11.6 11.8
GDP per capita (US$) 4,341 4,163 4,177 4,292 4,180 4,248 4,327 3,884 3,690 3,496 3,604 3,722
GDP per capita (PPP basis, US$) 9,763 10,036 10,315 10,204 10,694 11,020 11,355 11,487 11,448 -- -- --
Nominal GDP (% change, local currency) 10.9 6.2 7.5 2.3 9.1 6.8 7.5 4.8 6.8 7.8 9.4 8.8
Real GDP (% change) 4.5 3.1 2.6 -1.9 3.9 2.4 2.3 1.1 1.0 1.9 2.8 3.0
Inflation (CPI, % change Dec/Dec) 4.4 3.3 3.3 3.9 5.9 5.7 4.8 4.1 4.2 6.4 6.5 6.0
Gross investment/GDP 23.6 24.3 24.6 21.9 22.5 21.9 20.3 19.9 20.3 20.9 21.1 21.0
Gross domestic saving/GDP 22.5 21.4 20.8 16.1 15.5 13.7 12.6 9.5 9.6 8.6 9.9 11.1
Nominal exports of G & S (% change, US$ basis) 66.3 -20.9 11.6 1.6 -1.6 -0.8 -1.8 -19.1 -3.2 3.8 3.0 0.7
Nominal imports of G & S (% change, US$ basis) 27.5 -20.6 15.4 6.4 1.9 0.0 2.0 -17.3 -3.6 5.2 1.3 -1.0
Openness of the economy[1] 115.4 94.4 105.8 105.9 108.0 104.8 102.2 92.3 91.4 99.9 97.9 93.6
Government Effectiveness[2] 0.3 0.4 0.2 0.0 0.0 -0.1 -0.1 -0.1 -0.2 -- -- --
Government finance
Gen. gov. revenue/GDP 24.8 23.5 23.5 26.0 26.3 26.6 25.2 23.8 23.5 24.5 24.6 23.5
Gen. gov. expenditures/GDP 25.8 26.5 24.5 29.3 31.8 33.5 30.2 28.7 29.6 30.6 29.4 27.9
Gen. gov. financial balance/GDP -1.0 -3.0 -1.0 -3.3 -5.5 -6.9 -5.0 -4.8 -6.1 -6.1 -4.8 -4.4
Gen. gov. primary balance/GDP -1.0 -1.0 0.8 -1.5 -3.7 -5.0 -3.2 -2.9 -3.9 -3.8 -2.2 -1.7
Gen. gov. debt (US$ bil.) 18.3 19.1 17.8 19.2 20.3 21.2 22.1 23.1 23.9 27.4 29.5 31.3
Gen. gov. debt/GDP 43.3 42.9 40.7 44.6 44.7 46.6 50.8 55.4 61.9 69.9 72.0 73.0
Gen. gov. debt/gen. gov. revenue 174.5 183.0 173.0 171.8 169.9 175.0 201.6 232.5 263.2 284.9 292.9 311.2
Gen. gov. interest payments/gen. gov. revenue -- 8.6 7.8 7.1 6.9 7.1 7.4 8.1 9.3 9.4 10.6 11.5
Gen. gov. FC & FC-indexed debt/gen. gov. debt 60.9 58.4 60.6 58.0 62.7 57.1 60.4 63.7 65.1 68.7 70.8 71.2

Exhibit 46
Tunisia
External payments and debt
Nominal exchange rate (local currency per US$, Dec) 1.3 1.3 1.4 1.5 1.6 1.6 1.9 2.0 2.3 2.5 2.6 2.7
Real eff. exchange rate (% change) -0.7 -1.3 -0.4 -1.8 -1.5 -1.9 -0.1 5.2 -4.7 -8.0 -- --
Current account balance (US$ bil.) -1.7 -1.2 -2.1 -3.4 -3.7 -3.9 -4.3 -3.8 -3.7 -4.2 -3.9 -3.5
Current account balance/GDP -3.8 -2.8 -4.8 -7.4 -8.3 -8.4 -9.1 -8.9 -8.8 -10.4 -9.3 -8.0
External debt (US$ bil.) 20.9 22.1 22.0 22.5 25.3 26.8 27.7 28.5 28.9 32.2 35.3 37.2
Public external debt/total external debt 54.5 53.2 51.7 52.4 53.5 52.5 54.6 58.1 58.7 58.5 59.2 60.0
Short-term external debt/total external debt 20.7 21.8 22.7 22.0 24.6 24.5 24.8 23.0 23.2 18.1 16.8 16.7
External debt/GDP 46.5 50.9 49.9 49.1 56.3 58.0 58.1 66.1 68.6 79.9 84.2 85.1
External debt/CA receipts[3] 75.4 99.7 89.2 89.9 101.8 107.7 112.5 142.7 150.5 162.3 173.1 180.2
Interest paid on external debt (US$ bil.) 0.8 0.8 0.7 0.7 0.7 0.7 0.5 0.5 0.7 0.6 0.6 0.6
Amortization paid on external debt (US$ bil.) 1.4 1.7 1.7 2.1 2.0 1.5 1.2 1.5 2.7 2.2 1.7 1.8
Net foreign direct investment/GDP 5.8 3.5 3.0 0.9 3.5 2.3 2.2 2.2 1.5 2.3 2.2 2.2
Net international investment position/GDP -87.9 -97.2 -97.7 -99.8 -107.4 -113.2 -108.8 -123.4 -120.3 -123.4 -- --
Official forex reserves (US$ bil.) 8.8 10.6 9.0 7.0 7.9 6.8 6.9 7.1 5.7 5.2 5.2 5.5
Net foreign assets of domestic banks (US$ bil.) -2.6 -2.7 -2.6 -3.0 -3.0 -3.2 -3.6 -3.3 -3.3 -4.2 -- --
Monetary, external vulnerability and liquidity indicators
M2 (% change Dec/Dec) 14.8 12.9 11.9 9.3 7.5 7.1 8.2 5.4 8.0 11.6 -- --
Monetary policy rate (% per annum, Dec 31) 5.3 4.5 4.5 3.5 3.8 4.0 4.8 4.3 4.3 5.0 -- --
Domestic credit (% change Dec/Dec) 13.2 10.3 16.1 14.9 9.2 8.7 9.6 8.9 10.1 12.5 -- --
Domestic credit/GDP 63.0 65.5 70.8 79.5 79.6 81.0 82.5 85.8 88.5 92.3 -- --
M2/official forex reserves (X) 2.6 2.4 2.9 4.0 3.7 4.3 4.0 3.8 4.4 5.1 -- --
Total external debt/official forex reserves 236.7 208.0 244.2 321.4 320.8 392.7 402.2 403.0 506.9 615.3 679.2 676.7
Debt service ratio[4] 8.2 11.1 9.9 11.2 11.0 8.8 7.3 10.1 17.4 14.0 11.2 11.9
External vulnerability indicator (EVI)[5] 108.4 101.1 83.6 104.4 140.5 141.6 152.3 153.8 142.7 203.0 185.1 189.4
Liquidity ratio[6] 19.6 18.9 15.2 26.6 15.9 20.0 19.9 15.6 12.5 12.2 -- --
Total liabilities due BIS banks/total assets held in BIS banks 101.9 89.4 59.6 68.5 71.1 77.2 89.1 74.7 76.0 87.4 -- --
"Dollarization" ratio[7] 19.4 3.3 3.9 3.8 3.6 3.8 3.0 2.8 2.7 2.5 -- --
"Dollarization" vulnerability indicator[8] 39.9 6.3 8.8 11.5 10.1 12.6 10.0 8.6 9.7 9.9 -- --
[1] Sum of Exports and Imports of Goods and Services/GDP
[2] Composite index with values from about -2.50 to 2.50: higher values suggest greater maturity and responsiveness of government institutions
[3] Current Account Receipts
[4] (Interest + Current-Year Repayment of Principal)/Current Account Receipts
[5] (Short-Term External Debt + Currently Maturing Long-Term External Debt + Total Nonresident Deposits Over One Year)/Official Foreign Exchange Reserves
[6] Liabilities to BIS Banks Falling Due Within One Year/Total Assets Held in BIS Banks
[7] Total Foreign Currency Deposits in the Domestic Banking System/Total Deposits in the Domestic Banking System
[8] Total Foreign Currency Deposits in the Domestic Banking System/(Official Foreign Exchange Reserves + Foreign Assets of Domestic Banks)

Moody’s related publications
» Credit Opinion: Government of Tunisia: Update Following Rating Downgrade and Change in Outlook to Stable, March 2018
» Rating Action: Moody's Downgrades Tunisia's Rating to B2, Outlook Changed to Stable, March 2018
» Issuer In-Depth: FAQ on Fiscal Outlook, Liquidity Risks, and External Imbalances, March 2018
» Country Statistics: Government of Tunisia, May 2018
» Outlook: Sovereigns - Levant & North Africa: 2018 Outlook Stable as Improving Growth Offsets Persistent Fiscal and Political Risks,
January 2018
» Outlook: Sovereigns - Global: 2018 Outlook Stable as Healthy Growth Tempers High Debt, Geopolitical Tensions, November 2017
» Rating Methodology: Sovereign Bond Ratings, December 2016
To access any of these reports, click on the entry above. Note that these references are current as of the date of publication of this report and that more recent reports may be available. All
research may not be available to all clients.
Related websites and information sources
» Sovereign risk group web page
» Sovereign ratings list
» National Statistics Office
» Ministry of Finance
MOODY’S has provided links or references to third party World Wide Websites or URLs (“Links or References”) solely for your convenience in locating related information and services.
The websites reached through these Links or References have not necessarily been reviewed by MOODY’S, and are maintained by a third party over which MOODY’S exercises no control.
Accordingly, MOODY’S expressly disclaims any responsibility or liability for the content, the accuracy of the information, and/or quality of products or services provided by or advertised on
any third party web site accessed via a Link or Reference. Moreover, a Link or Reference does not imply an endorsement of any third party, any website, or the products or services provided
by any third party.
Authors
Elisa Parisi-Capone
Vice President - Senior Analyst
Patrick Cooper
Associate Analyst

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Moodys -govt of tunisia--annual credit analysis-report

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