Fitch changes Tunisian outlook to stable

A wall of the Bardo Museum is riddled with bullet holes during the reopening day to the public of the National Bardo Museum in Tunis, Tunisia, on Friday, March 27, 2015. Hassene Dridi / AP Photo

The ratings agency Fitch has upgraded Tunisia’s outlook to stable from negative, after the formation of a new government in February looked likely to bring renewed stability to the troubled North African country.

The upgrade comes despite the March 18 terror attack on Bardo Museum in Tunis, which killed 21 people, of whom 20 were tourists. Still, Fitch warned that more such attacks could lead it to reconsider its rating.

Fitch affirmed its rating of Tunisia’s unsecured foreign currency bonds at BB minus. It rates the likelihood that country will default on its foreign currency liabilities at BB minus, and on its domestic currency liabilities BB.

A BB rating indicates “an elevated vulnerability to default risk, particularly in the event of adverse changes in business or economic conditions over time”, according to Fitch.

The coalition government “lays the ground for better political stability in the country”, Fitch said on Friday.

Nidaa Tounes, the secular centre-left party, won a plurality of seats in the Tunisian parliament at the end of the last year, in elections that also resulted in the party’s founder, Beji Caid Essebim, taking the presidency.

But with no one party having won a majority, who would rule in parliament became the subject of weeks of negotiations. Finally, Habib Essid, a former agriculture minister under the former president Zine El Abedine Ben Ali, formed a unity coalition government with a majority in the assembly of the representatives of the people, the Tunisian parliament. Mr Essid is governing as an independent.

Fitch believes this will contribute significantly to the country’s political stability.

The new government draws primarily from Tunisia’s secular leftist parties, Nidaa Tounes, the liberal parties the Free Patriotic Union and Afek Tounes, and a handful of independents – but also includes one minister from the religious Ennahda party.

The governing coalition needs to hold at least 109 seats for a clear majority in the assembly, and a motion to form a new government won the support of 166 Tunisian legislators.

Analysts at the Economist Intelligence Unit warned that future political stability could not be guaranteed.

“The new government will enjoy only a short honeymoon period, if any,” the group said on March 5. “Tunisia faces varied security and economic challenges, and its new leadership will need to deal with them quickly if they are to avoid the social unrest that has plagued the country in recent years.”