International analysis: Spectra of Tunisian debt restructuring and re-emergence of insolvencies

The American financial group specializing in economic and financial information, Bloombergjust announced yesterday Thursday April 14, 2022 that officials at the Central Bank of Tunisia (BCT) ensure that any deal to save the country’s economy that would be concluded with the International Monetary Fund (IMF) does not include restructuring of external debt, according to sources well informed.

The central bank clarified its position during an investor video conference organized last week by Bank of America Corp., said Brad Wickens, founding partner of a London hedge fund “Broad Reach Investment Management”, who was invited to attend. , because the fund has Tunisian debt, but Wickens declined to give details of its position.

“The Central Bank was very clear in videoconferencing with a large number of investors that any funding program would not include debt restructuring,” he said. “A debt restructuring for a small amount of Eurobonds would not improve the situation at all.” A Bank of America spokesperson declined to comment.

Tunisia’s debt has declined, with the risk premium hitting a record 2,000 basis points on March 29, as the war in Ukraine causes further pressure on food and energy prices, while the government has said it is trying to reach an agreement with the IMF in April.

Financing package

It has been argued that an IMF aid package that does not include restructuring its international debt as a condition would boost the economy without forcing investors to share some of the burden. Tunisia has at least $ 5 billion in Eurobonds in circulation, according to Bloomberg data.

“We think Russia’s invasion of Ukraine will require IMF leniency and possibly even food aid programs,” Wickens said. “Tunisia could benefit from substantial short-term loans from the IMF, which will unlock new multilateral and bilateral loans.”

Since the war began, the IMF has discussed a number of deals with troubled states, including a $ 3 billion preliminary loan for Lebanon.

The Egyptian government said last month it would also seek help from the lender. Financial players, including Wickens, are hoping that Tunisia, which has suffered from weak economic growth for a decade, could become the next recipient of IMF support.

“We see Tunisia as one of the distressed loans most likely to rise over the next three to six months,” Wickens said.

An IMF spokesperson declined to comment on the Bloomberg publication, referring to a March 30 statement that did not address the country’s international debt restructuring.

“At this moment, we continue to stand by the Tunisian authorities in their efforts to carry out economic and social reforms for the benefit of the people”, reads the note.

Budgetary expenditure control

Bloomberg continues his analysis by stating that in these times the economic challenges facing Tunisia continue to worsen as the crisis caused by the high cost of living makes it more difficult for the government to reduce budget spending. The situation could be further complicated by the measures adopted by President Kais Saied to assume greater powers and remove the country’s parliament, which have triggered sporadic protests, specifies the American financial group specializing in economic and financial information.

Tunisia’s indecisive policy and the aftermath of the war in Ukraine mean it could “fail,” said James Swanston, a Middle East and North African economist at Capital Economics in London last week.

Sri Lanka’s announcement on Tuesday (April 12) to suspend all sovereign bond payments sparked a new wave of concerns about the risk of default for investors in emerging market debt. However, the problems Tunisia faces are not of the same magnitude, according to GAM Holdings, which holds the country’s debt securities.

“A default or restructuring in the next twelve months is not the base case,” said Richard Briggs, a London-based fund manager at the firm. “Tunisia still has the ability to pay largely because it has high foreign exchange reserves and has managed to keep them at reasonably stable levels.”

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