Tunisia's Sovereign Bonds: Divergent readings reflecting lack of objective assessment
26/04/2023 19:14, TUNIS/Tunisia
(TAP/Khadija Bouselmi) - The wide divergence in the readings issued by financial analysis institutions on Tunisia's sovereign bonds reflects the lack of objective evaluation tools in the hands of the financial industry and paves the way for influence that serves international financial agendas.

In view of the ambiguity surrounding reports drawn up by the various international institutions and rating agencies on Tunisia's sovereign bonds, TAP seeks to shed more light on this issue, focusing in particular on the different approaches to analysis and evaluation.

Tunisia's sovereign bonds listed in foreign currencies on the international financial market have recorded a sharp decline, since March 6. In terms of price, bonds maturing in 2026 and 2027 are at their historic lows, 50.5% and 53.6% respectively.

A sovereign bond is a medium/long-term bond issued by a State in a currency other than its own and which provides for the repayment of 100% of the capital at maturity, according to the international trade dictionary.

Several factors impact bond prices
Economic expert and former Trade Minister Mohsen Hssan underlined that an amount of the foreign debt is part of bond loans, through the issuance of bonds on the international market.

He adds that the value of bonds on the international market varies either upwards or downwards, depending on several factors related to the State's ability to repay these bonds, including the sovereign rating.

Economic indicators in any economy (growth rate, foreign currency assets, current account and budget deficit, external debt ratio, unemployment) influence the value of bonds either upwards or downwards, as investors decide on the basis of these indicators.
Conflicting reports

A report published by news provider Reuters on April 18, 2023 revealed that the value of Tunisian dollar bonds (which are government-guaranteed debt obligations on international markets) recorded its lowest levels.

This decline is due to the decision made by Tunisian authorities to ban meetings in Ennahdha movement's headquarters.

The same report states that the nominal value of the majority of bonds has dropped by half, after a decline of between 0.2 and 1.3 cents (1 cent = 1 dollar), or nearly 3.06 dinars, according to the latest update on the website of the Central Bank of Tunisia (BCT).

Reuters said the BCT was issuing bonds because of fears of default, but this interpretation does not match that of the US investment bank JP Morgan. Indeed, this bank stresses that Tunisian bonds are in demand by investors as foreign currency assets are sufficient to cover the budget deficit even if the country fails to reach an agreement with the IMF.

However, the US bank indicated that financial pressures could affect the authorities' efforts and called for focusing effort on reducing trade and current account deficits and ensuring the long-term sustainability of the economy.

The Bank also stressed that the value of Tunisian bonds remains attractive, yet its performance remains dependent on introducing reforms.

The issue of the fall in the value of Tunisian bonds has already been raised. Indeed, according to data published by financial sources, Tunisian bonds denominated in foreign currencies have fallen by around 4.6 cents following comments by President Kais Saied, on the agreement with the IMF on a $1.9 billion financial package.

 Similarly, data from "Tradeweb" showed that Tunisian euro-denominated issues suffered a significant decline, with the value of bonds maturing in February 2024 falling to around 67 cents per euro, the lowest level since October 2022. The data also showed that Tunisian dollar-denominated bonds fell by almost 3.5 cents to almost 50 cents per dollar.

New alternatives

The emergence of new international players such as the BRICS group (Brazil, Russia, India, China and South Africa) has radically changed the international financial system, with new competitors to Western countries.

This new situation led several parties at the Spring Meetings of the World Bank to call for a reform of the Bretton Woods system to ensure its adequacy to the new geostrategic situation in the world.

As far as Tunisia is concerned, several foreign parties (notably the rating agencies) and national parties, such as the BCT and the Ministry of Economy and Finance, are working to convince Tunisian public opinion that there is no alternative to the agreement with the IMF in order to balance public finances, enable the country to honour its commitments and improve the value of its sovereign bonds on the international financial markets.

However, several factors, in particular the current level of the country's rather "reassuring" foreign exchange reserves, as well as the possibility of securing bilateral loans and the possible impact of the tax amnesty, contradict these theses which argue that it is impossible for Tunisia to do away with the Bretton Woods institutions; the latter having already lost much of their influence and their share in financing the economies of countries, particularly in Africa and the Middle East.

The bogeyman of non-payment
Several studies have shown that political and economic interests dictate the position of the rating agencies and banks that are pressuring Tunisia to sign an agreement with the IMF. It also recalled that the country occupies a strategic position that attracts both the new regional economic groupings and Western countries.

Assessments and comparisons

According to some experts, the question of Tunisia's ability to pay its debts has become a political issue, especially for the rating agencies and some international banks, which publish a weekly report on Tunisia comparing it with countries in vulnerable situation.
The same analysts point out that there is no explanation for all this focus on Tunisia's situation and its sovereign obligations, calling it a "campaign devoid of any scientific approach to evaluation".

It should be recalled that the Tunisian President had slammed the "diktats" of the IMF and international lenders, pointing out that the alternative for the Tunisians was to rely on themselves by setting up a new financing model based on strengthening own resources, which (own resources) have recorded a net increase, particularly at the fiscal level, by +3.5 billion dinars in 2022.

The position expressed by the Tunisian president on the dangers of the austerity measures imposed by international financial circles recalls their devastating effects on many countries in Latin America and Asia. It also explains the position of the Western powers, which want to preserve their influence over Tunisia through their banks and financial poles, by making every effort to prevent the country from turning to new economic partners.
It is in this context that the position of the Western powers, which want to maintain their influence over Tunisia through their banks and financial centres, has to be seen.
English version  Helmi Ben Aziza, editing Samir Ben Romdhane

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