Standard and Poor’s (S&P) downgraded Tunisia’s foreign and domestic long-term credit rating on Friday, citing concerns about the country’s political crisis and security threats.
The American financial services company known for its influential credit rating agency has dropped the country down two levels, from BB- to B. The lower rating can decrease the willingness of investors to buy Tunisian bonds.
The move reflects the agency’s diminishing confidence in Tunisia’s political stability and the influence of external factors such as Europe’s economic health.
S&P also slashed its gross domestic product (GDP) per capita growth forecast for Tunisia from 2.8 percent to 1.4 percent. This attempts to measure the economic outcome of the country. The agency expects unemployment to remain above 15 percent for the next three years, negatively affecting its expectations for the economy’s growth.
The rating is S&P’s evaluation of Tunisia’s ability to repay its foreign and local debt in full and on time. The B rating is considered “speculative grade” and means, according to the agency, that Tunisia currently has the ability to meet its financial obligations but faces adversities that could affect its ability to make payments.
In a statement issued Friday explaining the rationale for the decision, S&P also cited “perceived increased terrorist risks” as a threat to tourism and investment.
Demonstrations have rocked Tunisia since the assassination of opposition politician Mohamed Brahmi on July 25. Since then approximately one-third of the National Constituent Assembly has withdrawn and its speaker, Mustapha Ben Jaafar, has suspended the legislature’s work.
The opposition demands the dissolution of the NCA and sitting government in favor of a council of technocrats to finish drafting the constitution and plan elections. The government welcomes the inclusion of opposition parties into the government, but has ruled out the NCA’s dissolution.
The political crisis, according to S&P, will delay much-needed reforms and in turn cause more public unrest. The agency cites the need for banking, investment law, and tax reforms as particularly relevant.
The agency’s statement issued Friday mentions “regional terrorist groups,” a reference to the ongoing military action around Chaambi mountain near Algerian border following an attack which killed eight soldiers, as well as other events including two non-lethal explosions near Tunis.
S&P called Tunisia’s outlook ‘negative,’ meaning that there is at least a one in three chance of a further degrade in the next year. The statement explained the agency’s belief that even if the two political sides are able to reach a compromise, the resulting government will face an increasingly polarized country and continued security threats.