Reuters / London
Hard-currency bonds issued by Tunisia’s central bank dropped by record amounts on Monday after the dismissal of the government by the country’s president left it facing its biggest crisis in a decade of democracy.
The slump underlines investor concern about a political crisis gripping the only democracy to take root from the Arab Spring, as well as Tunisia’s ability to secure funding needed to avert economic turmoil deepened by the Covid-19 pandemic.
“These developments just point to the very difficult political, social and economic situation the country has been mired in since 2011,” said Raza Agha, head of emerging markets credit strategy at Legal & General Investment Management, which was cautious on Tunisia heading into the weekend.
President Kais Saied said on Sunday he would assume executive authority with the assistance of a new prime minister, a move that his opponents labelled a coup.
This is the biggest challenge yet to the democratic system Tunisia introduced in a 2011 uprising against a veteran autocratic leader.
The 2027 and 2024 dollar-denominated bonds both fell more than 5 cents to their lowest in more than a year, with the former slumping to 86.57 cents, Tradeweb data showed. The 2025 issue slipped 4.8 cents to trade at 83.88 cents in the dollar, its lowest level in more than 14 months, the data also showed.
The falls in the 2024 and 2025 issues were the steepest on record.
A Tunisian official who declined to be identified as he was not authorised to speak on the matter said he expected bond prices to recover after Saied appoints a new government.
“I think it is normal for these conditions and (prices) will return quickly with the announcement of a new prime minister and new government,” the official told Reuters.
Barclays analysts Brahim Razgallah and Michael Kafe wrote in a research note on Monday: “President Said’s decision to freeze legislative work has brought Tunisia to a new constitutional crisis that is far more acute, in our view, adding heightened risks to political and social volatility in coming weeks.”
Five-year credit default swaps for Tunisia’s central bank reached 751 basis points, up one point from Friday’s close, IHS Markit data showed.
The level has almost doubled from a year ago. Tunisia’s outlook depends in part on its ability to secure fresh financing from the International Monetary Fund.
The North African country is seeking a three-year $4bn loan to help stabilise its balance of payments position after its current account deficit widened to 7.1% of GDP last year.
“The market is concerned about the future outlook and engagement of the IMF,” said Tim Ash, BlueBay Asset Management’s senior emerging market sovereign strategist.
“The mood music has been that there was going to be a dialogue over the summer and hopefully the deal would be done by September or October.
Now there is a question mark who is going to be the new prime minister? Who is going to have the authority to do a deal with the IMF?”
In a report in May, credit rating agency S&P said a sovereign default could cost Tunisian banks between $4.3bn and $7.9bn, equivalent to 55%-102% of the banking system’s total equity, or 9.3%-17.3% of forecast 2021 nominal GDP.
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