LONDON (AP) — Fitch Ratings downgraded Tunisia's credit grade to one notch above junk status on Wednesday, citing uncertainties over its stability and economic policy following the popular uprising that forced out President Zine El Abidine Ben Ali in January.
The agency said it has cut the North African country's rating to BBB- — another downgrade would make the rating junk status, which means investing in the government bonds would be little more than speculation.
"Although the transition to democracy could well improve confidence in the long term, political upheaval has worsened the short-term outlook for the economy, public finances and financial system," said Charles Seville, director in Fitch's sovereign ratings unit.
Though it said a deterioration in political stability or economic policy could warrant another downgrade, Fitch indicated that was unlikely over the next three months.
Fitch said that a successful election in July, resulting in a stable government, could help stabilize the rating, as could evidence that public finances and the economy are less affected than feared.
The agency warned that Tunisia's first fully democratic elections could fail to produce a stable government with a strong mandate. It added that the overthrow of the former regime may have raised unrealistic expectations about what the government can do to meet the country's economic challenges, in particular high unemployment among the young.
So far, Fitch said the Tunisian economy appears to be largely functioning normally, apart from the disruption caused by strikes, but that the public finances will likely deteriorate over the next two years partly due to fresh government spending following the departure of Ben Ali.
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