The Tunisian banking system appears to be most at risk from tighter international financing conditions ushered in by higher-for-longer rates, said a report by Standard and Poor’s (S and P) Global released Monday.

Banks’ exposure to those pressures can be direct, through their own significant net external debt, or indirect, due to corporate or sovereign weaknesses linked to net external debt, the agency pointed out in this report that analyzed the impact of external funding on five emerging banks: Tunisia, Egypt, Indonesia, Qatar and Turkey.

However, the research suggests that Tunisia is the most vulnerable to indirect channel risk, notably due to ongoing political instability and questions over the government’s capacity to secure support from the International Monetary Fund (IMF).

S and P said it believed the failure to secure a deal with the IMF would put the Tunisian government under «severe pressure» and could have negative ramifications for the economy and the banking system.

«If the country is unable to secure an IMF program, or at least attract bilateral or multilateral support from other parties, it will likely experience major balance-of-payments, fiscal, and currency instability,» warns S and P.

Moreover, failure to secure support could result in Tunisia country defaulting on its financial obligations. This would be accompanied by a significant depreciation of the Tunisian dinar and a major spike in inflation, it added. For Tunisia’s banks that would likely mean losses of a magnitude that would require their recapitalisation.

Though S and P expected the government would be able to mobilise the necessary resources to avert a crisis, it, however, considered the risks of a negative outcome to be significant and possible within the next 12 months.

Source: Agence Tunis Afrique Presse