Tunisia Rating and its Impact on the Oil and Gas Sector


This case study analysis gives insight into the brief history of Tunisia economy and the main economic activities of the country is agriculture, manufacturing and tourism – tourism had once contributed more than the half of the GDP. It seems that the services now account for the lion share of the GDP. Based on the Standard & Poor’s rating methodology, the Tunisia as a country is currently rated to be ‘b+’ which appears to be of moderate risk country. And the petroleum industry was discussed and the inherent, manageable and unmanageable risks in the petroleum industry was also discussed; and how the Tunisia’s rating could affect the petroleum industry as a whole. And finally, the statistically based model was discussed on how they influence the oil rents as a percentage of GDP, a target factor, and how the risk factors identified can influence the target variable (oil rents). Given the statistical model estimated, it shows that shown that only oil real GDP growth constant, political stability, oil price – Brent, and exchange rate are statistically significant in determining the oil rents as a percentage of GDP.


S & P Standard and Poor
IMF International Monetary Fund
AFDB Africa Development Bank



The Overview of Tunisia’s Economy

Situated in the northernmost part of Africa bordering the Mediterranean Sea between the West of Algeria and Southeast of Libya, Tunisia, as a country, was colonized by French Government and it gained its independence from the colonial government in 1956 which saw many civil servants who were predominantly French leaving the territory of Tunisia and this resulted in having many vacant positions that required to be filled – this invariably charged the new government of Tunisia with principal objectives of building the desired political and economic institutions. Then, the production sector of the Tunisia’s economy was traditional and based on the agriculture, food processing, and mining. In the early 1960s, the State opted for economic system of quasi-socialism that was heavily relied on the government and an era of import substitution but it failed which occurred that it was evident in the late ‘60s made the country focused on the development of private sector and export promotion and the result were seen in the huge investment in the manufacturing, the state got to manage the transport, water and electricity for critical aspect it played in the life of its citizens. Bellin (1994) stress that the private sector engaged in the production activities that required little capital to set up and technologically unsophisticated that brought about quick return on their investment, and the state participated in those sectors of the economy that required are huge capital intensive and pass the capability and interest of private sector.

The Tunisian economy was welcomed by international investors in the direction of exports meant for international markets and majorly dictated by the international investors in the 1970s; and the state still maintained the strategic sectors of the economy. Ayadi and Mattoussi (2014) stress that in attempt to espouse export promotion and private sector development, the institutions were floated and they were: Industry Promotion Agency (API), charged with the responsibility of giving assistance to private investors and promoters with the administration and legal requirements expedient for floating company in Tunisia; Export Promotion Centre (CEPEX) with the responsibilities of giving the business information and data to non-domestic importers; and an Investment Law (Law 72 – 38) which came into effect  in 1973 giving special edges to exporting production companies. The set of policies executed in this era saw in the increase in the productivity of the worker. Averagely, the light manufacturing and tourism sector witnessed a grow of more than 13%, and between this period the nominal economic growth was around 8 % per annum. And the private sector was reported to have grown exponentially under the law of import restrictions. The period that spans from 1972 to 1977 saw to the excess of private investment over the public investment and about 86,000 new jobs were created in the light production sectors (Ayadi and Mattoussi, 2014; King 1988; Findlay1984). Nonetheless, the growth in all economic sectors were not balanced as the more than 50% of new investment and more than 80% of the job were in textile, clothing and lather sectors (Ayadi, and Mattoussi, 2014).

The period of 1977 – 1987 was characterized with economic mismanagement and political instability as by the end of 1970s the foreign debt escalated and there was instability in the manufacturing sectors that could absorb the unemployed and underemployed and can produce exportable diversified and competitive range goods ( Ayadi, and Mattoussi, 2014; Morrison and Talbi 1996). And the economic growth fell to 2.8% in the mid 1980s and on average the labour productivity also fell to 1.5% per annum – irrespective of the abysmal performance, there was an increase in the wage rate in the public sector and there was about 6% of GDP on food subsidies. And the inflation increased to about 2-digit rate and the current account deficit was more GDP 10% – the foreign debt and economic-cum-political instability forced the government to enter in to its first ‘Economic Adjustment Programm’ (ERSAP) in 1986 (Ayadi and Mattoussi, 2014; King 1998).

The period of 1986 – 1990 succeed the period of economic mismanagement and political instability saw to the economic recovery and structural adjustment program (SAP) and result was reduction in tariffs, import restrictions, debuting VAT, decline in personal income taxes and devaluation of Tunisia currency (Dinar) and equally negotiated with the creditors to extend the foreign debt repayment maturity to a decade which amounted to $10 billion. The ERSAP saw to the privatization and commercialization of about 150 government-owned companies, and the government investment fell. The key macroeconomic variable recorded stability and foreign debt also declined in addition to a drastic fall in rate of inflationary pressure to a rate below 5% and current account deficit hysterically reduces to 2.4% of GDP in 1996. The fall in foreign debt which was engineered by fiscal discipline and re-alignment of the exchange rate and they Tunisia on sound economic growth foreseeable into future. The reduction in the instability of political climate following the change in regime in 1987 enhanced the business climate, creating a vibrant private sector, especially in export-driven activities (Ayadi and Mattoussi, 2014).

In the period of 1990s, the Tunisia’s economic was full of global competition as the state was instrumental in putting and giving the Tunisia’s private sector put up with the competition in the international market space. The various policies put forth saw to the encouragement of foreign investment and commercialization and privatization directives fine-tuned the entry and integration in to the European markets (Ayadi and Mattoussi, 2014; UNIDO, 2001). The state used ‘Programme de mise à niveau launched in 1996 and the industrial modernization programme (PMI)’ to further push for the espouse of and modernizjng the industries in the mid 1990s. On top of that, the state implemented various trade supporting policies to enhance the Free Trade Agreement (FTA) with the Europe Union (EU) with aim of improving the productivity of the production sector and raising the exportable products of such sectors. However, from mid 1990s, the Tunisia authorities removed many trade restrictions in the manufacturing sector and economic policies in the period resulted in a fall in capital. And it was this span, that productivity contributed immensely to the real output growth.

The development of services and innovative projects during the period of 2000 to 2011, there were moderate growth and favourable improvement in the key macroeconomic factors such as GDP (about 5% real growth), FDI and export volumes of products. The change in the climate conditions adversely affected and equally stagnated the agricultural sector but the service sectors of the economy experienced 7.2%. There was 8.9% in the mechanical and electronics sectors – and the technological driven industries contributed about 20% in 2000s (2006). And the total investment in the economy rose to 41.2 billion Tunisian Dinars. Like majority of global economies in the world, private sector turned to the driven forces of the economy as it accounted for more than 51% of the entire investment, about 90% of export products and jobs created. And the birth of fresh exportable products from the industries such as mechanical and electronic industries, automotive components and textiles and tourism rose at about 9% – and the macroeconomic performance during this period was attributed to the local stability in the financial, both internal and external. (Ayadi and Mattoussi, 2014).

The Tunisia Revolution (Arab Spring) that started on 14th January 2011 was a result of chronic poverty, youth unemployment, corruption and economic mismanagement, violations of human rights and regional differences. This revolution changed the course of Tunisia’ economy. Categorically, the Tunisia’s economic activities comprise mainly agriculture which had had impressive yet volatile growth on the entirety of the economy for many decades, manufacturing which was the fastest growing sector and it was recorded that the industries had more 10% for decades, and tourism recorded, on average, the growth rate of 12% between the 1962 – 2000 – and the period that spans between 1990 and 2007, the tourism made more 50% to the GDP and grew at the annual rate was around 5%(Chemingui and Sánchez 2011; Ayadi and Mattoussi, 2014). Note that the main exports that comprise textiles, apparel, food, petroleum products, chemicals and others have about their 80% shipped to European Union.

Tunisia Rating According To Standard & Poor’s Or Moody’s Rating Methodology

The methodology of Standard & Poor’s rating is adopted in this analysis to rate the associated risk of Tunisia.

The Tunisia will be rated based on the weighted average rate of the five metrics that would be used in this analysis. And the rating would be on: 1, very low risk; 2, low risk; 3, intermediate risk; 4, moderately high risk; 5, high risk; and 6, very high risk.

The key metric factors that are adopted in evaluating this Tunisia’s creditworthiness are: Institutional & governance score, economic score, external score, fiscal score and monetary score.

Institutions or Government Effectiveness Score

From 2010 prior to the Arab Spring or Tunisia Revolution, there has been political upheaval/instability in Tunisia. And It has been on the rise over then until 2014 that political instability reduced. But for the two subsequent years, the instability rose again. The southern Tunisia has experienced more social unrest and non–stopping protest. And it is reported that May, 2017 there were about 1,500 protests in the Southern Tunisia.

The protest would affect the foreign investment as some oil companies decided to withdraw their workers or sell off portions of their investment which further complicating the country’s already fragile economic and financial situation. This lingering protest was still continued six years after the uprising that put an end to the Ben Ali’s era.

There are reasonable risks of corruption for carrying out business affairs and investment in Tunisia, and the its institutions are ridden with nepotism and cronyism throughout the system. Even though the Constitution provides for the independence of judicial system, the judicial system that the people can seek redress from are known to be dependent on the executives and can hardly carry out trials relating to corruption and other important criminal and civil offence. Sometimes, some gratifications in form of payment and other forms are usually passed on to judge to be served favourable verdicts.

The law enforcement in Tunisia has been criticized for medium to high level of corruption as the Global Corruption Barometer (2015) ranked to be among most corrupt-ridden government institutions in the country and 25% of the workforce was reported to be corrupt official – and companies, especially, have reported to have paid bribe to the police officials for their security purpose. The Bertelsmann Stiftung Transformation Index (BTI) (2016) also reports that the public services in Tunisia is quite corrupt and the favouritism and nepotism are quite common the services. And more than 10% business entity had reported that of requesting to pay bribe before they can get requests processed or to obtain licenses or permits etc. and the use connections (i.e., man-know-man approach), nepotism and cronyism are common with the services.

Other places where corruption take place are land administration where the concerned organisations or entities are expected to part ways with gifts or give monetary considerations, most especially from international investors. Double taxation, undefined and erratic tax payments without any justification are often requested from the business entities, and the highly connected entities can negotiate for lower tax payments with no reference to any tax enactments.

The corruption in the state’s customs administration is of quite sizeable risk and like the tax administration many erratic customs duties are often paid at the border and the process of clearances are rather cumbersome and can be made less complex when the business grease the hands of the customs officials. BTI (2016) reports that process of clearance in Tunisia is unnecessarily long and lack of transparency, and the business investors have frowned at the varying implementation and interpretation of borders’ regulations. Many companies in Tunisia have also reported that there are complicacies and high level of corruption in dealing with the sectors that have to do with natural resources.

Going by the primary factor and secondary factor, it is evident that Tunisia exhibits Weak political institutions with considerable chance of breakdown, distressed civil society, danger or presence of social upheaval, unassured enforcement of law, weakened transparency due to gaps and lack of information, corruption of political institutions. Thus, the initial score of Tunisia on the institutions effectiveness and governance score is 6.

Table 1: Qualitative Assessment Adjustment Factors of Institutions

Qualitative Assessment Adjustment Factors
Judgement Rationale
Debt payment culture sufficient No State debt now accounts for 71 percent of the country’s gross domestic product (GDP), up from 41 percent in 2010, when the deficit was 650 million dinars ($272.5 million)

In addition, debt ratio exceeds alarming level in Tunisia a possible inability to pay public service wages for the next two months

External security risks existent No Despite the political turbulence in Tunisia, there is no record of external security risks

From the qualitative assessment adjustment factors of institutions table, no adjustment was made to the initial score of 6, hence the final score is 6

Economic Score

GDP per capita Over 38,000 27,001 – 38,000 16,001 – 27,000 5,501 – 16,000 1,100 – 5,500 Below


Score 1 2 3 4 5 6

Table 2: Economic Score

The GDP per capita of Tunisia is about 4,132.27 USD from 2007 and 2017. This make us to arrive at the initial score of 5. The detail of the initial economic score is displayed below:

Positive adjustment factors Negative adjustment factors
Improves the factor by one: Weakens the factor by one:
GDP growth rate which is well above of the average growth rate of GDP per capita peer group No Below average growth rate (real GDP) No
Growth driven by a bubble No
Volatile or concentrated economy (20% rule) Yes

Table 3: Adjustment to Economic Score

On the improving or positive adjustment factor compare the growth rates, the Tunisia rate is neither above a peer group not below it. As such, the improvement is made to the initial economic score of 5 – a peer group table is shown in the figure 4. Equally, the growth was not driven by the bubble and no weaken score. But the economy is concentrated as the data and the forecast information extracted from International Monetary Fund (IMF) shows the agricultural contribution to the GDP is more than 20% going by the 20% rule of thumbs. Thus, the final score is then 6.

The growth in the Tunisia economy is mainly driven by services as they account for about 60% of the total GDP.


External Score

For the initial score, the data was obtained from the usual reports of Tunisia’s economy by IMF and despite the fact the debt to GDP ratio of Tunisia, it is in sound position. Although, the Tunisia does not hold the reserves and neither does it actively trade its currency. Ipso factor, no adjustment was made to the final score.

The external score for Tunisia remains 1

Fiscal Score (Performance and Flexibility)

Actual Forecast Average
2015 2016 2017 2018 2019
External debt (in percent of GDP) 62.80% 67.60% 80.10% 86.40% 88.90% 77.16%
7.64% 18.49% 7.87% 2.89% 9.22%


Table 4: Fiscal Score (Performance and Flexibility)

The average is more than > 9.22% and the initial score is 6

Qualitative Assessment
Judgement  Rationale/Comment
Liquid assets available to balance out economic downturns on the fiscal budget? No Can be doubted. The government influences and forces the central bank to intervene in economic downtuns.
Ability to adjust revenues or costs? No Ability can be doubted, due to inefficient institutions.
Concentraed economy? yes
(e.g. commodity dependence –> 25% rule) Clearly yes, the services sector accounts for 35% of the GDP
UNDP Human development index Medium

Table 5: Adjustment to fiscal score (performance and flexibility)

No adjustment was made to the initial fiscal score (performance and flexibility) of 6, so the final score is 6


Adjustment factors Judgement Rationale
Concessional lending available for the next two to three years? Yes Even though the usual last resort of Tunisia IMF does not grant or gives Tunisia, World Bank and Africa Development Bank would give
Debt in foreign currency as % of governmental debt <40 The percentage of Tunisia’s debt in foreign currency is about 30% from the information available from the World Bank
Non-resident lenders to the government >60 From the IMF, the principal lenders to the government of Tunisia are non-resident entities
Exposure of the banking sector towards the government >20 According to the IMF (2018), the exposure of the banking sector is about 34% towards governmental debt.
Contingent liabilities <30 The contingent liabilities that arise from bad credits in the banking sector is less than 10% of GDP

Table 6: Second adjustment to the fiscal score – the debt burden

From the adjustment made and the rationale stated, the adjusted fiscal score (debt burden) is 1

Monetary Score

To Tunisia’s monetary based on the monetary policy credibility, efficiency and inflation trends.

The central bank of Tunisia who is charged with the monetary responsibility has a shorter and less reliable track record of independence (it was recently enacted the autonomy for the monetary authorities in Tunisia), and most of its market-based monetary instruments have not really examined in different scenarios, despite that the central bank of Tunisia possess the ability to act as lender of last resort and the consumer price index (CPI) is less than 10%. Thus the initial score is 5.

For the weakening factor which to reduce by one or maximum of two points, transmission mechanism between the monetary policy is short and the resident deposits in foreign currency is less than 50 percent. And Tunisia is not part of any monetary union and no country’s experience of various price and wage trends than the rest of monetary union. Thus, the final score is 5.

Figure 9: Tunisia’s CPI

Figure 10: Tunisia’s Market Capitalisation (% of GDP)

Tunisia Final Rating





Figure 13: Tunisia’s Rating

Going by the Standard & Poor rating matrix, the Tunisia rating is B +.

  The Tunisia Petroleum Industry.

Like the other oil producing countries such as Nigeria, Saudi Arabia, Algeria etc., Tunisia’s petroleum industry is divided in to two: downstream sector and upstream sector. Tunisia’s upstream oil is on the up and up unlike its neighboring countries. And this makes the Tunisian a follower-cum-minor player in the field of hydrocarbons. And the Tunisia’s oil production stands around 100,000 barrels per day National Hydrocabon remaining reserves are currently estimated at 838 million Oil: 425 million barrel (51%) and Gas 413 accounts for million (49%).

They are both the principal sources of energy in the country and as they were reportedly accounted for about 90% in 2008. Due to increase in the local consumption of oil and gas, the Tunisia’s petroleum industry mainly serves the needs of the nation. Despite the petroleum industry is strategic to nation economy, the industry to some risks, especially systemic risks as the risks affect the industry as a whole – not unsystematic risks as they affect the individual firms –, and such risks being faced by the oil and gas industry are specified below:

  • Oil price risks: the uncertainty of oil price is of the biggest risks in the petroleum industry as it mostly the determine the profitability, and this type of risks cannot be insured against in the industry.
  • Political instability risks: how stable the political atmosphere is in one country is quite essential and the political stability of a country hugely affect the operations and profitability of oil and gas firms in the industry.
  • Financial market rigidity and instability: the financial markets are quite next to impossible to access to raise funds for the oil and gas companies, especially the ones with small size or small-sized companies.
  • After-global financial crisis
  • Regulations risks: One of the risks the players in the oil and gas petroleum cannot eradicate is the high level of risks of changes in government policies and regulation.
  • Environmental risk: The oil and gas production is very subject to change in the climate condition, for an unfavorable condition curb the oil production.
  • Cost risks: the investors or players spend huge amount of money on operational factors and exploration, drilling and extraction of oil with no guarantee of discovering the crude oil.

The Implications of Tunisia’s Rating on Petroleum Industry

Given the country’s rating, risk or its creditworthiness, it is quite paramount to evaluate the associated risk of conducting particular business and if the risk is associated with such industry would make the industry to investment worthwhile or not. Even though with insurance, hedging, and other instruments of financial planning can be used to manage, other risks associated with business are not quite manageable and controllable in such climate. And the risks cannot be easily controlled can be assessed in the risk and return analysis, as some countries with higher risks would be expected to higher returns than the countries with low risks that will be associated with low returns. The evaluation of country’s creditworthiness or rating or risk is carried out here to have understanding of how the Tunisia’s rating impact the petroleum industry.

The Tunisia’s rating would be considered as whole when the oil and gas companies intend to raise finance to meet their contingency plans such as expanding their operations and buying out the existing companies and need quick finance to seal new agreements with the government or other corporations, the players in the oil and gas sector may find it hard to get appropriate or favourable interest rate on the loans they seek. And many investors would need to compel the oil and gas firms they want to invest in to pay them higher returns for the Tunisia’ rating and the petroleum industry risks.

The Tunisia’s rating which was arrived as result of different factors which are institutions and governance, economic, external factors etc., and the Tunisia’s rating which into account the political risks may result in the future pronouncements to nationalize the foreign companies, introduce special taxes, pass new law and regulations regulating the activities given the volatility of the industry. And sometimes due to high political stability, some laws may be enacted to combat the high-rising political risks in the country and it will greatly affect the petroleum industry.

Thing that has been quite common with the high moderate risk rating country like Tunisia is that they often have low financial and economic capacity to meet the country’s obligations and comply with the loans and debt covenant. And the results may be further lead to the inability of the government to finance its recurrent expenditure and some basic capital expenditures and the countries may be slipped in to recession and properly to depression. This will have huge impacts not only petroleum industry, every sector in the economy and the government may be at the mercy of international communities to save its flailing economy. And it has been established in many instances that government expenditure plays important roles in the economy and fine tune the economic growth and the consumption in the country, the reduction in the expenditure would reduce the oil and gas consumption and the citizens may find it hard to meet other key basic needs. And the country also faces the risk of having its currency devalued in the future and the value of foreign investment in the country would also fall.

The happening of the currency devaluation may further spell untold dooms on the country as it may affect the health of Tunisian economy and financial stability may be further jeopardized. And this bring in the crisis of foreign exchange and may put the country at the risk of defaults and transformed in the full blown economic crisis.

Having aware of industry risks associated with petroleum industry in Tunisia and the impact the country’s rating, if the investment must take place the managers of those firms operating in the highly risky industries need to put into consideration the local domestic petroleum risks and the impacts the country’s rating does on the industry – it is essential to put forth on measuring the risks and designate it as more serious, less serious or show-stopping risk, and equally the measures should be in place to mitigate all those risks that can be measured quantitatively or not…

It also notes worthy that some risks associating with doing oil and gas business in Tunisia may still be there, it can be well planned and changed it to the expected risk by having contingency plans at hands to deal with such risks when they arise as it would not be surprised any more.

A statistically-based forecast for the future trend of the essential influencing factors of the Petroleum Industry.

The economic value output of petroleum industry in Tunisia is used to as predicting trend in this analysis, and the statistical-based models that are used in this analysis are regression model and time series analysis to better understand the factors that influence the oil and gas economic outputs and predicting the future trends of the key influencing variables of petroleum industry.

The regression model is specified below:

Where Y is the Tunisia’s Oil rent as a percentage of GDP (current USD), X1 is Oil Real GDP Growth Constant Price, X2 the Oil Price – Brent, X3 the consumer price index, X4 the exchange Rate and X5 Political Stability.

Note that Oil rents are the difference between crude oil production monetary value at world prices and total costs of the production.

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