Frontier market sovereigns (pre-emerging markets with greater growth potential than developed markets), such as Tunisia, face an increasingly onerous refinancing challenge amid constrained financing options, says Moody's.
The capacity of sovereigns to engage and secure IMF funding can alleviate liquidity stress by catalysing additional funding, from both official and private sector creditors, adds a Moody's report entitled "Changing creditor landscape amplifies frontier markets' exposure to liquidity risk," published on May 11, a copy of which was seen by TAP.
"Tunisia faces the largest Eurobond payments coming due over the next three years relative to year-end 2022 international reserves, making 7% in 2023, 12% in 2024 and 13% in 2025.
Faced with liquidity pressures due to large amortisations falling due amid constrained financing options, official creditors can provide funding that offsets the slower pace of Chinese creditor lending and lower international bond issuance."
Multilateral development banks have increased lending, often associated with IMF programmes, the same source indicates.
Multilateral funding, particularly when associated with IMF programmes, is meant to catalyse other sources of funding, including from private creditors, to alleviate refinancing risks.
Moreover, IMF and other multilateral lending is conditional on governments' commitment to, and implementation of, economic and fiscal reforms.
These reforms often come with short-term social costs, such as the removal of subsidies or allowing for greater exchange rate flexibility, which can increase imported inflation and reduce purchasing power, the same source noted.
Tunisia's inability to unlock additional external financing from official and bilateral sources, which is contingent on an IMF programme being in place, increases balance of payments risks and the probability of debt restructuring."
Source: Agence Tunis Afrique Presse