Is the CDS spread between Tunisia and Morocco justified?  Against the backdrop of debt downgrades from both S&P and Fitch, the cost of insuring five-year Tunisian sovereign paper against default rose to 190 bps earlier this week, some 30 bp clear of Morocco with whom it largely trades in step.  While the country’s political situation admittedly looks precarious–analysts note that although the constitution decrees that a temporary president must work towards presidential elections within a period not exceeding 60 days, opposition leaders view said timeframe as inadequate and prefer a transitional government that would draft a new constitution in anticipation of democratic elections–Barclays notes, for instance, that although “a prolonged transition could negatively affect economic growth” given a weakening of the country’s current account (FDI down) and fiscal deficits (outlays to repair infrastructure, appease social and inflation-related tensions), the latter compares quite favorably to those of other MENA countries and to that of Morocco in particular (2.6 versus 4.5% of GDP in 2010), while public debt–at 47% of GDP–remains “one of the lowest levels in the region” and roughly in line with Morocco.  Additionally, food inflation is much more rampant in Morocco than in Tunisia, having accelerated 6.7pp in the past three months; moreover, this trend will likely persist and should put further pressure on subsidy costs going forward, which increased more than 140% in the first nine months of 2010, per analysts.

Advertisements