Tunisian debt insurance costs rise amid investor unease

New data shows the costs of insuring the country's debt have doubled since Tunisia's dictator was overthrown early last year

Tunisian debt insurance costs have risen by a quarter since the start of 2012, hitting new three-year highs on Monday in a reflection of investor unease over political instability and slow economic recovery.
Tunisia's picture is not as worrying as in Egypt where five-year credit default swaps are at 600 bps and the political lockdown is raising fears of a devastating financial crunch. That means it costs $600,000 a year to insure $10 million of exposure to Egypt for five years.
But data from Markit shows Tunisian five-year CDS have jumped to 300 basis points, the highest since April 2009 and up 60 bps since end-2011. They have doubled since mass protests unseated former leader Zine Al-Abidine Ben Ali in January last year and set off Arab Spring uprisings across North Africa.
"(The CDS rise) highlights concerns over a widening fiscal deficit, a large current account shortfall and uncertain political outlook as tensions gradually rise between conservative and secular forces," said Samir Gadio, emerging markets analyst at Standard Bank.
The ruling Islamist Ennahda party is holding a meeting to re-elect its leader and an announcement due on Monday evening will be closely watched to see in which direction it will steer the country.
Ennahda is under intense pressure from some Muslim groups who want to introduce Islamic law, as well as secular opposition parties who worry about the potential Islamisation of the country and fear the party is too lenient with hardliners.
Last month thousands of Salafi Muslim extremists, angered by an art exhibition they said insulted Islam, rampaged through the capital city Tunis, hurling rocks and petrol bombs at police.
"This is a polarising factor within the country. Tunisia is very reliant on tourism and investment flows and any kind of uncertainty on the domestic front will affect the economy," said Said Hirsh, an economist at Capital Economics in London.
He noted that Tunisia, which enjoyed annual growth rates of around 4 per cent in the pre-Arab Spring years, is likely to grow at just 1.5 per cent this year.
Politics also threatens to impact monetary policy as the government wants to sack central bank Governor Kamel al-Nabli after a disagreement over inflation targets.
"There is a concern among investors ... What is going on now is having a negative impact on Tunisia's position in the global financial market," Nabli told reporters earlier this month.
Some of Tunisia's woes are not of its own making, however.
"Tunisia's situation is clouded by what's happening on the domestic political front but another big problem is it is most exposed to Europe," Hirsh said.
The country is reliant on crisis-hit Europe for exports as well as tourism and remittances. Tourism accounts for 20 percent of gross domestic product and exports comprise over half of GDP.
Any slump here will have consequences for the current account gap which swelled to 7 percent of GDP last year. The controlled Tunisian dinar is at record lows versus the dollar, Reuters data shows, having slipped 3.6 per cent this year.
Nevertheless, not all is gloomy. Unlike Egypt, Tunisia has managed to raise cash from external creditors to bridge the funding gap.
Last week the central bank used a valuable U.S. guarantee to raise $485 million in 7-year bonds at just 1.68 per cent. In April Tunisia raised $500 million at 2.5 per cent via a private placement to Qatar and last week it received $220 million in Saudi loans.
The central bank's 2027 dollar bond trades at a yield of 6.1 per cent.