Saudi Arabia offers $500m loan and grant to Tunisia

The provision is aimed at supporting the economic stability of the North African country

Customers shop for fresh produce at a street market in the Ariana district of Tunis. Bloomberg

Saudi Arabia, has signed an agreement to offer a concessional loan and a grant worth a total of $500 million to Tunisia, to support the North African country's economy.

The agreement was signed between Saudi Minister of Finance Mohammed Al Jadaan and his Tunisian equivalent Sihem Boughdiri, the official Saudi Press Agency reported on Thursday.

Under the agreement, the kingdom will offer a concessional loan of $400 million and a grant of $100 million.

The agreement reaffirmed the strength of the relations between the leaderships of the two countries, Mr Al Jadaan said.

The latest concessional loan and the grant are an extension of the kingdom's previous efforts and are aimed at supporting the stability of the Tunisian economy, he said.

Tunisia, the economy of which has been battered by the Russia-Ukraine war, a current account deficit, coronavirus-induced slowdown, high debt and deteriorating finances, is seeking funds to deal with the crisis.

The country had sought $4 billion in funding from the International Monetary Fund about a year ago, and reached a staff-level agreement with it in October for a 48-month extended fund facility worth about $1.9 billion to support the government’s economic reform programme.

But the IMF board did not approve the facility, which was planned for December 2022, as conditions were not met by the government.

The fund gave Tunisian President Kais Saied's opposition to an agreed reform of fuel subsidies as one of the reasons for its failure.

In June, Fitch Ratings downgraded Tunisia's rating farther into junk territory on concerns that it is struggling to meet the IMF requirements to seal the deal.

The country's long-term foreign currency issuer default rating was revised to CCC- from CCC+, which is seven levels below investment grade, the ratings agency said.

Junk status makes it more difficult for a country to gain access to capital markets and raise funding that it needs when it wants to borrow.

Meanwhile, Tunisia’s central bank kept its key interest rate unchanged at 8 per cent last month as inflation eased in the country.

“Maintaining the key rate at its current level should continue to support the disinflationary process for the period ahead and bring inflation back to sustainable levels,” the bank said.

Tunisia's economy grew by 2.1 per cent in the first three months of this year after posting a 1.8 per cent growth in the previous quarter due to "good performance of export industries and the recovery of the tourism sector and related activities", Tunisia's central bank said.

Its economy is forecast to grow 1.6 per cent in 2023, while inflation is projected at 8.5 per cent, according to the IMF.