Tunisia is facing great difficulty in obtaining loans on concessional terms to guarantee the supply of basic commodities or repay its foreign debt, especially because the failure of the agreement with the IMF, which is supposed to open the door for borrowing from foreign markets, has led experts to fear entering the cycle of debt rescheduling.

Tunisia's borrowing needs this year amount to about 25 billion dinars ($ 8 billion), and its needs are distributed between internal loans from banks of about 9.5 billion dinars ($ 3 billion), and external loans worth 14.8 billion dinars ($ 5 billion), according to the Tunisian state budget report for 2023.

The Tunisian government allocated part of this year's budget needs from foreign loans to support the Grain Bureau for the supply of durum and soft wheat used in the manufacture of bread and dough, and allocated another part to the supply of fuel and medicines and the payment of installments on its debts.

However, the decline in hard currency stocks due to scarce external borrowing has cast a shadow over Tunisia's ability to supply uninterrupted basic necessities, creating severe disruption in the distribution of unleaded gasoline, bread making, or sugar and coffee distribution, which has greatly affected people's lives.

Confusion in the deficit

Economist Ezzedine Saidan said that the public financial crisis, coupled with the difficulty of external borrowing, caused a financial deficit for government institutions responsible for supplying basic materials, which made them lose the confidence of banks at home and abroad and lose the confidence of suppliers abroad.

Saidan confirms to Al Jazeera Net that the reserve of hard currency fell last month to 93 days supply compared to 129 days in the same period last year, and says "when we approach 90 days supply of basic materials this gives a message to foreign creditors that Tunisia threatened to default in the payment of its external debt."

This year, Tunisia is required to repay 21 billion dinars ($7 billion), including 12 billion dinars ($4 billion) of foreign debt in hard currency. The difficult question for Saidane is, "How will Tunisia be able to mobilize loans from abroad without an agreement with the IMF?"

Tunisia obtained a preliminary agreement on October 15, 2022 with IMF staff to lend Tunisia $1.9 billion over 4 years, but the agreement is still stalled due to Tunisian President Kais Saied's refusal to lift government subsidies on basic items in contradiction with his government's program.

Bad rating

Saidan said that there is no convincing answer about how to finance the 2023 budget from the country's loan needs and also about how to finance the program of necessary reforms related to negotiations with the IMF, recalling that the government has not yet closed the 2022 and 2021 budgets due to its inability to borrow.

Tunisia's credit rating rolling down the ranks of international rating agencies has had a direct impact on its ability to access global financial markets, so Tunisia has resorted to extreme solutions, such as the repeated resort to borrowing in hard currency from local banks, according to Saidane.

Another extreme solution adopted by Tunisia to obtain hard currency loans is the recent borrowing from the African Export-Supply Bank worth $500 million over an average of 5 years but at a high interest rate amid high and volatile exchange risks.

"If Tunisia defaults in paying its external debt payments, it will enter the cycle of rescheduling its external debt, and this is a very dangerous stage that requires an agreement with the IMF, which will study it to determine the sustainability of Tunisia's external debt and the feasibility of requesting rescheduling," Saidane said.

The specter of bankruptcy

Tunisian Finance Minister Sihem Nemsia explicitly confirmed during a plenary session in parliament last Thursday during the approval of the loan with the African Export-Supply Bank that the government needs this loan in order to repay an external debt during the month of June.

She considered that the non-payment of foreign loans in hard currency is a declaration of bankruptcy of the state, stressing that there is great pressure on the state budget due to the fact that the expenses exceed the incomes and resources of the state, and therefore it is inevitable to borrow in hard currency to ensure that the state continues its obligations.

On the other hand, former Finance Minister Salim Besbas confirmed to Al Jazeera Net that the problem facing public finances now is that the estimates of the 2023 budget were based on an agreement with the International Monetary Fund to be able to borrow from global financial markets at an acceptable cost.

"The delay in concluding the agreement with the IMF has blocked access to global markets on concessional terms, as evidenced by Tunisia's resort to borrowing from the African Export-Supply Bank to support the budget, especially to finance fuel purchases," he said.

He believes that the degradation of Tunisia's sovereign numbering by international agencies has made the cost of borrowing from international financial markets very high, with an interest rate of approximately 15%, in addition to the risks of the Tunisian dinar falling against currencies, which increases the burden of debt servicing.

Rescheduling

The former finance minister is still pinning hopes on an agreement with the IMF, which is supposed to open the door for it to borrow from foreign markets and obtain loans on better terms to be able to supply basic commodities and pay installments of its debts, especially those of the IMF, during this year.

If there is no agreement with the IMF, the hard currency stock will decline sharply, which will have risks to the price of the Tunisian dinar, inflation, the already deteriorating purchasing power of Tunisians, the strategic stock of basic commodities such as fuel and medicines, and the repayment of loans.

Despite this, Besbas said, "Tunisia will not reach the level of bankruptcy in 2023, but it approaches it whenever it faces difficulties to access global financial markets." Tunisia cannot rule out resorting to the Paris Club if it is completely unable to repay bilateral loans with countries such as France, Germany or others.

It is not excluded that Tunisia will reach this stage to demand the rescheduling of its debts or abandon part of its debts for its inability to redeem the rights of its foreign creditors, and says Besbas to Al Jazeera Net, "If economic and financial difficulties continue, this will be the fate of Tunisia in the coming years."

Among the most prominent international lenders to Tunisia are the World Bank, the African Development Bank, the European Union and the French Development Agency, as well as several countries such as France, Algeria, Saudi Arabia and Japan. The public debt at the end of this year is estimated at 76.7% of GDP.

This year, Tunisia must repay installments of foreign debt, such as a 500 million euro loan in October, installments from a previous loan to the IMF of $412 million, a $100 million loan to Saudi Arabia and other loans.