The Tunisian government said that it was able to pay all its domestic and foreign debts in 2023 (Al Jazeera)

Three representatives of the Tunisian parliament told Reuters - today, Tuesday - that the government will request exceptional direct financing from the Central Bank worth 7 billion dinars ($2.25 billion) to fill a deficit in this year’s budget.

This comes in light of the scarcity of external financing, the difficulties facing public finances, and the country’s reliance on internal borrowing to pay off external debts.

This move highlights the severe difficulties facing public finances in Tunisia, which will pay $4 billion in external debt in 2024, an increase of 40% compared to 2023.

Abdul Jalil Al-Hani, Vice Chairman of the Parliament’s Finance Committee, told Reuters that the government submitted a draft law demanding an exceptional revision to allow the Central Bank to provide one-time facilities to the treasury.

Two other members of Parliament confirmed the news to Reuters, and added that the draft law includes direct financing worth 7 billion dinars over a period of 10 years, with an interest rate of up to zero percent.

Fears

Last week, the Council of Ministers approved a controversial draft law allowing the central bank to finance the treasury, in a move that reinforced concerns among economists and experts about the bank’s independence.

Last year, President Kais Saied said the law should be revised to allow the central bank to finance the budget directly by purchasing state bonds, a move that central bank governor Marwan Abbasi warned against.

This step is widely viewed by experts as a serious threat to the bank’s independence, and indicates the possibility of greater state intervention in monetary policies, especially in light of the difficulty of external borrowing.

But Al-Hani said that reviewing the law does not threaten the bank’s independence “because it is a one-time exception,” and it was resorted to in some other countries and even in Tunisia previously when the Central Bank financed the government with a value of one billion dinars in 2020.

The draft law, which Reuters reviewed, is expected to be presented in a public session of Parliament for discussion next week, according to MPs’ statements.

The central bank governor had warned in 2022 that the government's plans to ask the bank to buy treasury bonds carried risks to the economy, including further pressure on liquidity, higher inflation and a decline in the value of the Tunisian currency.

He said at the time that this step would lead to an uncontrollable increase in inflation, adding that "the Venezuelan scenario will be repeated in Tunisia."

Reducing the deficit

The Tunisian Ministry of Finance seeks to reduce the budget deficit over the next three years to 6.6% of the gross domestic product by 2024, then 3.9% by the end of 2026, compared to estimates of about 7.7% for the year 2023.

Tunisia also aims to reduce the fiscal deficit by imposing additional taxes on banks, hotels, restaurants, tourist cafes, and alcoholic beverage companies.

In 2022, Tunisia reached a staff-level agreement with the International Monetary Fund on obtaining a loan, but it has already defaulted on major commitments.

Tunisian Finance Minister Siham Al-Boughdiri said that her country was able to pay all its domestic and foreign debts in 2023, despite the enormous pressures on its public finances, which dispels doubts about the possibility of its default.

An official document showed that Tunisia will repay $4 billion in foreign debt in 2024, an increase of 40% over 2023, amid the scarcity of external financing that the government receives as it struggles to fix its faltering public finances.

Economists say that Tunisia relied heavily on new internal loans to pay off its external debts, which greatly reduced liquidity and contributed to reducing banks’ financing of the economy.

President Kais Saied has long criticized private banks, saying that they make huge profits, adding that they should help the economy at this delicate moment in the country's history.

Private banks are now the main lender to the government, which is unable to secure the external loans it needs.

Source: Al Jazeera + Reuters