Central Bank of Tunisia (Al Jazeera)

Tunisia -

 The government in Tunisia's resort to borrowing 7 billion dinars ($2.3 billion) from the Central Bank to repay foreign loans and finance expenditures for the year 2024 has raised concerns among many observers about what borrowing in foreign currency might lead to a deterioration in the value of the Tunisian dinar and an escalation in the level of inflation.

The day before yesterday, Tuesday, the Tunisian Parliament approved a draft law that the government hastened to consider and included one clause, which is to authorize the Central Bank of Tunisia on an exceptional basis to grant facilities to the government in a net amount of 7 billion dinars, to be repaid over 10 years, with a 3-year grace period and without financial interest.

The approved law - after a session that witnessed great controversy among representatives - did not specify the areas of use of this loan, but it indicated that it would be withdrawn in installments according to the needs of the public treasury of the Tunisian state, provided that an agreement would be concluded between the Ministry of Finance and the Central Bank of Tunisia to control the methods of withdrawing the aforementioned loan.

To obtain this loan from the Central Bank of Tunisia, the government resorted to Parliament’s approval to “exceptionally” suspend the work of Chapter 25 of Law No. 35 of 2016 related to the basic law of the Central Bank, which does not originally allow the bank the possibility of granting the public treasury of Tunisia facilities in the form of statements or loans. .

Loan in dinars or in foreign currency?

In turn, Salim Basbas, a former finance minister and economic expert, told Al Jazeera Net that the exceptional facilities that the Central Bank of Tunisia will grant to the state treasury will be in Tunisian dinars, with the possibility of withdrawing those funds in foreign currency, given the difficulty of accessing external financing, especially after the breakdown of the agreement with the IMF.

He explains that the expected agreement between the Ministry of Finance and the Central Bank of Tunisia will be carried out on this basis, that is, establishing facilities with a total value of 7 billion dinars, with the possibility that the Central Bank of Tunisia will transfer these facilities or part of them in foreign currency to the government to pay installments of foreign loans if it needs that.

Finance Minister Siham Namsia had revealed that part of the value of the exceptional loan from the Central Bank of Tunisia was directed to repay a loan that will expire on February 14, worth 3 billion dinars (about a billion dollars), attributing the resort to borrowing from the Central Bank of Tunisia to the existence of difficulty in... Mobilizing external loans.

The government has estimated the budget needs for loans for this year at more than 28 billion dinars ($9.2 billion), of which 16.44 billion dinars ($5.4 billion) are in the form of external loans, compared to 11.75 billion dinars ($3.8 billion) in the form of internal loans, bringing the size of The debt in 2024 is about 80% of GDP.

A blank check for the current government

For his part, economist Reda Al-Shakandali told Al Jazeera Net that the new law does not specify the uses of these funds, as it does not obligate the government to specify the areas in which it must spend to avoid the risks associated with inflation.

He explains that the loan does not specify the value of the facilities that the government will take in foreign currency from the Central Bank’s savings, “therefore there is ambiguity at the level of the law,” and he continues, “It is unreasonable for the Central Bank to provide a blank instrument to the government to use these facilities in areas that were not previously determined by the law.”

He is surprised by the reason why the government did not resort to loans programmed in the Budget Law of 2024 to repay foreign loans during the first quarter of this year before resorting to the Central Bank of Tunisia, warning that the government’s borrowing in foreign currency from the Central Bank will reduce its savings and weaken the value of the dinar.

During the current year, Tunisia is supposed to obtain loans worth $500 million from Saudi Arabia, $400 million from the African Export-Import Bank, $300 million from Algeria, $63 million from the World Bank, and $38 million from the Arab Monetary Fund.

However, the government did not specify in the Finance Law of 2024 sources of financing for an amount exceeding 10 billion dinars ($3.3 billion), which prompts it to resort to borrowing from the Central Bank of Tunisia with the aim of reducing the budget deficit and committing to paying loans, wages and support expenses, especially in the midst of a presidential election year. .

Experts expressed concerns about the rise in inflation and the decline of the Tunisian dinar in light of the deterioration of Tunisians’ purchasing power (Al Jazeera)

The official position on loan risk

In turn, Finance Minister Siham Namsia said during the plenary session in Parliament to discuss obtaining exceptional facilities from the Central Bank of Tunisia that this loan will not have negative effects on inflation, considering that the method of withdrawing the loan and the areas of its disbursement would reduce the negative repercussions of this financing on the economy.

Namsiyeh pointed out that part of this loan will be directed to pay off a debt that expires this month, worth 3 billion dinars ($1 billion), while the rest of the expenses will be directed to areas of development and public investments, such as supporting the government phosphate company and supporting the Allied Dough Factory in the west of the country and the steel factory in the north.

For his part, Central Bank Governor Marwan Al-Abbasi recently said during a hearing of the Finance Committee in Parliament regarding this exceptional loan that this loan will not result in inflation, but he indicated that repaying the loan worth 3 billion dinars on February 14 will reduce the currency reserve by 14 days. .

Observers believe that Al-Abbasi’s statements - whose term as head of the Central Bank will end after his days - are almost diplomatic, claiming that he is seeking to leave the bank peacefully.

However, they believe that Al-Abbasi warned of the deterioration of the dinar’s exchange rate against foreign currencies if the Central Bank’s foreign currency savings diminished.

Expert opinion on the repercussions of the loan

For his part, expert Salim Basbas says that repaying the loan worth 3 billion dinars on February 14 will reduce the foreign currency reserve at the Central Bank from 117 days to 102 days, believing that the level of currency savings in the bank remains “reassuring” in the current term as long as Above the 90-day ceiling.

However, Basbas confirms to Al Jazeera Net that this sharp decline of 14 supply days at the beginning of this year will have negative repercussions on the dinar in the short and medium term if external resources are not mobilized.

It is considered that the government's resort to withdrawing other installments in foreign currency from the Central Bank within the framework of the exceptional facilities it obtained will reduce the bank's foreign currency reserves, which may escalate supply operations, create great pressure on the foreign currency, and threaten to weaken the dinar and exacerbate imported inflation.

Economist Reda Al-Shakandali told Al Jazeera Net that the government's resort to the savings of the Central Bank of Tunisia will have negative repercussions, especially on the sovereign rating of the Central Bank by international rating agencies, which consider that direct financing of the state treasury by the Central Bank affects its independence and credibility.

Source: Al Jazeera