The Tunisian government has approved a bill allowing the central bank to provide facilities for the benefit of the country’s public treasury, according to a press release on Thursday. The measure is likely aimed at financing the budget deficit. On September 9, 2023, Tunisian President Kais Saied stated that laws must be reviewed to allow the central bank to directly finance the budget by purchasing government bonds, a move that observers believe could threaten the central bank’s independence and potentially lead to greater state intervention in monetary policies. In 2020, the Governor of the Tunisian Central Bank, Marwan Abbasi, warned against this step, citing real risks to the economy, including increased liquidity pressures, rising inflation, and a depreciation of the Tunisian currency.
Tunisia’s 2024 budget expects debt service costs to rise to 14.1% of GDP from 13.1% last year and 10% in 2022. Economists believe that state borrowing from the central bank remains a possible scenario but should not be aimed at financing consumer spending. Instead, it should be directed towards productive and developmental expenditures to encourage private investment and stimulate wealth-generating sectors.
The Tunisian government expects the public debt to reach about 140 billion dinars in 2024, approximately 79.8% of GDP, up from an estimated 127 billion dinars in 2023, which equals 80.20% of GDP, and 79.83% in 2022.
Refinancing Risks in Tunisia
Moody’s stated that the significant debt maturities Tunisia must repay increase refinancing risks in the absence of comprehensive external financing. The country faces an external financing gap due to the large external installments required to be repaid. Moody’s recent report highlighted that Tunisia would lack comprehensive external financing if it does not receive support from the International Monetary Fund (IMF) and has not yet been approved by the IMF’s board for its expected program. On November 6, 2023, the World Bank reported that the Tunisian economy is under several negative factors, including “ongoing drought and challenges in external financing, with continued accumulation of domestic debt in key public institutions and legislative obstacles.” Tunisia must repay $1.8 billion (4.6% of GDP) in 2024 and $2.1 billion (5.1% of GDP) in 2025. The international bonds worth 850 million euros ($924 million) due next month will be the first test of Tunisia’s ability and readiness to repay its creditors, according to the research firm Capital Economics.
