The Tunisian cabinet has approved a bill enabling the central bank to finance the state treasury. This decision, primarily addressing the country’s budget deficit, has sparked debate over the implications for the central bank’s independence and the broader Tunisian economy.
Central bank financing: A double-edged sword
The legislation, which permits the central bank to buy state bonds directly, significantly shifts from existing financial norms. President Kais Saied proposed this approach last year, and has now been embraced by the cabinet. The move is an immediate solution to Tunisia’s escalating fiscal deficit and the government’s challenges in securing foreign loans.
However, Marouan Abassi, the central bank governor, has repeatedly expressed concerns about this strategy. In 2022, Abassi cautioned that resorting to the central bank for financing could lead to increased inflation, liquidity pressures, and a devaluation of the Tunisian currency. He compared the potential consequences to the economic crisis in Venezuela, indicating the gravity of the situation.
Tunisia’s new bill challenges economic stability
The approval of this bill by the cabinet also raises questions about the future of monetary policy in Tunisia. Critics argue that amending the 2016 law, which previously constrained the central bank from such direct financing, signals a trend towards greater state intervention in monetary matters. This change occurs amidst a challenging economic landscape characterized by a growing fiscal deficit, limited financial resources, and difficulties securing foreign borrowing.
Economists are speculating about the impact of this bill on the leadership of the central bank. With Marouan Abassi’s term set to end next month, and given his opposition to this policy, there are growing expectations of a change in the bank’s leadership.
The road ahead: Parliamentary approval and financial planning
The next crucial step for this bill is its passage through Parliament, which is widely anticipated in the coming weeks. If approved, this will cement the government’s ability to source significant funds from the central bank.
The government’s 2024 budget reflects a pressing need for external loans, estimated at around $5 billion. According to economist Aram Belhadj, a substantial portion of this amount, approximately $3.2 billion, is likely to be sourced directly from the central bank. This strategy represents a notable shift in Tunisia’s financial management, potentially alleviating immediate fiscal pressures but raising long-term economic stability concerns.
