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Cash-strapped Tunisia sets its sight on domestic loans

The Central Bank of Tunisia is increasingly forced to resort to the domestic banking market in order to finance the local banks this exceptional situation, according to professor of economics and former executive board member of the BCT Fethi Nouri.

In an interview with African Manager, he stressed that one of the main missions of the Central Bank is to protect the state and its financial and banking system, noting that the value of domestic loans has increased in recent years to about 40 billion dinars.

He also said that “printing money” does not mean that the central bank prints banknotes, but it is a technique that allows the central bank to inject liquidity into the economy.

In the same context, he explained that the printing of banknotes is done by virtual transfers to the Ministry of Finance, which, in turn, resorts to short-term borrowing from Tunisian banks before the Central Bank buys back the bonds issued.

The professor of economics stressed that the BCT, given the lack of state resources, tends to issue treasury bills and asks banks to subscribe, adding that the CenBank has finally opted for this alternative under the effect of the great difficulties encountered to borrow from the international financial market, especially since Tunisia has not concluded an agreement with the International Monetary Fund to date.

He also said that despite the large volume of state borrowing from local banks during the last period, this will not be to the detriment of investors or the Tunisian citizen, because of the decline in investment, on the one hand, and the low demand for consumer credit, on the other.

Tunisia seeks to secure $ 4 billion loan from IMF

In addition, Tunisia is seeking to conclude a new agreement with the International Monetary Fund in order to secure a loan of about $ 4 billion to be allocated to finance the budget.

Indeed, it is unanimously agreed that the mission of the Tunisian delegation with the International Monetary Fund is difficult to obtain a new loan, because of the tense social and political climate in the country, while the Fund requires guarantees as to an internal consensus in relation to the required reforms.

The new loan, which is subject of the current negotiation, is the third of its kind since the 2011 revolution and the fourth in the country’s history.

It is expected that the Treasury will be financed this month by domestic borrowing, in addition to the $ 700 million loan Tunisia had obtained from the African Export-Import Bank (Afreximbank) at an interest rate of 5.76%, to be repaid over seven years, with a grace period of two years.

Reforms in 4 areas

The short- and medium-term fiscal and tax policy reform program for the period 2022-2024 is structured around four main areas: control of the wage bill, restructuring of the civil service and reform of the subsidy system, and governance of public enterprises and tax reform.

It is believed that the reform of the subsidy system can only be achieved through the overhaul of compensation policies and mechanisms, moving mainly from price compensation to direct subsidies, which allows for additional funds to be allocated to public investment. In particular, the fuel subsidy reform program aims to achieve real prices by 2026, while taking parallel measures to protect vulnerable groups.

With regard to subsidies of basic commodities, they have recorded, in turn, an increase in relation to the rise in prices of grain and vegetable oils on world markets, which have not been adjusted since 2008. This requires, according to the medium-term budget document of the Ministry of Finance, preparing in 2022 a study on the extent of the effectiveness and feasibility of the proposed reform program for implementation on the ground by changing the current price support system to a new system based on wage support and direct cash transfers. This is besides gradually activating the new subsidy system for basic commodities during the period from 2023 to 2026 with a targeting mechanism capable of achieving the necessary justice in granting of monetary aid to those who deserve it.

In addition, the government considers that the reform program aims mainly to urgently control the major balances, to boost growth and clear the ground for economic recovery.

It should be recalled that the public debt of Tunisia, according to the Finance Act, represents 82.57% of GDP in 2022, and the external debt is about 72.9 billion dinars ($ 24.8 billion), while the domestic debt is 41 billion dinars.


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