Summary:

On 22 January 2024, Tunisia’s Minister of Finance Sihem Nemsia announced that Tunisia had successfully repaid all of its internal and external debts for 2023, temporarily allaying concerns about an imminent default. 

While the government framed the servicing and debt repayment for 2023 as a success, many commentators and analysts raised concerns that the repayment was funded primarily by additional domestic loans. The Tunisian government has borrowed heavily from domestic banks to finance operations and loan servicing, despite many of the banks being partially nationalized. 

With the current administration seemingly committed to avoiding an International Monetary Fund (IMF) loan and the attached reforms, foreign creditors have grown wary of Tunisia’s creditworthiness.  

This has forced the government to look to domestic banks for financing. Domestic bank profits have soared as a result of the loans issued to the government, but the rising profits “mask growing liquidity [and] solvency risks” according to Fitch Ratings, and others. 

In 2024, Tunisia has an €850 million Eurobond due for repayment in February, which will be another test as to whether the country can continue to meet its obligations. Estimates indicate that Tunisia will have $4 billion in foreign debts to repay in 2024. 

Outlook: 

While the current administration hailed the repayment of 2023 debt obligations as a victory and testimony to Tunisia’s independence, that achievement has likely only temporarily delayed an impending economic crisis. 

With domestic banks financing the government’s ability to service debts, a precarious cycle has continued whereby government owned (or partially owned) banks are financing government debt repayment and operations. This cycle cannot continue indefinitely without risking systemic failure, even as domestic banks continue to report strong profits. 

In 2024, it will likely be necessary for Tunisia to leverage its foreign allies and benefactors to continue to meet its obligations, particularly with an IMF loan remaining unacceptable to the current administration. This process could involve making concessions to allies, including the Gulf countries that could be linked to future diplomatic and regional developments, including normalization with Israel. 

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