Summary:

On 2 February 2024, the Board of Governors of the Central Bank of Tunisia issued a press release following a meeting that stressed the need for “vigilance” in allowing the Central Bank to purchase government bonds in order to finance the government’s budget.  

However, the statement took a conciliatory tone, seeming to recognize that the policy would be undertaken in the coming weeks in order to meet a 16 February 2024 deadline to repay a nearly $1 billion loan issued in 2017. 

Earlier in the week, Central Bank governor Marouan Abassi had testified in Parliament that the purchase of treasury bonds by the Central Bank would have minimal impact on inflation but would lower foreign currency reserves and weaken the Tunisian dinar. Some commentators have warned that Abassi’s testimony may have painted the risks involved in an overly positive light. 

The bill drafted in Parliament currently allows for “extraordinary” powers to sell 7 billion dinars worth of treasury bonds which cover the loan maturing on 16 February and other obligations on the horizon in 2024.

Outlook: 

In an ongoing effort to avoid economic reforms that remain politically untenable domestically, President Kais Saied appears set to make good on promises that Tunisia will rely on itself in the face of mounting economic challenges. 

However, as many analysts and commentators have noted, the plan for the government to borrow money from itself risks further destabilization of the economy in the near-term, and degradation of the Central Bank’s independence in the longer term.  

While the process of undertaking reforms along the lines of those outlined by the International Monetary Fund (IMF) would undoubtedly be painful, the potential outcomes of the Central Bank purchasing treasury bonds could also be painful, particularly on the Tunisian street. 

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