Summary:

On 6 February 2024, the Tunisian Parliament voted to adopt a law that grants exceptional powers to the Central Bank to purchase treasury bonds, enshrining in law the long-signaled plan to allow the Central Bank to finance the repayment of sovereign debt. 

The exceptional measure allows the Central Bank to purchase 7 billion dinars in treasury bonds. The bonds will be purchased on understandably favorable terms, accruing no interest and requiring repayment after 10 years, plus a three-year grace period. 

Minister of Finance Sihem Nemsia indicated that the funds would not be used to finance operations, but would go toward the repayment of a nearly €1 billion loan due in mid-February and other “public investments.” 

While Tunisian officials have downplayed to some extent the potential risks associated with the government borrowing money from itself, economists and commentators continue to warn of the potential for significant pressure on Tunisia’s currency and foreign exchange position. 

Outlook: 

In a continuous effort to sidestep politically challenging reforms, President Kais Saied and his administration are poised to chart a new and precarious course in economic self-reliance. 

Despite Parliament’s approval of the law, numerous analysts and commentators have highlighted concerns about the government’s plan to borrow funds internally, warning that it may lead to further economic instability in the short term and compromise the long-term independence of the Central Bank. 

While implementing reforms akin to those recommended by the International Monetary Fund (IMF) would undoubtedly be a challenging process, the potential repercussions of the Central Bank acquiring treasury bonds also pose risks, especially for the ordinary citizens of Tunisia. 

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