TUNISIA, Tunisia (AP) — Cash-strapped Tunisia wants to take the unprecedented step of borrowing billions of dollars from its central bank to address its budget deficit and bandage its economic crisis. However, experts have warned that the measures could lead to inflation and reduce confidence in the system.
Parliament’s Finance Committee held an emergency meeting behind closed doors on Wednesday to approve a request to borrow funds from President Kais Saied’s government, following an earlier overhaul of legislation meant to guarantee the bank’s autonomy. investigated.
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The laws temporarily suspend parliament, rewrite Tunisia’s constitution and add the central bank to the list of institutions that critics have sought to weaken since Mr Said took power in the North African country. Added.
The government wants the central bank to directly buy up to 7 billion Tunisian dinars ($2.25 billion) in interest-free bonds to close a 10 billion dinar ($3.2 billion) budget deficit.
Kais Saied’s government wants to borrow money from its central bank because it lacks alternative funding sources. (Thierry Monas/Getty Images)
But in Tunisia, where inflation and shortages of basic goods are the norm, the request maintains the bank’s independence from politics, raising concerns that it could fuel inflation and further scare off foreign lenders and investors. Concerns are growing.
This comes as Tunisia is unable to borrow from its traditional creditors, including the International Monetary Fund, whose proposed $1.9 billion bailout remains in limbo.
The IMF says purchases of securities such as bonds may serve monetary policy purposes, but warns countries that central banks should not finance government spending.
“Amending the status of the Central Bank of Tunisia, allowing it to lend to the government budget and doing nothing else, is a false move that poses many risks to the country’s economy and relations with its partners, especially inflation. approach,” said economist Alam Belhadj, professor at the Tunis School of Economics and Management.
Borrowing from the central bank could cover the budget in the short term while maintaining subsidies for everyday items such as flour, electricity and fuel. But Tunisian Business News analyst Rauf Ben Eddy said the decision further destabilizes confidence in the currency and its value, given recent shortages of key goods and bread for Tunisians. He said it was possible.
Fitch affirmed Tunisia’s credit rating at CCC- in December, citing Tunisia’s debt and potential for default. At the time, the ratings agency warned that a borrowing scheme that would allow central banks to lend directly to governments would “put the central bank’s credibility at risk and increase pressure on prices and the exchange rate.”
The government’s unprecedented request comes amid a lack of other funding sources.
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As Tunisia’s presidential elections approach later this year, negotiations over an IMF bailout remain stalled due to Prime Minister Saied’s reluctance to cut subsidies or reduce civil servant salaries. He criticized the organization’s recommended reforms as a “foreign dictatorship” and fired the finance minister, the main promoter of the reforms.
“Political pressure can lead to expansionary monetary policies during election periods, as is the case in Tunisia,” Ben Headi said, warning that such policies could lead to a recession. .
