Rédaction Africa Links 24 with Africanews
Published on 2024-02-01 16:38:54
Cash-strapped Tunisia is facing an unprecedented economic crisis and is considering a controversial move to borrow billions from its central bank to address budget deficits. President Kais Saied’s government has requested the funds in an emergency closed-door meeting, leading to concerns about potential inflation and a lack of confidence in institutions.
The proposed plan involves the central bank directly purchasing up to 7 billion Tunisian dinars of interest-free bonds to help close a budget deficit of 10 billion dinars. This move has raised alarm bells in Tunisia, where inflation and shortages of basic goods have become commonplace. Critics worry that this demand could jeopardize the bank’s independence from political influence and create fear among foreign lenders and investors.
Tunisia is currently unable to borrow from its traditional creditors, including the International Monetary Fund (IMF), whose proposed $1.9 billion bailout remains in limbo. The IMF has warned against central banks financing government spending and has cautioned against the potential risks of inflation associated with such measures.
Economist Aram Belhadj of the Faculty of Economics and Management in Tunis expressed concerns about the plan, stating that it carries many risks, especially the potential for inflation, and could damage the country’s economy and its relations with its partners. Despite the short-term benefit of financing the budget and retaining subsidies for essential goods, such as flour, electricity, and fuel, there are fears that the move could further destabilize confidence in the currency and its value.
Fitch, a credit rating agency, has maintained Tunisia’s CCC- credit rating and warned of the potential consequences of a borrowing program that allows the central bank to directly finance the government. The agency highlighted how such a program could endanger the credibility of the central bank and increase pressure on prices and the exchange rate.
The government’s request for funding from the central bank comes at a time when other sources of funding are becoming scarce. Negotiations over the IMF bailout plan have become deadlocked, as President Saied has expressed reluctance to implement the recommended reforms, including cutting subsidies or wages in the public sector. This reluctance has led to tensions and political pressures, which could result in expansionary monetary policies during the upcoming presidential elections, potentially leading to recessions.
The proposed borrowing from the central bank has sparked concerns among experts, with warnings about the potential inflation and negative impact on the country’s economy and its relationships with global partners. The move is seen as a risky and unprecedented step that could have far-reaching consequences for Tunisia’s financial stability and economic future.
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