(3 Minutes Read)
Cash-strapped Tunisia wants to take the unprecedented step of borrowing billions from its central bank to plug budget deficits and heal its economic crisis.
The parliament’s finance committee recently considered President Kais Saied ‘s government’s request to borrow the funds after revising laws intended to guarantee the bank’s autonomy. The laws added the Central Bank to a growing list of institutions that Mr. Saied has sought to weaken since coming to power, in addition to briefly suspending Parliament and rewriting the Tunisian Constitution. The Government wants central bank to directly buy up to 7 billion Tunisian dinars ($2.25 billion) of interest-free bonds to help close a budget deficit of 10 billion dinars ($3.2 billion)
The move comes as Tunisia finds itself unable to borrow from its traditional creditors, including the International Monetary Fund, whose proposed US$1.9 billion bailout remains in limbo. Although the IMF has said that buying securities such as bonds can sometimes serve monetary policy, it has warned countries that central banks should not finance government spending.
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Due to Tunisia’s debt and the likelihood of default, Fitch maintained Tunisia’s CCC-credit rating in December. The rating agency then warned that a borrowing program allowing the Central Bank to directly finance the government would endanger the credibility of the Central Bank and increase pressure on prices and the exchange rate.
