In Tunisia, the State ready to print money to avoid payment default

Caught in a race against time to avoid default, the Tunisian government is pulling out all the stops

In Tunisia, the State ready to print money to avoid payment default

Caught in a race against time to avoid default, the Tunisian government is pulling out all the stops. Even if it means dipping into the Central Bank's foreign currency reserves and printing money again. A bill was to be examined on Tuesday February 6 by the National Assembly in plenary session, in order to authorize the financial institution to release 7 billion dinars (2 billion euros) for the benefit of the Public Treasury. An operation, specifies the text, intended to “finance part of the State budget deficit”. Only part, because the authorities are missing a total of 10 billion dinars to complete the 2024 budget.

According to the Tunisian Minister of Finance, Sihem Boughdiri Nemsia, the sum released by the Central Bank will be used in particular to repay an external loan of 3 billion dinars, the maturity of which is set for February. “Tunisia is committed, despite all constraints, to honoring its debts on time in order to preserve its national sovereignty,” she declared Thursday February 1 before the deputies. Faced with the “difficulty of mobilizing external financial resources”, the minister insisted on the need to disburse these funds as quickly as possible.

The decision is a blow – assumed – to the independence of the Central Bank of Tunisia (BCT), but above all it raises fears of a rebound in inflation. The governor of the BCT, Marouane Abassi, tried to minimize these repercussions on Thursday February 1, indicating that the 3 billion dinars will be reimbursed thanks to Tunisia's foreign currency reserves. A measure which “will have an impact on the exchange rate”, he specified, without giving details of the remaining 4 billion provided for in the text and which will be granted for the benefit of the public treasury “according to requests”.

Faced with a serious financial crisis for several years, Tunisia had tried to negotiate a rescue plan of 1.9 billion dollars (1.75 billion euros) with the International Monetary Fund (IMF). After the announcement of an agreement in principle in mid-October 2022, President Kaïs Saïed rejected in April 2023 what he described as “unacceptable diktats” from the IMF. The negotiations had notably failed on the question of subsidies on everyday consumer products such as oil, electricity and fuel, which the Tunisian government refuses to lift.

A risk of economic “collapse”

The agreement with the IMF – even if it was considered insufficient to fill the Tunisian budget deficit – was also supposed to encourage other donors to come to the aid of Tunisia. For lack of an alternative, the country was forced to resort to loans on international financial markets at high interest rates to honor its external debt maturities and to fill its budget deficit through loans contracted from Tunisian banks. A situation which has pushed the European Union as well as several rating agencies to express concerns about a risk of economic “collapse” in the country.

According to Amine Bouzaïane, researcher in fiscal and budgetary policies, Kaïs Saïed's refusal of the IMF bailout plan could have been considered a "strong choice" against austerity policies, if it had been followed by economic policies allowing generate new revenues. “We must rely on ourselves,” asserted the Tunisian head of state in April 2023, proposing two months later to “take the excess money from the rich to give it to the poor.”

But the introduction of new taxes in certain sectors such as banking and tourism, in addition to the strengthening of tax controls, have not made it possible to turn the tide. “There is a gap between Kaïs Saïed’s speech and reality,” points out Amine Kharrat, analyst and researcher on public policy issues within the Tunisian association Al Bawsala. Although the president has repeatedly expressed his opposition to lifting subsidies to “preserve civil peace,” the state plans a gradual elimination of compensation on energy prices and recurring shortages of subsidized basic products often make these products inaccessible to part of the population.

Another flagship measure announced by Kaïs Saïed, the “criminal reconciliation” mechanism relating to the recovery of ill-gotten gains, was supposed to allow the Tunisian state to recover at least 13.5 billion dinars. But in January 2024, the authorities only managed to recover 26.9 million dinars (8 million euros). Faced with this meager record, the Kaïs Saïed regime toughened its tone, several businessmen were threatened with criminal sanctions, others imprisoned and the law was amended to grant more coercive power to the executive. For Amine Kharrat, these measures are the expression of a “headlong flight by the regime in the face of an economic failure coupled with a political failure”.

“2024 is the year of all dangers,” warns Amine Kharrat, analyst and researcher on public policy issues within the Tunisian association Al Bawsala, who also says he fears an explosion in inflation against a backdrop of devaluation of the dinar.