Will the debt send Tunisia into dire financial straits?

Tunisia- Economic experts attribute Tunisia's ability to repay all its internal and external debts by 2023 mainly to borrowing, not the growth of its internal income, and insist that it faces a serious debt crisis this year. It will face financial crisis as it is unable to raise funds. External loans programmed to meet its needs and pay off its debts as a result of the dissolution of the agreement with the IMF. International.

Due to the government's extensive recourse to internal or external borrowing to cover the high budget deficit, economists expect Tunisia to see a significant increase in inflation levels, a decline in investment, and a reduction in the specified economic growth rate this year. The 2024 budget law calls for an increase of about 2.1%.

Finance Minister Siham Namsia recently confirmed that Tunisia is able to pay all principal and interest installments of its internal and external debt for the year 2023.

The news quickly spread through the media and the public took to the streets, believing that Tunisia had succeeded in paying off its debts due to better development and the growth of its revenues from tourism and remittances from expatriates.

Reason for repayment of loans

However, the matter is not perfect, as experts confirm that the basis for repaying these debts is borrowing, and economic expert Mouez Hadidan says that Tunisia was able to pay off its internal debts by borrowing more from local banks. Pay off its external debts by borrowing mainly from abroad and less in domestic foreign currency.

He continued in his interview with Al Jazeera Net that the Tunisian government will repay foreign debt of 8.7 billion dinars ($2.7 billion) during the year 2023.

Hadidan confirmed that Tunisia has a high propensity to borrow from local banks to pay off internal debts and manage its expenses, pointing out that the government borrowed the amount of 11.36 billion dinars ($3.5 billion) last year. program, but it only succeeded in borrowing about 9.76 billion dinars ($3.1 billion). By the end of last November.

The government had planned to borrow about 10.56 billion dinars ($3.2 billion) from abroad in 2023, but it managed to borrow only about 5 billion dinars ($1.5 billion) by the end of last November, and that has forced it to rely on imports of basic materials. Clearly had an impact. That includes medicines, coffee, sugar and cereals, and forming queues in front of the bakery.

Hadidan attributes the government's inability to reach the level of borrowing set in last year's budget (estimated at 11.36 billion dinars) to disruptions in negotiations with the International Monetary Fund, which hindered the possibility of access to bilateral and foreign debt markets . Multilateral financing like the World Bank and the European Union and others.

Tunisian money - dinar in black wallet
Experts warn that borrowing from the central bank will have a negative impact on the local dinar exchange rate (Getty)

reduce support

The lack of foreign funds has a negative impact on Tunisia, and this lack has caused the government to reduce imports of subsidized basic materials.

Hadidan says support spending and social transfers dropped to 10.8 billion dinars ($3.3 billion) from about 19.16 billion dinars ($5.9 billion) at the end of last November.

Hadidan expects 2024 to be a difficult fiscal year in terms of raising external debt to meet Tunisia's infrastructure and debt repayment needs, noting that the government raised 10.3 billion dinars (10.3 billion dinars) this year without specifying its source. $3.2 billion) borrowing program, which raises many questions about how to fill it. That shortfall in the budget?

Hadidan does not rule out that a significant part of these programmed loans of unknown origin will be financed through the Central Bank of Tunisia after introducing amendments to its legislation, he warned that dinars from the Central Bank Direct borrowing will have adverse effects. On the banking system and banks and investment and development.

“Any increase in money supply will have a direct impact on higher inflation,” he says.

loss of essential materials

In turn, economic expert Reda Al-Shakandali told Al-Jazeera Net Tunisia will be able to repay its internal and external debts for the year 2023, despite the dissolution of the agreement with the International Monetary Fund, borrowing mainly from the inside and outside. pointed out the success of the ILO, which shows a significant increase in the volume of internal and external borrowings in 2023 compared to the previous year.

External borrowing is expected to increase from 7.6 billion dinars ($2.4 billion) in 2022 to about 10.5 billion dinars ($3.2 billion) in 2023. While the volume of internal borrowing increased from 10.5 billion dinars ($3.2 billion) to 11.3 billion dinars ($3.52 billion) in 2022. According to the economist, dollars in 2023).

Al-Shakandali says that repaying external debt, particularly through external borrowing, was at the expense of supplying subsidized basic materials to Tunisians, whose suffering is compounded by high prices, inflation, and the loss of basic materials.

Al-Shaqandali reported that repaying foreign debt had a negative impact on economic growth, which declined from a projected 1.6% to 0.9% in 2023 (compared to a programmed 1.8%) due to a reduction in the supply of basic materials used in factories. i) done.

“The state has lost more than one billion dinars ($300 million) in tax resources on industrial companies due to the decline in growth,” he said.

economic loss

Al-Shaqandali says it is not possible to continue repaying foreign debt in the same way, especially by relying on reducing imports of basic materials, as this would lead to the closure of some institutions, layoffs of employees and reduced growth. Can be forced. 0.9% compared to the expected 2.1%.

Al-Shaqandali also believes that excessive borrowing internally or borrowing from the central bank to cover consumption expenditure without generating growth and investment will lead to inflationary pressures.

He says, “If the state intends to borrow directly from the central bank to support the budget and cover its consumption expenses, it will be a major disaster.”

borrowing from the central bank

The experts' statements came shortly before the Tunisian finance minister announced that the government had requested direct financing from the Central Bank to pay off urgent foreign debts, including 850 million euros ($920 million) due to be paid in February. International bonds were also included. 16.

Al-Bughdiri said before the parliament's finance committee that Tunisia is committed to repaying all its debts on time “despite all obstacles within the framework of the preservation of national sovereignty and within the framework of self-reliance”.

Central Bank Governor Marwan al-Abbasi told the Finance Committee that repaying the 850 million euro loan within 14 days of imports would deplete currency reserves and hit the exchange rate, but would have no impact on inflation.

Al-Abbasi warned in 2022 that the government's plan to ask the bank to buy treasury bonds involved serious risks, including higher inflation rates and a decline in the value of the local currency.

He said at the time that the move would lead to an uncontrolled increase in inflation, which could reach triple digits, warning that “the Venezuelan scenario will be repeated in Tunisia.”

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