What are the economic consequences of the Tunisian government borrowing from the Central Bank?

Tunisia- Tunisia's government has resorted to borrowing 7 billion dinars ($2.3 billion) from the Central Bank to repay foreign debt and finance spending through 2024, raising concerns among many observers that borrowing in foreign currency would There may be a decline in price. The Tunisian dinar and the increase in inflation levels.

The day before, on Tuesday, the Tunisian Parliament approved a draft law, which the government hastened to consider and included a clause that would allow the Central Bank of India on an extraordinary basis to grant facilities to the government in the net amount of 7 Tunisia has to be authorized. billion dinars, to be repaid over 10 years, with a grace period of 3 years and without any financial interest.

The approved law – after a session that saw considerable controversy among the delegates – did not specify the areas of use of this loan, but indicated that it would be withdrawn in installments according to the needs of the public treasury of the Tunisian State. , Provided that an agreement shall be made between the Ministry of Finance and the Central Bank of Tunisia to regulate the methods of withdrawing the aforesaid loans.

To obtain this loan from the Central Bank of Tunisia, the Government resorted to the approval of the Parliament to “extraordinarily” suspend the work of Chapter 25 of Law No. 35 of 2016, relating to the Basic Law of the Central Bank, which Does not formally permit this. The Bank has the possibility of granting facilities in the form of advances or loans to the public treasury of Tunisia.

Loan in dinars or foreign currency?

In turn, former finance minister and economic expert, Salim Basbas, told Al Jazeera Net that the extraordinary facilities that the Central Bank of Tunisia will grant to the state treasury will be denominated in Tunisian dinars, with the possibility of withdrawing those funds in foreign currency. , given the difficulty in accessing external financing, especially after the breakdown of the agreement with the IMF.

He explains that the expected agreement between the Ministry of Finance and the Central Bank of Tunisia will be carried out on the same basis, that is, setting up facilities with a total value of 7 billion dinars, with the possibility that the Central Bank of Tunisia will be transferred to the government if needed. But to pay the installments of foreign loan, these facilities or some part of them will have to be given in foreign currency.

Finance Minister Siham Namsia had revealed that part of the value of the extraordinary loan from the Central Bank of Tunisia was directed to repaying the debt that will expire on February 14, worth 3 billion dinars (about one billion dollars). For which loan was taken. Existence of difficulty in raising external debt from the Central Bank of Tunisia.

The government estimates it needs more than 28 billion dinars ($9.2 billion) of debt to budget for this year, of which 16.44 billion dinars ($5.4 billion) are in the form of external debt, while 11.75 billion dinars ($3.8 billion) are in external debt. billion dollars). As for internal debt, the size of the debt in 2024 is about 80% of GDP.

A blank check for the current government

For his part, economist Reda Al-Shakandali told Al Jazeera Net that the new law does not specify the use of these funds, as it does not oblige the government to specify the sectors in which it is most affected by the risks associated with inflation. To survive he will have to spend.

He points out that the loan does not specify the value of the facilities that the government will take in foreign currency from the central bank's savings, “so there is ambiguity at the level of law,” and he adds, “It is inappropriate for the central bank to operate in those areas. This would provide a blank instrument to the government to utilize these facilities which were not previously prescribed by law.

He is surprised why the government did not resort to the loans programmed in the 2024 budget law to repay foreign debt during the first quarter of this year before resorting to the Central Bank of Tunisia, warning that the government Borrowing in foreign currency. The Central Bank will reduce its savings and weaken the value of the dinar.

During the current year, Tunisia is to receive loans of $500 million from Saudi Arabia, $400 million from the African Export-Import Bank, $300 million from Algeria, $63 million from the World Bank and $38 million from the Arab Monetary Fund.

However, the government has not specified sources of financing amounting to more than 10 billion dinars ($3.3 billion) in the 2024 finance law, prompting it to borrow from the Central Bank of Tunisia with the aim of reducing the budget deficit. And committed to pay off loans, salaries and support expenses, especially in the middle of a presidential election year.

Fears of an increase in inflation and a decline in the value of the dinar in the light of the decline in the purchasing power/capital of Tunisians, Tunis / January 2024 (Private)
Experts expressed concern about the rise in inflation and the decline of the Tunisian dinar in light of the decline in the purchasing power of Tunisians (Al Jazeera)

Official position on credit risk

In turn, Finance Minister Siham Namsia said during the plenary session in parliament to discuss obtaining extraordinary facilities from the Central Bank of Tunisia that this loan will be based on inflation, taking into account the method of withdrawing the loan and the areas of its distribution. There will be no negative impact. The negative impact of this financing on the economy will be reduced.

Namsieh explained that a part of this loan will be directed to pay off the debt expiring this month, worth 3 billion dinars ($1 billion), while the rest will be spent in areas of development and public investment, such as Support supports the government phosphate company and the Allied flour factory in the west of the country and the steel factory in the north.

For his part, Central Bank Governor Marwan Al-Abbasi recently said during a hearing of the Finance Committee in Parliament regarding this extraordinary loan that this loan will not result in inflation, but he indicated that on February 14, 3 billion Repaying the dinar loan will increase inflation. Reduce currency reserves to 14 days.

Observers believe the statements by al-Abbasi – whose tenure as head of the Central Bank will end after his tenure – are almost diplomatic, claiming he wants to leave the bank peacefully.

However, he believes that al-Abbasi warned of a decline in the exchange rate of the dinar against foreign currencies if the Central Bank's foreign currency savings were reduced.

Expert opinion on the impact of the loan

For his part, expert Salim Basbas says the repayment of the 3 billion dinar loan on February 14 will reduce foreign exchange reserves at the Central Bank from 117 days to 102 days, adding that the level of currency reserves at the bank remains “reassuring”. Has happened. As long as the current period is above the 90 day limit.

However, Basbas confirmed to Al Jazeera Net that the sharp decline of 14 supply days earlier this year would have a negative impact on the dinar in the short and medium term if external resources are not mobilized.

It is believed that the withdrawal of other tranches in foreign currency from the Central Bank within the framework of extraordinary facilities received by the Government will reduce the Bank's foreign exchange reserves, which may lead to an increase in supply operations, creating huge pressure on the foreign exchange. could, and threatened to weaken the dinar and increase imported inflation.

Economist Reda al-Shakandali told Al Jazeera Net that the government's recourse to the Central Bank of Tunisia's savings would have a negative impact, especially on the central bank's sovereign rating by international rating agencies, which consider direct financing of the state treasury. Are. Its independence and credibility is influenced by the Central Bank.

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