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What is Tunisia Central Bank Financing Bill Controversy? Understand in simple language


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The Tunisian cabinet has given the green light to a controversial bill on Thursday. This bill allows the central bank to fund the treasury, with the goal of addressing the budget deficit. However, concerns are rising about the potential impact on the bank’s independence. The government’s need for external loans is set to rise in the 2024 budget to about $5 billion, including $3.2 billion which the government did not say where it would be sourced.

President’s Push for Central Bank Financing

Last year, President Kais Saied called for a review of the law to enable the central bank to directly finance the budget by purchasing state bonds. The central bank governor, Marouan Abassi, cautioned against this move.

Speculation on Governor’s Departure

Economists are speculating that the approval of the bill by the cabinet may lead to the departure of Governor Abassi, who has been at the helm for six years. There is anticipation that he may leave his post at the end of his first term next month.

Concerns about State Intervention in Monetary Policies

Critics argue that amending the 2016 law signals a potential increase in state intervention in monetary policies. This concern is fueled by the growing fiscal deficit, a shortage of financial resources, and challenges in foreign borrowing.

Governor’s Warning on Economic Risks

Governor Abassi had previously warned in 2022 about the risks associated with government plans to have the central bank purchase treasury bonds. These risks include heightened pressure on liquidity, increased inflation, and a depreciation of Tunisia’s currency.

Potential Inflation and Economic Scenarios

Abassi expressed concerns that the move could lead to uncontrollable inflation, possibly reaching triple digits. He cautioned that Tunisia could face a scenario similar to Venezuela’s economic challenges.

Parliamentary Approval Expected

It is widely anticipated that the bill will receive approval from Parliament in the coming weeks, allowing the central bank to play a direct role in financing the budget.

Growing Need for External Loans

With the 2024 budget projecting a need for external loans of around $5 billion, including an unspecified $3.2 billion, economists believe the central bank will be a key source for obtaining these funds.

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