Tunisia’s president wants central bank to be able to finance budget directly

By Tarek Amara

TUNIS (Reuters) – Tunisian President Kais Saied said on Friday that the law must be reviewed to allow the central bank to finance the budget directly by buying state bonds, a move the bank governor has previously warned against.

Critics of the proposal said an attempt to amend the 2016 law would threaten the bank’s independence and indicated a likelihood of more state intervention in monetary policies, especially in light of the growing fiscal deficit, scarcity of financial resources, and difficulty in foreign borrowing.

Talks on a $1.9 billion loan have been stalled since October when Tunisia and the IMF reached a preliminary agreement, after Saied said this year he would not accept “diktats” and suggested that subsidy cuts could lead to protests.

On a visit to the bank, Saied said that a distinction must be made between the bank’s role in combating inflation and its role in financing the budget, adding that the central bank is a public institution and not independent of the state.

In 2020, Tunisia’s central bank governor Marouan Abassi warned that government plans to ask it to buy treasury bonds have real risks to the economy, including more pressure on liquidity, high inflation, and a drop in the value of Tunisia’s currency.

But Saied said that “the budget financing law which says that the bank cannot grant loan facilities or acquire bonds issued by the state should be developed”.

The North African nation, reeling from multiple problems since a 2011 revolution, is facing a full-blown economic crisis.

Most debt is internal but foreign loan repayments are due later this year and credit ratings agencies have said Tunisia could default.

(Reporting by Tarek Amara; Editing by Nick Macfie and Grant McCool)