Summary:

On 25 January 2024, the Tunisian cabinet of Prime Minister Ahmed Hachani’s government approved a bill which, if adopted by the Parliament, would permit the Central Bank to finance the government by purchasing treasury bonds. 

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President Kais Saied has been a proponent of reforming aspects of how the Central Bank operates, raising concerns about the erosion of the institution’s independence. A cornerstone of President Saied’s rhetoric in his rejection of an International Monetary Fund (IMF) loan has been his assertion that Tunisia will solve its economic challenges by “rely[ing] on ourselves.”  

Central Bank Governor Marouan Abassi has warned against this step in the past, highlighting the risk such a move poses to the stability of the Tunisian dinar. Abassi had specifically warned of a “Venezuelan scenario” should the Central Bank begin buying treasury bonds, noting that inflation could rise at an uncontrollable rate and be accompanied by a massive devaluation of the dinar. 

With apparent momentum to overrule Abassi’s opinion, there is speculation that he will leave his post in the coming months as his six-year term comes to an end. This speculation was further fueled by his absence from the recent World Economic Forum (WEF) meetings in Davos, Switzerland. 

Commentators and analysts have raised concerns about the move, indicating that such state intervention could destabilize the Tunisian economy and erode institutional independence over time. 

Outlook: 

Should the bill to approve Central Bank purchase of treasury bonds be adopted, it will create additional potential for instability and risk in the Tunisian economy. There is a strong likelihood that the government will use this economic lever if it becomes available with estimates indicating as much as $4 billion in loans with be required to sustain government operations. 

Further steps in this direction will also likely continue to illicit negative press and criticism from commentators and economists already expressing concern about the independence of the Central Bank and the longer-term implications of the government essentially taking loans from itself. 

While the new bill would allow the government to fund itself through treasury bond purchases in the short term, in the medium and long term it would make the Tunisian economy dependent on its own stability, which is already in doubt. 

However, President Saied and his cabinet are likely to push ahead with the effort as it remains one of the view paths of “self-dependence” that Tunisian can take forward without relying on external loans and the stipulations that accompany them. 

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