Tunisian Cabinet Approves Controversial Bill Allowing Central Bank to Finance Treasury
The Tunisian cabinet has recently approved a controversial bill that would allow the central bank to finance the treasury. While the move is aimed at addressing the budget deficit, concerns have been raised regarding the bank’s independence.
President Kais Saied had previously expressed the need to review the law to enable the central bank to directly finance the budget by purchasing state bonds. However, this step has been cautioned against by bank governor Marouan Abassi. Economists speculate that the approval of this bill by the cabinet increases the likelihood of Abassi leaving his post next month at the end of his first term.
Critics argue that amending the 2016 law indicates a potential for increased state intervention in monetary policies. This concern is particularly relevant given the growing fiscal deficit, limited financial resources, and challenges in foreign borrowing. Abassi had previously warned about the risks associated with government plans to request the central bank to purchase treasury bonds. These risks include increased pressure on liquidity, high inflation, and a decline in the value of Tunisia’s currency.
Abassi further emphasized that such a move could lead to uncontrollable inflation, potentially reaching triple digits. He even went as far as warning that Tunisia could face a scenario similar to that of Venezuela. Despite these concerns, it is widely expected that the bill will be approved by Parliament in the coming weeks.
The government’s need for external loans is projected to rise in the 2024 budget, reaching approximately $5 billion. However, it remains unclear where $3.2 billion of this amount will be sourced from. Economist Aram Belhadj suggests that the central bank will likely be the primary source for obtaining these loans.
The approval of this bill has sparked debates among economists and policymakers. Supporters argue that it provides a necessary solution to address the budget deficit and secure funding for essential government projects. They believe that the central bank’s involvement will help stabilize the economy and ensure the smooth functioning of the government.
On the other hand, opponents express concerns about the potential consequences of such a move. They fear that increased state intervention in monetary policies could lead to a loss of central bank independence, undermining its ability to effectively manage the country’s monetary system. Additionally, the risks associated with inflation and currency devaluation could have severe repercussions for Tunisia’s economy and its citizens.
As the bill moves closer to parliamentary approval, it is crucial for policymakers to carefully consider the potential implications and weigh the benefits against the risks. Finding a balance between addressing the budget deficit and preserving the central bank’s independence is essential for Tunisia’s long-term economic stability.
In conclusion, the Tunisian cabinet’s approval of the bill allowing the central bank to finance the treasury has sparked both support and concern. While it aims to address the budget deficit, questions remain regarding the potential impact on the bank’s independence and the overall economy. As this bill progresses through Parliament, policymakers must carefully evaluate its implications and prioritize the long-term stability of Tunisia’s economy.