PREVIEW
Risking hyper-inflation and a run on the dinar, the President is pushing for a bigger state overdraft
President Kaïs Saïed is piling on the pressure for Tunisia's central bank to become the latest African bank to provide billions of dollars in direct budget finance, a move which economists warn is likely to lead to inflation and a currency collapse.
Last month, the government approved a controversial bill allowing the central bank to finance the treasury, despite the objections of bank governor Marouane Abassi, who has warned that the measure, used in Ghana and Nigeria in recent years, could push inflation into triple digits.
Abassi, who is set to leave his post in March when his first six year term expires, has warned that 'a Venezuelan scenario will be repeated in Tunisia.'
Talks with the IMF on a proposed US$1.9 billion bail-out have made little progress and the government has been shut out of lending on the international markets. Saïed's returning €60 million ($64.5m) of a €785m 'cash for migrant control' deal with the European Union to Brussels has cast doubt over the remainder of the funding (Dispatches 17/10/23, Saïed chooses isolation after returning EU cash).
After keeping Tunisia's credit rating at CCC- in December, ratings agency Fitch warned that changing the law to allow the Central Bank to directly finance the government 'would endanger the credibility of the Central Bank and increase pressure on prices and the exchange rate'
The government wants the central bank to directly buy up to 7bn Tunisian dinars ($2.25 bn) of interest-free bonds to help close a budget deficit of 10bn dinars.
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