Tunisia's Fiscal Woes: Escalating Reliance on Domestic Borrowing
As Tunisia struggle with a deepening economic and financial crisis, the government has intensified its reliance on domestic borrowing to generate additional resources and fund the state budget outlined in the 2024 Finance Law. In a move that underscores the country's fiscal challenges, the Tunisian state has secured a new foreign currency loan from 16 local banks, amounting to 570 million dinars (approximately 156 million euros and 16 million dollars).
This loan agreement is a testament to the government's increasing dependence on domestic debt to mobilize funds, a strategy necessitated by the scarcity of external financing options. Finance Minister Sihem Boughdiri Nemsia emphasized that this loan provides a suitable financing solution in terms of repayment duration and cost, contributing to the stability of the country's foreign exchange reserves.
In the absence of external funding sources, Tunisia has already borrowed approximately 1.15 billion dinars (1 euro = 3.36 dinars) in foreign currency from local banks in 2023, through two syndicated loans.
According to the draft state budget, Tunisia plans to issue a national bond and secure a syndicated foreign currency loan during 2024, with projections to mobilize 3.5 billion dinars in domestic financing.
Mired in a profound economic and financial crisis, Tunisia's growth rate stagnated at a mere 0.4% in 2023, while unemployment soared beyond 16%, according to statistics from the National Institute of Statistics.
Faced with severe constraints in accessing external financing, Tunisia had reached an agreement with the International Monetary Fund (IMF) in October 2022 for a $2 billion loan. However, negotiations stalled due to the authorities' reluctance to implement reforms in the compensation system and the public sector enterprises.
As the nation's fiscal challenges mount, the Tunisian government finds itself increasingly reliant on domestic borrowing to bridge the financing gap and sustain critical state expenditures. This strategy, while providing short-term relief, raises concerns about the long-term sustainability of the country's debt burden and the potential implications for economic stability.
Navigating this precarious financial terrain will require a delicate balancing act, one that demands prudent fiscal management, structural reforms, and a concerted effort to attract foreign investment and diversify the country's economic base. Only through concerted efforts can Tunisia hope to alleviate the mounting pressures on its public finances and pave the way for a more resilient and prosperous future.