Tunisia risks inflationary spiral as president seeks Central Bank funding for state budget

Economists warned Tunisia could plunge into an inflationary spiral if the central bank accepts direct financing of the state budget.

Inflation was already at 8.1% in December and is expected to further raise and take a monetary character if the central bank accepts direct funding of the government.

Tunisia’s president Kais Saied has asked for direct borrowing from the central bank to finance the state budget and shore up public finances, hit by sluggish economy.

The parliament’s finance committee has considered the president’s request which analyst say would undermine the independence of the central bank and put the country’s fragile monetary stability at risk.

Critics argue that the central bank would be the latest target in the process of presidential power grab that previously undermined the roles of the parliament and the judiciary.

The estimated budget deficit in 2024 would stand at $3.2 billion, with the president seeking to plug it up with direct financing from the central bank with $2.25 billion.

Resorting to the central bank comes after Tunisia failed to secure a $1.9 billion IMF loan, which stalled after the president rejected conditionalities relating to subsidy reform.

Like its bigger neighbor Algeria, Tunisia’s social peace has hinged on state subsidies and an inflated civil service.

Tunisia’s financial crisis has been manifested in a shortage of basic goods as the government tries to restrict the outflow of foreign exchange reserves.