State Debt: Rising Interest Rates and Increasing Costs
With interest rates persisting at high levels for 16 months and the pace of Treasury bond repayments, the stock of state debt securities is increasingly composed of new issues, mechanically driving up average interest rates.
As of the end of March 2024, the weighted average interest rate of outstanding Treasury bonds (across all maturities) reached a new high of 8.760%. A year earlier, this rate was 8.209%. By maturity, the 8-year bond has become the most expensive, with an average interest rate of 9.505%. No maturity has an average interest rate below 8.000%. The lowest yield corresponds to the 12-year bond, with a weighted average interest rate of 8.187%.
For comparison, in December 2010, the overall average was 6.216%, representing a significant increase of 254.4 basis points. Moreover, the volume has exploded, rising from 5,848 MTND in 2010 to approximately 26,675 MTND in March 2024. In the 2024 Finance Law, the interest on internal debt, including national bonds, amounted to 4,267 MTND.
What alleviates the effective cost borne by the State are the revenues generated later. Banks and insurers, which hold the majority of these securities, will generate more profits and therefore pay more taxes, especially since the latter has been revised upward. There is also a 20% withholding tax on these interest revenues. On its part, the Central Bank of Tunisia (BCT), which refinances banks to subscribe, will realize more profits and distribute more dividends. This is not a zero-sum game, but it allows investors to earn money and the State to find liquidity to operate, until further notice.