After two years of warnings, the Governor of the Central Bank of Tunisia has finally acknowledged concerns about the quality of commercial banks' assets, the non-performing loan (NPL) ratio—which has reached 15%—and the banking system's heavy reliance on financing public debt.
(Source: Central Bank's 2025 Annual Supervision Report.)
Over the past two years, I have warned that financing the government's budget deficit through domestic dinar loans and interest-free loans provided by the Central Bank would place the banking system in an extremely difficult position.
The Central Bank of Tunisia is suffering a loss in the value of its claims on the government.
Meanwhile, Tunisia's banking system is seeing the value of its government bond portfolio erode. Treasury bonds are losing value year after year. Government loans totaling 25 billion dinars have lost 20% of their value due to the high inflation recorded over the past three years.
The same applies to all Tunisian commercial banks. They have suffered losses on their bond portfolios, and every institution that purchased government securities has recorded a decline in their value.
Furthermore, 21% of total banking assets are committed to financing the public deficit—an exposure whose real value decreases every year as a result of inflation.
Is Parliament aware that these interest-free loans—the so-called "free money" provided by the Central Bank to the government—are placing alarming financial pressure on the entire Tunisian banking system while continuously eroding the purchasing power of the dinar?
We can learn from international experiences. Just last week, we learned that Norway's sovereign wealth fund had suffered a loss of $30 billion on its investments in bonds and equities worldwide.
Increasing the money supply in the economy drives up debt levels and keeps inflation high over an extended period, without generating genuine economic growth—as we have witnessed over the past four years.
Furthermore, inflation and the depreciation of bond values will put pressure on Tunisia's banking system, undermining its ability to provide loans to private businesses and households, thereby slowing economic growth.
Most of the banking system's profits come from loans granted to the government and high fees charged to customers. Banking fees account for 20% of banks' profits, a very high proportion by international standards.
Tunisia's banking system is severely weakened, with a non-performing loan ratio ranging between 15% and 18%. The government now accounts for approximately 21% of banking assets, reflecting increasingly strong links between banks and the government.
(Source: Central Bank of Tunisia's 2025 Annual Report.)
The banking system has limited capacity to absorb financial shocks and finance the private sector in order to stimulate economic growth.
In 2025, approximately 50% of loans were used to finance public debt and state-owned enterprises, while 30% were allocated to large companies.
(Source: Central Bank of Tunisia's 2025 Report.)
Tunisia's 800,000 small businesses are struggling to obtain financing.
Who will bear these losses? Whether they arise from loans granted by the Central Bank to the government or losses incurred by commercial banks—which are forced year after year to purchase Treasury bills to finance public deficits—who will ultimately pay the price?
In 2024, the Bank of France recorded a loss of €12 billion on its government bond purchases.
The European Central Bank (ECB) lost €7.94 billion.
The Bank of Italy suffered a loss of €7.1 billion.
The Bank of Japan lost $90 billion.
The US Federal Reserve recorded a loss of $844 billion on its bond portfolio in 2025.
The Bank of England lost £150 billion.
The Reserve Bank of Australia lost $36 billion.
The Swiss National Bank (SNB) suffered a loss equivalent to $143 billion on its bond portfolio in 2023 and recorded a loss of CHF 8.2 billion on its foreign currency investments in the first quarter of 2026.
Today, high inflation is the number one enemy of the global economy. We must not forget that inflation acts as a hidden tax: it increases production costs and silently erodes the value of the dinar year after year—and consequently, people's purchasing power.
Moreover, inflation widens the gap between rich and poor while destroying the value of bank savings, which are an essential resource for public investment aimed at stimulating economic growth.
Bank loans are financial assets for both commercial banks and the Central Bank. When these assets lose value in an environment of high inflation, the entire banking system experiences a depreciation of its overall assets. At the same time, the value of the dinar declines, resulting in a deterioration in the general standard of living.
In an environment characterized by high inflation and high interest rates, Treasury bonds lose market value and trade below their face value (their original value), due to the inverse relationship between bond prices and interest rates.
Example: The interest-free loan of 7 billion dinars granted to the government in 2024 is now worth only 5.6 billion dinars (7 billion dinars minus 20% cumulative inflation over three years = 5.6 billion dinars).
The problem is particularly serious for commercial banks holding Treasury bonds. Their value on the banks' balance sheets decreases every year, forcing financial institutions to reduce lending to the private sector and households.
Interest-free loans: A real poison.
Central banks around the world monitor consumer price inflation (goods and services), but they also monitor changes in asset prices, including real estate, vehicles and bonds.
When asset prices rise, demand for those assets eventually weakens, causing their value to fall, potentially even below their face value (the original purchase price).
In other words, while asset values fluctuate, the amount of debt and interest obligations (liabilities) remain fixed. However, these debts must still be repaid, otherwise legal action may follow.
This is precisely the mechanism that can lead to the collapse of financial institutions, as happened with Credit Suisse in Switzerland and Silicon Valley Bank (SVB) and Signature Bank in the United States in 2023.
Authorities must also pay attention to asset price inflation. When land or vehicle prices increase by more than 10% annually, this places a heavy burden on Tunisian family budgets. Middle-class households find themselves unable to purchase homes due to soaring real estate and land prices.
The current value of loans granted to the Tunisian government in 2024, 2025 and 2026 is expected to decline.
In other words, the amounts of 7 + 7 + 11 billion dinars no longer represent a real value of 25 billion dinars today. Who, then, will bear these losses?
Today, the value of these loans is estimated at only 22 billion dinars because the financial assets recorded on the Central Bank's balance sheet have lost value as a result of cumulative inflation of 20% over the past three years.
The same applies to commercial banks in Tunisia, which are required to purchase government securities (Treasury bills) year after year to finance the budget deficit.
These securities, recorded on their balance sheets, lose 20% of their value due to inflation. All these losses place Tunisia's banking system under pressure, limiting its ability to provide loans to private businesses and households, thereby hindering economic growth.
Bank depositors will bear the losses, and all Tunisian taxpayers will ultimately pay the price.
The Central Bank of Tunisia (BCT) cannot be compared to the US Federal Reserve—which controls the dollar, the world's reserve currency—to justify adopting a monetary policy based on monetizing public debt or lending money to the government to cover budget deficits and compensate for the consequences of failed government policies.
Since the establishment of the Central Bank of Tunisia in 1958, the Tunisian state's infrastructure and economic development strategy has relied on three sources of financing:
- Savings from the Tunisian population.
- Foreign currency loans obtained from the World Bank or through bilateral agreements with foreign governments and banks.
- Grants provided by foreign donors.
The idea that the Central Bank of Tunisia can provide interest-free loans to the government is an illusion, or even a form of monetary "black magic." In reality, this is nothing more than artificial money creation.
The experience of the past three years is revealing: the Central Bank injected 25 billion dinars into the economy, yet the country recorded a loss of 58,200 jobs in the second quarter of 2026.
At the same time, the country experienced electricity cuts and water shortages, youth unemployment increased, inflation intensified, industrial production declined, exports recorded negative growth, and the country suffered a brain drain as university graduates emigrated.
Furthermore, total public debt has reached 86% of GDP.
The equation is simple: poor government economic policies have disastrous and dangerous consequences for the entire population, whether rich or poor.
Moreover, even if the Central Bank were to issue 100 billion Tunisian dinars every year, this would neither solve the debt problem nor stimulate the economy.
Why?
Because Tunisia must import energy, raw materials and wheat from international markets using foreign currencies (US dollars and euros), not the Tunisian dinar.
Consequently, the Central Bank must maintain foreign currency reserves covering at least 150 days of imports.
This is an essential condition for managing monetary policy, stabilizing prices, controlling inflation, protecting the dinar against depreciation and ensuring that foreign currency-denominated debt can be repaid when it falls due.
Conclusion
The main weakness of the Central Bank of Tunisia's monetary policy lies in the erosion of its institutional independence, which has forced it to resort to monetary financing of the government's budget deficit.
This structural dependence undermines price stability and weakens the transmission mechanism through which changes in the Central Bank's key interest rates affect the real economy.
It is important to remember that the Central Bank of Tunisia has made more than 25 billion dinars (7 + 7 + 11 billion) available to the government, while the country has faced severe food price inflation, high unemployment, a weakening dinar against the euro, substantial public debt and sluggish GDP growth over the past three years.
This raises several important questions:
1. Has the Central Bank of Tunisia fulfilled its fundamental mission of ensuring price stability (maintaining a low inflation rate)?
Actual monetary inflation stands at 8.5%, an excessive level for a country where the monthly minimum wage is 528 dinars.
2. Food inflation remains excessively high, reaching 8.1% in September 2026.
Furthermore, the Central Bank's report does not specify its inflation target for 2026, 2027 and subsequent years.
3. In 2026, the Tunisian dinar depreciated by 3% against the euro.
Over the past three years, it has lost 3.5% of its value against the US dollar. Meanwhile, Tunisian households have seen their purchasing power decline by 20% over the past five years.
4. Foreign currency reserves have declined, falling from 106 days of imports in 2025 to 91 days in September 2026.
