Tunisia's Central Bank to Lose Exclusive Power over Interest Rates and Exchange Policy
The Tunisian central bank will no longer have the exclusive power to adjust interest rates or exchange policy and will have to take such measures in consultation with the government, but it will be authorized to finance the Treasury, according to a proposed law presented by deputies today.
This potential major change in the central bank law comes as public finances are in crisis. Twenty-seven deputies warned that Tunisia would inevitably go bankrupt if the banking law was not amended. They stated that the current law, adopted in 2016, which does not allow the central bank to grant loans to the public treasury or directly purchase bonds, has resulted in enormous losses for the state, estimated at $36.6 billion.
The proposed law also suggests that the bank should not be authorized to sign agreements with foreign supervisory authorities without approval. In January, the government asked the central bank to provide $2.25 billion in direct financing to the Treasury to cover a budget deficit.
Former central bank governor Marouan Abassi warned against the risks associated with buying Treasury bonds, including upward pressure on inflation and a decrease in the value of the Tunisian currency. Earlier this year, Abassi was replaced by Zouhair Nouri.
Since 2016, the central bank had absolute power over monetary policy, reserves, and gold. However, the proposed law shows that the central bank could adjust interest rates and operations related to gold and exchange in consultation with the government.
According to the proposed law, the central bank will be authorized to purchase state bonds from banks and lend directly to the Treasury up to 3% of GDP, with maturities exceeding five years.
