Treasury: “Instead of reducing waste, Tunisia chooses to print money to pay debts and deficits” (Moktar Lamari)

"Instead of reducing the size of the civil service and cutting waste, Tunisia is opting to print money to pay its debts and deficits," comments Moktar Lamari, an academic based in Canada, in reaction to the draft law submitted to the Assembly of People's Representatives (ARP) authorising the Central Bank of Tunisia (BCT) to make advances to the Treasury. On January 25, the Cabinet meeting approved a law authorising the BCT to grant facilities to the Tunisian Treasury. The academic described this measure as "the most serious and dangerous decision". According to him, it will have several negative effects on the economy and, above all, on "the perception of confidence in the state and its institutions, as a state that favours its current spending on consumption and salaries by making future generations pay for the debt and the deterioration of future public services". "This situation is known as "Ricardo's equivalence". The second effect concerns inflation, because "if money printing finances public waste, the money supply will swell faster and more intensely than the supply of goods produced. So more banknotes are needed to buy the same goods. And in order to fight inflation, the base rate will have to be raised, which will further accelerate inflation and penalise private and public investment," the academic pointed out. As a result, the value of the dinar is likely to deteriorate against the major international currencies "in an insidious and latent way, but for the long term. The dinar will suffer and so will people's purchasing power," Lamari said. Investment will also be affected. "Already in decline, this economic aggregate will wither further. And what remains of public and private investment will be channeled into short-term, more speculative projects," he further indicated. According to him, "the current environment will continue to neglect investment in infrastructure that is sustainable and takes time to come on stream. The discount rate for public investment will rise above 15%, while that for private investment will approach 19%. This increase is mainly explained by the risk premium". The academic also pointed to the risk of "maintaining a situation of prolonged stagflation (very low growth accompanied by high inflation), which does not make it possible to create massive additional jobs for the 700,000 unemployed who have been waiting for jobs for years". He also highlighted the risks of instability on various economic and monetary fronts, saying that "economic operators will prefer to keep their savings in hard currency and wait for the emergence of a more coherent and reassuring economic strategy for investment". For his part, economist Aram Belhadj, in a statement to TAP explained that this law is aimed solely at facilitating the government's access to the bank's liquidity in order to finance the state's budget deficit, which could lead to "inflationary risks and slippages, as well as delaying the implementation of essential public finance reforms". Source: Agence Tunis Afrique Presse