The Executive Board of the Central Bank of Tunisia held an extraordinary remote meeting on 27 October 2020 to examine the draft complementary finance law (LFC) for 2020 and the issues it raises in terms of needs in additional financing.

In fact, the LFC 2020 draft shows a deficit which goes largely beyond the repercussions of COVID-19 health crisis, reaching an unprecedented level estimated at 13.4% of GDP, which requires considerable efforts to mobilize the necessary financial resources in a very short period of time and in a context marked by difficult access to the international financial market. This is in particular in view of deterioration of the sovereign rating of Tunisia and the increase in costs on this market due to drying up liquidity led by the impact of indebtedness of countries and aversion of international investors to risk in the economies of emerging markets.

In this context, the Board underlined that to face up to this situation, further recourse to domestic financing is expected to  reach 14.3 billion dinars in the LFC, against 2.4 billion as per initial finance law, which is likely to have negative repercussions on economic balances. In addition, the contribution of the banking sector in these efforts to mobilize resources through subscriptions to Treasury issues would exert more pressure on liquidity and therefore induce an increase in recourse to the Central Bank refinancing.

In this regard, and after recalling the considerable efforts made by the BCT over the past three years by adopting a proactive monetary policy, which has resulted in lower inflation and improved internal and external balances, the Board noted the exceptional efforts made during the last period to support the State's efforts to face up to COVID-19 pandemic and underlined the importance of curbing the impact of excessive recourse to domestic financing on macroeconomic stability, as well as the direct and indirect effects of inflation and the overall volume of refinancing. Also, the Boad underlined the possible "crowding out effect" concerning financing of the private sector, in addition to possible external imbalance and deterioration of the value of the dinar.

After discussions and deliberations, the Board reiterated that the Central Bank remains committed to the mandate entrusted to it by the legislator, i.e. to maintain price stability and contribute to financial stability, in accordance with the law establishing the status of the Central Bank of Tunisia.