Excessive Reliance on Domestic Public Debt Puts Pressure on Investors and Banking System
The Tunisian Institute of Applied Economics (IACE) warned in a recent analysis published on Friday, February 6, 2026, that excessive reliance on domestic public debt could exert pressure on investors and the banking system, compromising the stability of the financial system and depriving the private sector of financing.
Financing the Tunisian Economy: Budgetary Debt Policy and the Role of the Banking Sector
The analysis, titled "Financing the Tunisian Economy: Budgetary Debt Policy and the Role of the Banking Sector," shows that due to limited access to external financing resources, Tunisia has opted for massive and unprecedented domestic borrowing to finance the budget. This approach may be explained by the desire to alleviate the burden of external debt repayments and limit the outflow of foreign currency, as domestic debt servicing does not generate capital outflows abroad.
Risks and Challenges
However, this approach raises several concerns, particularly regarding the financing of productive investment, the sustainability of domestic debt, and the potential for "crowding out" the private sector. The institute notes that despite the short-term benefits, massive domestic financing of the budget tends to reduce the availability of financial resources for the private sector, a phenomenon commonly referred to as "crowding out."
Evolution of Lending to the Economy
The total credits granted by the banking system to businesses, professionals, and individuals increased from 98.8 billion dinars in 2020 to 118.6 billion dinars in 2024. However, the credit dynamics show a slowdown from 2023, indicating a more moderate growth of bank financing and increased caution from the banking sector due to economic conditions and risks related to the financial situation of public and private enterprises.
Need for Coordinated Action
The IACE emphasizes the need for coordinated and consistent action, including promoting public-private partnerships to mobilize resources for high-impact economic and social projects, alleviating pressure on budget financing, and supporting the recovery of the real economy. The institute recommends redirecting external financing resources towards infrastructure projects and high-value-added sectors to enhance the competitiveness of the national economy.
Recommendations
The IACE proposes:
- Implementing a national public debt management structure to ensure control over public debt dynamics within a medium-term strategy
- Enhancing transparency and quality of financial information to improve credit risk assessment, facilitate better resource allocation, and reduce the banking sector's risk aversion
- Promoting partnerships between the public and private sectors to support productive investment and innovation
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