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The Tunisian government claimed to have paid off all of its debt for 2023

Economists have always said that the national debt does not need to be paid off since we owe it to ourselves. However, it seems like the Tunisian government did not share this sentiment. And they are right to not have shared this sentiment because the debt, if not repaid, has some rippling and crippling effect on the future generations who become the next generation of borrowers. Even those who do not borrow are still affected by the national debt when it is not repaid.

According to the Tunisian Finance Minister, Sihem Boughdiri, the Tunisian government has successfully repaid all of its domestic and external debts for 2023. The announcement was made on January 22, 2024, and dispelled concerns about a potential default on the country’s debt obligations. This is somewhat unprecedented news because we have not heard in quite a while a country proudly claiming that it paid off all of its debt.

The Tunisian government managed to fulfill its debt obligations despite facing significant financial pressure and difficulties securing external funding. A significant portion of debt repayment came from issuing domestic bonds, and raising funds within the country. This increased domestic debt, potentially impacting liquidity and bank financing for other sectors.

The Tunisian government prioritized debt service over other expenditures, potentially affecting other areas like public services or infrastructure investment. This means that the Tunisian government reduces its deficit to avoid further exacerbation of its national debt, which would have a crowding-out effect on the private sector.

Indeed, the crowding-out effect is a serious problem that hinders economic growth because it reduces private sector investment and economic activity. When the government borrows money, it competes with businesses and individuals for loanable funds. And as government borrowing increases, the demand for funds rises, which generally pushes interest rates up. Higher interest rates make it more expensive for businesses and individuals to borrow money, potentially discouraging investment in new projects, expansion, and innovation.

While this is a positive step, Tunisia still faces a significant debt burden. The government plans to repay $4 billion in foreign debts in 2024, a 40% increase compared to 2023. Additionally, they are working to stabilize their public finances and reduce the budget deficit.

While external debt decreased, internal debt increased, raising concerns about long-term sustainability. Tunisia still faces a hefty debt burden with significant repayments due in 2024. Securing external funding and implementing reforms remain crucial for sustainable debt management.

The transparency and details surrounding the debt repayment process, including the full extent of foreign assistance, remain unclear. The long-term impact of increased internal debt on the Tunisian economy needs careful monitoring and management. The political situation and ongoing reforms play a vital role in shaping Tunisia's economic prospects and its ability to manage its debt burden effectively.

While clearing the 2023 debts is a positive step, it's essential to view it within the broader context of Tunisia's complex economic situation and ongoing challenges. The country needs to balance debt repayment with promoting economic growth, social development, and long-term financial sustainability.


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