Excessive recourse to domestic public debt risks putting pressure on investors and the banking system, thus compromising the stability of the financial system and depriving the private sector of financing, warns IACE, in an analytical note made public on Friday, February 6, 2026.
Entitled “Financing the Tunisian economy: budgetary debt policy and role of the banking sector” this analysis shows that faced with limited access to external financing resources, Tunisia has opted for massive and unprecedented recourse to domestic debt in order to ensure the financing of the Budget.
This orientation could be explained by the desire to reduce the burden of external maturities and limit the flight of currencies to the extent that servicing the internal debt does not generate an outflow of capital abroad.
“If this orientation reflects an adaptation to external constraints, it nevertheless raises several issues, particularly in terms of financing productive investment, sustainability of domestic debt, etc.
Indeed, notwithstanding the interest it presents in the short term, the massive domestic financing of the Budget tends to reduce the availability of financial resources for the private sector, a phenomenon commonly called “crowding out effect“.
The institute specifies that borrowing resources relative to GDP recorded a marked acceleration from 2020, going from 77.9% of GDP in 2020 to 80.5% of GDP in 2025, reflecting a clear dependence of budgetary financing on debt.
At the same time, the structure of budget borrowing resources has seen, from 2020, a notable restructuring in favor of domestic financing to the detriment of external resources.
In 2011, domestic borrowing represented only 35.79% of total budgetary borrowing while in 2021 this share reached 47.58% to settle at around 78.1% in 2025.
This transformation can be explained by several factors, notably the absence of an agreement with the IMF, the difficulties of access to international financial markets in a context of revision of the sovereign rating as well as the increase in the cost of external debt.
Evolution of competitions for the economy, a prudence that sets in
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.
This development was accompanied by a relatively stable structure between loans intended for businesses and professionals on the one hand and those granted to individuals on the other.
However, credit dynamics show a slowdown from 2023, reflecting now more moderate growth in bank financing and increased caution on the part of the banking sector in the face of the economic situation and the risks linked to the financial situation of public and private companies.
Furthermore, regarding the link between economic dynamics and bank financing, it should be remembered that economic theory emphasizes that, in an optimal context, credits to the economy should evolve at a rate slightly higher than that of market GDP in order to support the growth of productive activities and support private investment.
In Tunisia, since 2019, the outstanding credits to the economy have grown at a lower rate than that of nominal market GDP with the exception of 2020, a year marked by the health crisis. This situation is similar to a credit crunch, that is to say a situation where banks become more cautious in granting credit even when demand remains present.
The notion of crowding out refers to a situation where increased public financing or spending, in a context of limited financial resources, puts increased pressure on capital markets and reduces the availability of financing for the private sector.
This situation results in an insufficient supply of credit and a preference by banks for portfolio operations, notably the acquisition of public securities to the detriment of financing the real economy.
An analysis of net banking income (NBI) over the period from 2020 to 2024 highlights a downward trend in income from intermediation activity and income from commission margins for all the banks in the sample studied.
However, revenues from portfolio activity on the financial market show sustained growth for all listed banks and more particularly for public banks.
These developments reflect a growing imbalance in the structure of banking income marked by a partial substitution of credit activity for the benefit of investments. This orientation reveals an increased dependence on sovereign debt with ambivalent effects: On the one hand, it helps to reduce credit risk linked to the private sector and reflects more prudent management of banking portfolios.
On the other hand, it generates a form of banking inertia or even “banking laziness” limiting the availability of resources for financing the productive sector and consequently slowing down private investment.
Generally speaking, it appears that investment in Treasury bonds is growing more quickly than the activity of granting credit, reinforcing the dependence of banks, particularly public banks, on State financing.
The latter thus tend to become public sector financiers rather than productive credit players.
Need for coordinated and coherent action
The IACE thus underlines the need to implement coordinated and coherent action, through the promotion of public-private partnerships as a privileged instrument for mobilizing resources for the realization of projects with strong economic and social impact contributing to alleviating pressures on budgetary financing and supporting the recovery of the real economy through an active policy for the promotion of SMEs, in particular through the establishment of dedicated credit lines and the establishment of incentive schemes favoring productive investment and innovation.
The IACE also recommends redirecting external financing resources towards infrastructure projects and high value-added sectors in order to strengthen the competitiveness of the national economy, strengthen the transparency and quality of financial information with the aim of improving the assessment of credit risk, promoting better allocation of resources and reducing risk aversion in the banking sector.
It further proposes to establish a national public debt management structure responsible for ensuring control of public debt dynamics within the framework of a medium-term strategy and monitoring, coordination and consolidation of all the State’s financial commitments.
