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Tunisia central bank warns buying treasury bonds risky to inflation and currency

Tunisia's central bank warned on Tuesday that government plans to ask it to buy treasury bonds have real risks to the economy, including more pressure on liquidity, high inflation, and a drop in the local currency.

By Tarek Amara

TUNIS, Oct 27 (Reuters) - Tunisia's central bank warned on Tuesday that government plans to ask it to buy treasury bonds have real risks to the economy, including more pressure on liquidity, high inflation, and a drop in the local currency.

It added is committed to tackling inflation and financial stability.

The government is likely to ask the central bank to buy bonds for the first time in order to finance a record budget deficit expected in 2020, the finance minister said last week.

The country's public finances are in a critical situation, with a budget deficit expected to reach 14% of GDP in 2020, the highest in nearly four decades which will increase expenditures by about $4 billion.

The central bank signal will likely reduce the government's options to finance the fiscal deficit and may put it in trouble as Parliament prepares to discuss the revised budget for 2020.

"We do not have many options to finance the budget gap... we will not raise taxes, we will not sell the state's stakes in public companies," Finance Minister Ali Kooli said last week.

Kooli said Tunisia would have to ask some of its creditors to allow delayed payment of some debts.

($1 = 2.7369 Tunisian dinars)

(Reporting by Tarek Amara, Editing by Rosalba O'Brien and Marguerita Choy)

((tarek.amara@thomsonreuters.com;))

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