The surge in Tunisia foreign debt: causes and possible ways out

Over the last decade (2010-2020), Tunisia foreign debt has experienced a phenomenal jump. It has increased at a faster pace than domestic debt. It has doubled without any significant positive effect on investments or economic growth. This study aims to identify the major causes of this abnormal increase in Tunisia foreign debt. Since the model variables are not all stationary at level, the paper applies the autoregressive distributed lag technique to quantitative quarterly economic data covering the 2009-2020 period. Findings show that the economic growth, the exchange rate, the current deficit, the coverage ratio, and the lagged foreign debt itself are the major causes leading to the phenomenal increase of Tunisia foreign debt. Based on these findings, the paper suggests boosting foreign currency-generating activities, containing current public expenditures, stabilizing the exchange rate, and making structural economic adjustments as possible escape roots.

The online version contains supplementary material available at 10.1007/s43546-023-00443-2.