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UPDATE 2-Tunisian parliament, cbank chief tell govt to cut spending plans

(Adds parliament committee refuses bill)

TUNIS, Oct 28 (Reuters) - A Tunisian parliamentary committee on Wednesday rejected a supplementary budget bill that would have entailed the biggest deficit in decades, and both the committee and the central bank governor urged the government to cut its spending plans.

The central bank governor made his request earlier in the day, after the government last week asked the bank to buy treasury bonds to help finance a fiscal deficit equivalent to an estimated 14% of national output.

Parliament’s finance committee later officially asked the government to withdraw the bill, leaving the government little choice but to reconsider its budget plans.

“We decided unanimously to demand that the government withdraw this bill, cut spending, and present a new project with an acceptable deficit,” Haykel Mekki the president of parliamentary finance committee told Reuters.

Tunisia’s public finances are in a dire situation, with the government now forecasting a budget deficit of 14% of GDP in 2020, the highest in nearly four decades, largely due to a planned $4 billion increase in spending to alleviate the impact of the coronavirus pandemic.

Central bank chief Marouan Abassi told a parliamentary committee earlier that the bank could finance the treasury to at most 3% of gross domestic product (GDP) but would need parliamentary approval to buy bonds.

“It is not true that the bank refuses to support the efforts of the state, but the central bank refuses to implement measures that further deepen the crisis and may affect the livelihood of Tunisians,” Abassi said.

On Tuesday, the central bank warned that government plans to ask it to buy treasury bonds posed real risks for the economy, including greater pressure on liquidity, high inflation and a weakening of the local currency.

Tunisia’s economy has been crippled by high debt and deteriorating public services, made worse by the global coronavirus outbreak, and a year of political uncertainty has complicated efforts to address those problems. (Reporting By Tarek Amara; Editing by Catherine Evans and Hugh Lawson)

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