2022-23 Draft Budget Forecasts Less Bonds

In the proposed budget, published by the Planning and Budget Organization, the government plans to sell 880 trillion rials ($3.3 billion) in new debt next year that begins in March.

This is 445 trillion rials ($1.53b) or 33% lower than the 1,325 trillion rials ($4.5b) projected in this year’s budget, IRNA reported.

Islamic Treasury bills are to generate 360 trillion rials ($1.2b) or 40% of the government’s income from selling debt.  Treasury bills are used as a debt instrument to reimburse the government’s debts to contractors.

Tapping into the bond market has gained traction in the past three years as the governments (former and present) struggle to find alternative sources of income to offset steep revenue losses due to the 2018 US economic blockade.

Governments generated income mainly through Murabaha bonds offered at the weekly bond auctions held by the Central Bank of Iran.  CBI sell bonds to banks, investment funds and retail and institutional investors at stock market.

Economic sanctions imposed by the United States under former president Donald Trump have hit the economy hard, particularly oil exports, leading to deficit spending and the inability of the two governments to meet their financial commitments.

Bonds have seemingly helped cover the budget deficit to a considerable degree and restrain government borrowing from the CBI that fueled inflation by increasing money supply.

However, overreliance on bonds for spending has its own strong critics who argue that the bond policy is controversial and translates into postponing the government’s multi-billion-dollar debts to the future.

In a note on twitter on Friday, head of the PBO Masoud Mirkazemi said the government’s income from bonds will be  used in its entirety to pay for bonds plus interest.

“Next year, the government has to repay 2,000 trillion rials [$6.8 billion] in principal and interest on bonds sold by the former government as well as its foreign loans,” he wrote.

Mirkazemi earlier said the Raisi administration has to pay 5,350 trillion rials ($18.5b) in principal and interest on bonds that mature up until 2026.

Since the beginning of current fiscal year until now, the government has generated 600 trillion rials ($2b) in bonds. It also has made 810 trillion rials ($2.7b) from treasury bills.

Additional Bonds Planned  

Apart from the bonds used for budgetary spending,  additional bond offers are forecast in the draft budget.

As per the provisions of the budget, state-owned companies can issue a maximum of 80 trillion rials ($275 million) in debt to implement projects "technically, economically, financially and environmentally viable." Companies issuing bonds must guarantee the reimbursement the amount of which this year is set at 65 trillion rials ($225m).

To fund construction, completion and equipment of educational centers the government can sell 20 trillion rials ($70m) in debt.  

Likewise, municipalities in big cities can also offer 80 trillion rials ($275m) in bonds with government approval.