Government Proposes Trilateral Debt Swap

EghtesadOnline: The government has proposed a trilateral swap deal among the state, private contractors and banks to help ease its debt burden.

News ID: ۷۴۴۴۶۷

20 November 2017

Outlined in a letter by the Economy Minister Masoud Karbasian to the head of Planning and Budget Organization Mohammad Baqer Nobakht, the proposal is expected to be implemented in the 2017-18 budget.

According to Karbasian, the government is set to swap its outstanding debt to private contractors and private firms’ debt to banks with the banks’ debt to the government, Mehr News Agency reported.

“This would be a small, but effective step in addressing the stalemate,” the deputy head of Public-Private Dialogue Council, Hossein Selahvarzi, said.

“The precise volume of governmental debt to contractors is not known, but it is estimated to be more than 5 quadrillion rials ($121.95 billion),” Financial Tribune quoted him as saying.

This is while the banks’ debt to the government, having nearly doubled in the last four years, stands at 1.24 quadrillion rials ($30.34 billion), according to the Central Bank of Iran’s latest data. The private sector’s debt to the banking system is estimated to be lower than this figure.

According to Selahvarzi, the government has already attempted to address the colossal debt figure by issuing Islamic Treasury Bonds and different types of sukuk, and by swapping the private sector’s debt to governmental bodies such as the Social Security Organization.

“Private firms seem to prefer the debt swap method,” said Selahvarzi, considering that it is a faster and more direct way of debt clearance compared to purchasing long-term ITBs and sukuk.