$6.4b Worth of Gov’t Bonds Issued This Year

EghtesadOnline: The government has issued over 300 trillion rials ($6.4 billion) worth of debt securities so far in the current fiscal year (started March 21, 2017), Chairman of Islamic Republic of Iran Debt Management Organization Mehdi Banani announced.

News ID: ۷۴۵۰۱۰

18 February 2018

The cap set by this year’s budget plan is 340 trillion rials ($7.23 billion), the official was quoted as saying by IRNA.

Banani added that the government plans to issue 95 trillion rials ($2 billion) of Islamic Treasury Bills by the fiscal yearend, IRNA reported.

The next fiscal year’s ceiling on bond issuance by the government, ministries, universities and municipalities is 1.78 quadrillion rials (about $38.86 billion), the Majlis Joint Commission approved, according to Financial Tribune.

In its original proposal for the next year’s budget, the government sought to issue up to 873 trillion rials ($18.97 billion) of bonds, with the parliamentarians only approving 778 trillion rials ($16.9 billion) of it and adding up to 1.1 quadrillion ($21.94 billion) of bonds to the plan for clearing the debts of energy and agriculture ministries’ subsidiary companies as well as renovating and equipping the country’s schools.

Lawmakers expressed concerns that the government is becoming increasingly dependent on raising money by issuing debt to cover widening budget deficits while showing no signs of cutting expenditures.

“The fact is that issuing debt securities requires a dependable source of revenue for future payback, otherwise this will not be acceptable for covering necessary government spending,” a member of the joint commission, Fatemeh Hosseini, wrote in an article published in the Persian economic daily Donya-e-Eqtesad.

Hosseini emphasized that debt issuance to cover budget deficit was an exception, but the practice is becoming more and more commonplace.

“This was first introduced in 2015-16 … for accelerating the movement out of an economic recession … but was unfortunately repeated in the budget bills of following years,” he said.

The parliament’s original premise to allow government debt issuance, the MP argues, was to revive dormant development projects, but it has since distorted into a tool for keeping the government finances afloat.

The Central Bank of Iran’s latest report shows the government’s overall revenues during the first nine months of the current fiscal year (March 21-Dec. 21, 2017) stood at 340.3 trillion rials ($7.24 billion), registering a rise of 27.8% compared with last year’s corresponding period, while its spending hit 725.7 trillion rials ($15.44 billion) during the period to record a 35.6% growth year-on-year.

As a result, the government had to issue 74.8% more bonds in the nine months compared with the corresponding period of last year to cover its widening deficit of 385.4 trillion rials ($8.2 billion).

As much as 601.4 trillion rials ($12.79 billion) worth of bonds were issued during the period under review.

Debt securities in Iran have never experienced a default. But an analysis of the budget bill by Al-Monitor shows that the government is always forced to settle the past matured securities by issuing new ones. This means that the government’s commitments are accumulated and rolled over year-on-year.

The ratio of debt to GDP in the Iranian economy is more than 60%, while the gross financing needs to GDP stand at 30%, according to a recent parliamentary study. This means that the debt balance combined with the financing required to pay the current debt is high compared with the government’s financial capabilities.

Oil prices are far from their heyday levels, and healthcare costs and financial obligations of plans such as guaranteed wheat purchase are further straining government finances. Consequently, the government will either have to limit its financial needs, or risk trapping future governments in a chain of defaults.