$23b of Gov’t Debt Clearance in Multilateral Swap Scheme

EghtesadOnline: The government and the Central Bank of Iran have made good progress and will soon implement a previously-announced and much-anticipated multilateral debt swap agreement that will see the clearance of billions of dollars in government liabilities to the private sector, the deputy head of Plan and Budget Organization said.

News ID: ۷۴۵۵۴۱

30 June 2018

“Something that has been considered in the [2018-19] Budget Law is that the regulator allowed the government to clear 1 quadrillion rials ($23.48 billion) of its debts to the private sector through a debt swap scheme with the banking system,” Hamid Pour-Mohammadi also told IBENA.

“In cooperation with the Ministry of Economic and Finance Affairs and the central bank, the first draft of the bylaw for this issue was devised and presented to the Cabinet,” he added.

At present, the Iranian government, private businesses, the banking system and CBI are locked in a complex and lengthy debt chain. Solving it would prove immensely effective for local manufacturing and growth, Financial Tribune reported.

Economy Minister Masoud Karbasian officially proposed a trilateral debt swap scheme involving the government, private contractors and banks in a letter to PBO chief, Mohammad Baqer Nobakht, on Nov. 19. It was welcomed by President of Iran Chamber of Commerce Industries, Mines and Agriculture Gholamhossein Shafei as a leading private sector representative a week later.

Shortly after, the research arm of the parliament also welcomed the initiative, but also proposed the addition of other components to the chain settlement scheme.

“Because of the government’s significant debts to state-owned companies affiliated with the ministries of energy and agriculture because of subsidies, it is proposed that a chain consisting of five links, namely the government, state-owned companies contributing to subsidies, private sector, banks and central bank, be formed,” the Majlis Research Center suggested at the time.

It is unclear how many components have been included in the mechanism considered in the annual Budget Law.

Pour-Mohammadi elaborated on the mechanism on Friday, saying it allows the private sector, public entities and cooperatives that are owed a sum from the government and also indebted to the banking system to swap their debts, but only if their related bank is also indebted to the central bank.

“Clearing these debts will entail a variety of benefits because it will both make the balance sheets of the banks more transparent and allow the private sector to obtain new facilities,” he said.

There are no clear figures or confirmed estimates on the exact volume of the debt held by each sector.

According to MRC, the government held a total of about $50 billion in liabilities both to the private sector, cooperatives and public non-government entities. Debts of the government and state-owned companies to the banking system were respectively 667 trillion rials ($15.3 billion) and 567 trillion rials ($13.03 billion) while banks also owed more than 1.1 quadrillion rials ($25.83 billion) to the central bank last year, according to the think tank.

However, Hossein Salahvarzi, the deputy head of Public-Private Dialogue Council, had said last year that the volume of government’s debt to contractors is estimated to be more than 5 quadrillion rials ($117.4 billion).