$2.8b Proposed for Bond Repayment in Iran's Next Budget

EghtesadOnline: Proposed funding in the next year budget plan for the principal amount and interest on bonds issued the by government in the current fiscal (ends March 2019) is 304 trillion rials ($2.8 billion).

News ID: ۷۴۶۴۱۹

05 January 2019

As per the provisions, 192 trillion rials ($1.8 billion) will be allocated for settling the principal sum of the bonds while 62 trillion rials ($585 million) would be paid in interest.

According to Note 5 of the proposed budget, the government is allowed to issue up to 50 trillion rials ($ 471 million) in Islamic bonds and allocate the earnings to the settle the principal and interest on bonds that mature in fiscal 2018-19.

In next year's budget bill, funds are allocated according to priority.  In other words, the government has devised two ceilings for income. The first is for a higher priority that covers urgent and unavoidable spending.  The funds for the first ceiling is almost guaranteed, according to Financial Tribune.

The second ceiling covers low priority spending of the government which will be allocated only if the forecast revenues are realized – something observers are skeptical about.

In the second ceiling, the government is required to  allocate an additional 77 trillion rials to “repay the principal and interest of government-guaranteed participatory bonds, treasury bills and other securities.”

Additionally, 6 trillion rials is proposed in interest for the  bonds.

The Majlis Research Center highlights the points and argues that as the reimbursement of government bonds falls into the priority list, its placement in the second ceiling of the budget is ill-advised.

As per next year's budget, the government intends to issue 435 trillion rials ($4 billion) in bonds. Among different sectors, public sector companies are allowed to issue 45 trillion rials ($428 million) in Islamic bonds in local currency for projects that are technically, economically, financially, and environmentally viable.

The Oil Ministry may issue Islamic bonds via affiliated public companies up to $3 billion in rials and foreign currency. Earnings from bonds should be allocated for repaying the principal amount plus interest of matured bonds, reimburse liabilities to banks and pay contractors.