MRC Castigates Evasion of NDFI Lending Rules

EghtesadOnline: In a report on the misuse of the National Development Fund of Iran, the Majlis Research Center says a large part of the sovereign wealth fund has been used in sectors outside the purview of the fund.

News ID: ۷۴۸۱۸۳

17 August 2019

According to a report on the MRC website, NDFI resources are allocated to projects via three main venues: loans in foreign currency, loans in rials and deposits with banks in foreign currency and rial.

Deposits of latter group are granted by lenders, on behalf of the NDFI, to fund development projects in oil, gas, petrochemical, industry and mining sectors, Financial Tribune reported.

Reviewing the performance of the fund since inception in 2011 until the end of the last fiscal year in March 2019, the research wing of the parliament says more than 41% of forex loans have been granted “beyond specific mandates mentioned in the NDFI Articles of Associations.”

From among the $67.8 billion in currency loans during the period, $37 billion has been paid within the NDFI framework.

The fund has granted a total of 613 trillion rials ($5.2 billion) to various sectors. More than 45% of the loans worth 278 trillion rials ($2.3 billion) in rials were granted out of the realm of the fund’s mission.

Moreover, the sovereign fund has deposited 93% of the total ($6.06 billion) with banks as per rules mentioned in national budgets and not in conformity with the fund’s defined target.

Only $430 million of the funds were deposited with lenders as per the fund’s mission.

NDFI is independent of the government and was set up in 2011 to curb dependency on oil and save a percentage of the earnings from oil and gas exports for the welfare of future generations.

The fund lends to nongovernment public sector, private firms and cooperatives in need when government revenues are low, namely during declining crude oil prices in the international market.

Besides these sectors, MRC says the sovereign fund’s resources have been allotted for other purposes that are not in congruity with the NDFIs mandate, though the allocations have been legalized by other rules.

“This is an indication of the breach of financial rules governing the management of oil revenues,” an excerpt of the report reads.

Plugging Budget Holes

The influential Majlis think tank is of the opinion violation of the rules has apparently turned the sovereign fund into a “shock absorber” of budget deficits.

Due to shrinking oil revenues due to the US sanctions, the state is more likely to tap into NDFI resources this year to plug its budget holes.

Current year’s budget deficit is forecast at 1,500 trillion rials ($12.5 billion).

The High Council of Economic Coordination allowed the government in July to borrow 450 trillion rials ($3.8 billion) from the NDFI to partially reduce the budget deficit.

The council is a top decision-making body comprising heads of the three branches of government formed at the behest of the Leader Ayatollah Seyyed Ali Khamenei to address major economic issues.

MRC has urged experts and decision-makers to respond to questions why the private sector, non-government public sector and cooperatives (the three sectors essentially eligible to receive NDFI help) have failed to absorb more national resources.

The researchers want to know whether the problems are attributed to the inability of the sectors or have roots in the decision-making bodies.