National Development Fund of Iran Lends $4.9b in 3 Months

EghtesadOnline: The National Development Fund of Iran, the country’s sovereign wealth fund signed 15 agency contracts with banks to pay $5.8 billion in foreign currency loans during the first quarter of the current fiscal year (March 21- June 21).

News ID: ۷۴۸۸۲۵

30 October 2019

Eleven contracts worth $4.9 billion came into effect by June 21, according to a NDFI report published on its website.

In terms of payment by each agent bank, the major lenders were the state-owned Bank Sepah with $1 billion followed by Bank Pasargad and Mellat Bank – lending $700 million each.

The minimum amounts came from Post Bank of Iran, Tose'e Ta'avon Bank and Middle East Bank with $200 million a piece, according to Financial Tribune.

NDFI loans are given to companies in the private sector, cooperatives and businesses owned by non-government public institutions via agent banks.

With the sovereign wealth fund’s permission the CBI issues certificates for currency allocation to agent banks. Also, agent banks are obliged to lend to projects as per NDFI priorities.

The lender of the last resort paid $299 million as per the budgetary obligations of the current calendar year plus $294 million in hard currency credit as per duties mentioned in the report as “miscellaneous obligations”.

The forex resources are used to fund refineries, petrochemical industries, steel plants, power plants and other national endeavors such as border water projects and completing development plans included in the Sixth Five-Year Economic Development Plan.

Main Borrowers

In the first quarter of the current year, 24 trillion rials ($214 million) of NDFI resources were deposited with agent banks as per 22 contracts concluded by the end of previous fiscal year (ended in March 2019).

Of this amount, 7.8 trillion rials were paid to assist working capital in the mines and industry sector, 7.3 trillion rials for water and agricultural projects, 3 trillion rials for processing and supplementary industries and 2.5 trillion rials to help develop tourism.

Regarding contracts concluded during the first three month of current fiscal year, the NDFI deposited 8.6 trillion rials with the agent banks, of which an estimated 5 trillion rials went into mining and industrial projects, 2 trillion rials to the water and agriculture sector and close to 1 trillion to fund processing and supplementary industries.  The tourism sector held the meager share of 355 billion rials.

In this period, the crisis lender signed a contract with Bank Keshavarzi Iran (the main agro lender) to allocate 8.6 trillion rials ($75.4 million) to animal husbandry projects in less developed areas.

The loans in rials were allocated as per an amendment to Article 52 of the Government's Financial Regulations Law.

NDFI allocation as per the law on Supporting Sustainable Development and Employment in Rural Areas was zero during the mentioned period.

According to the legal framework, the NDFI is obliged to provide funds for non-government projects as well as for working capital for production units in rural areas and cities with populations below 10,000.

Declining Resources

NDFI, which is independent of the government, was founded in 2011. The intended objective was to help save money when government earnings are high, especially from oil and gas exports. Akin to wealth funds, NDFI lends to both public and private firms when government spending is tight, namely during low international oil prices.

However, NDFI’s share from oil export revenues was cut in this fiscal year due to declining crude oil exports after the United States announced new sanctions last year.

The Majlis in February agreed to cut NDFI’s share from annual oil revenues to 20% in the current fiscal, down from 32% a year earlier.

This is while based on the Sixth Five-Year Economic Development Plan, in the current fiscal year 34% of the oil revenues should be allocated to the wealth fund.

Due to shrinking oil revenues, the government 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 ($13.5 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 cut the budget deficit.

A top decision-making body comprising heads of the three branches of government, the HCEC was formed at the behest of the Leader Ayatollah Seyyed Ali Khamenei to help tackle major economic issues.