Iran’s External Debt $9 Billion

EghtesadOnline: Iran’s total external debt was $9.05 billion by the end of ninth calendar month (Dec. 21, 2019) of the current fiscal year, according to the Central Bank of Iran data.

News ID: ۷۴۹۷۰۳

16 February 2020

The amount is a small increase compared to the $9.01 billion a month earlier. However, compared to the same period in the previous year, the overseas financial commitment has declined, Financial Tribune reported.

External debts declined 10.8% compared with December 2018 when Iran was $10.03 billion in arrears.  Compared to the end of last fiscal year (March 20, 2019), debts declined by 3%.

Medium and long-term debt was $6.86 billion, or 68% of total foreign financial commitment by Dec. 2019, down from near $7.54 billion by the end of the same month last year.

Short-term debt, however, increased during the yearlong period.  The CBI reported $3.17 billion in short-term foreign arrears by Dec. 21, rising from $1.5 billion last year.

Total external debt was at a record high of $12.72 billion in January of 2004 and a record low of $1.2 billion in January of 2014. External debt was 2.04 % of GDP in January 2020, according to Macroeconomics statistics website Trading Economics.

The website provides information for 196 countries including historical data for more than 300 economic indicators, exchange rates, stock market indexes, government bond yields and commodity prices.

The ratio of Iran’s external debt to GDP is projected at 2.5 for fiscal 2019-20 by the World Bank, which is much lower than in many countries. A comparison between Iran’s foreign debt and those of developed countries shows the former’s is vastly insignificant and among the lowest in the world.

Trading Economics reported US external debt to be in the region of $20.4 trillion in the third quarter of 2019, up from $20.2 trillion in the second quarter of the same year.

As the world’s largest economy, the United States owed $18.3 trillion to foreign lenders in 2018 followed by the euro area with $14.2 trillion and the United Kingdom with $7.4 trillion, according to Global Finance.

Divergent Views

Most analysts believe that the reduced volume of foreign debt is not benign for economic prosperity because the amount of foreign debt also reflects the strength of a nation’s economic ties with foreign banks and international monetary institutions. Likewise, low external debt may also indicate a country’s inability to borrow from the international market.

As such, long-term loans to a country indicate the lenders’ confidence in the financial power and ability of the borrower. This may partly explain why less developed and poor countries have less foreign debt. Banks are normally unwilling to take risks by lending to dysfunctional economies.

Attracting foreign investment in Iran has become harder after the US pulled out from the nuclear deal in November 2018 and re-imposed tough sanctions on key economic and banking sectors.

As per provisions of the budget bill, the government has forecast to secure $30 billion in foreign finance in the next fiscal year that starts in March.

Government projects that are economically, technically and environmentally viable, are eligible for foreign funds. Private sector projects, cooperatives, knowledge-based companies and non-government institutions can also apply for foreign help after putting up collateral with agent banks.