External Debt Declines 3.4 Percent to $9 Billion

EghtesadOnliine: Iran’s foreign debt was $9.031 billion at the end of last fiscal year that ended in March, dropping slightly from $9.339 billion at the end of fiscal 2018-19 to register 3.4% decline.

News ID: ۷۸۵۵۳۴

20 June 2020

Medium and long-term debt amounted to $7.49 billion by March 19, or 82% of the total. Short-term debt stood at $1.53 billion during the period, according to a Central Bank of Iran report released on its website.

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  2014. External debt was 2.04 % of GDP in January 2020, according to the macroeconomic statistics website Trading Economics.

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

A comparison between Iran’s foreign debt and other developed countries shows the former’s financial commitments are insignificant and among the lowest in the world.

According to the magazine Global Finance, the United States, as the world’s largest economy, was the largest global debtor in 2018.

The US owed $18.3 trillion to foreign lenders in 2018, followed by the Eurozone countries with $14.2 trillion and the UK 7.4 trillion.

According to Trading Economics, US external debt averaged $14.6 trillion from 2003 until 2019, reaching an all-time high of $20.42 trillion in the third quarter of 2019 and a record low of $6.5 trillion in Q2 in 2003

Analysts say reduced 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 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 clout 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 reimposed tough sanctions on key economic and banking sectors.

As per provisions of the March 2020-21 budget, the government is expected to generate $30 billion in foreign finance. How this can be achieved remains to be seen, especially under the Covid-19 conditions wherein all major global lenders and credit institutions are stretched out.

Foreign finance is allocated to government projects that are economically, technically and environmentally viable. Private sector projects, cooperatives, knowledge-based companies and non-government institutions can also apply for foreign funding after putting up collateral with agent banks.

Rise in Foreign Assets

As per the CBI report, Iranian banks and credit institutions had more than 11,686 trillion rials ($65 billion) in foreign assets by the end of last fiscal year, indicating 27.4% year-on-year.

CBI’s foreign assets grew 17.6% YOY accounting for 5,470.2 trillion rials ($30 billion) of its total assets. Likewise, foreign assets of commercial banks was 769.9 trillion rials -- 34.3% annual increase.

Total value of foreign assets held by specialized banks reached 1,839.8 trillion rials ($10 billion) by March 19, jumping 65.2%.

Iran’s oil export has seen a significant decline due to the US penalties. However, money from earlier oil exports are still held in banks outside Iran because the US banking sanctions make money transfers into the country difficult, if not impossible.