Iran's CB Says Has No Debt to Gov't

EghtesadOnline: The Governor of Central Bank of Iran Abdolnasser Hemmati dismissed claims that the CBI is the "government’s biggest debtor.”

News ID: ۷۸۶۳۵۵

17 April 2021

Hemmati was objecting to statements Tuesday by Mohammad-Baqer Nobakht, head of the Plann and Budget Organization.

In a meeting with a group of lawmakers, Nobakht said "the CBI is slow in changing forex income from oil export into rials. So  the central bank is the biggest government debtor."

Denying the charge Hemmati said "The CBI has never been, and will never be, in debt to the government. Let's take a look at the CBI balance sheet to see who the debtor is," Hemmati wrote on his social media account.

The senior banker rather sarcastically added that in case the CBI is in debt to the government that means the economy is on the right track.

"If sometime in the future the central bank owes money to the government, it would mean good economic governance and that inflation is in control. It also would show the government [is wealthy enough] to keep its money in the central bank.”

Nobakht had made the claim in response to a lawmaker who  asked whether the government was borrowing from the central bank to plug the holes in its budget.

"There is no need for printing money. When the government has financial resources with the CBI," he said, pointing to oil export revenue the CBI says cannot be accessed due to the US economic blockade.

"In fact the government budget deficit is partly due to the fact that the currency resources are not changed into rials in good time," the PBO chief said.

To elaborate his point, Hemmati said changing inaccessible currencies into rials was dominant in expanding the monetary bases in fiscal 2019-20 and 2020-21. "Prior to that the lenders' debt to the CBI was the main factor, which is now under control."

The regulator earlier announced plans to monitor the balance sheets of banks as one important step in controlling the ever-increasing money supply. The CBI said it would monitor lenders' balance sheets at regular three-month intervals.

Defiance

The central bank, the CBI boss said, will continue to resist moves to continue changing the “non-existent forex” into rials to avoid further increase in the monetary base, curb devaluation of the national currency and decline in the purchasing power.

In recent months, the issue of borrowing from the National Development Fund of Iran, the sovereign wealth fund, has become a hot debate among banking and the government officials.

Changing NDFI forex assets into rials is tantamount to keeping the money printing machines run fulltime because NDFI resources are inaccessible to the tough economic restrictions imposed by the former US president, Donald Trump.

The CBI has often linked expansion of the monetary base and the galloping inflation in part to the ill-advised practice. The monetary base jumped 29.7% by Dec. 20 compared to the same period a year earlier. It increased another 15.5% from March to December.

In the past the Rouhani administration has borrowed from the NDFI for emergency needs like natural disasters and Covid-19.  Buying NDFI currency is a superficial move when in actuality its resources are not accessible.

As per procedures, the CBI should pay the government the rial equivalent of the foreign currency and receive the forex in lieu. However, since tens of billions in forex reserves are blocked overseas the unlocking of which is unlikely in the foreseeable future, the CBI has to keep the money printing machines running to pay the government.