Economy Minister Outlines Plans to Address Challenges

EghtesadOnline: The Economy Minister Ehsan Khandouzi says finding new ways and means to sustainably finance the government budget is a priority to his ministry.

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28 August 2021

“The economy indeed needs high-efficacy short-term measures to pave the way for long-term economic reforms,” Khandouzi said after he received the Majlis trust vote on Thursday, IRNA reported.

To realize what he described as “low-risk” financing of the budget, he pointed to changes in tax policies and measures to cede the government’s financial and non-financial assets.

Plans to improve the role of the ministry in setting macroeconomic policies, economic resilience against foreign sanctions and curbing inflation and price volatilities are also on the ministry’s agenda, he added.

The official pledged to involve experts and economists in making ministerial decisions and underlined the need for closer interaction with private enterprise.

Outlining plans earlier in the week, Khandouzi said he is committed to reforming the ailing banking system. In his view, cumbersome rules, poor supervision, bad corporate governance and failure to distribute banking resources fairly across the country and among productive sectors of the economy are blighting the banking industry.

Pointing to the significant growth in lending last year, he noted that the increase notwithstanding, it hardly contributed to the economic growth “because funds were unevenly distributed by the regulator” and poured largely into speculative markets.

Debt Problem

Observers say the Economy Ministry will face a myriad of problems in coping with the unending budget deficits due to, among other things, the 2018 US sanctions that have harmed Iran’s oil exports and revenue, the lifeblood of the economy.

In addition, the ministry is also responsible for mountain of debt of past governments. According to Mohammadreza Katouzian, a financial expert, repaying bonds issued by the previous government will be one of the major challenges.

“Almost all bonds sold by the previous government mature in three years and the new minister must find a solution to repay” he said in a talk with Tasnim News Agency.

As per available data, the size of Iran’s debt market was estimated at 2,860 trillion rials ($11 billion) by mid-February. The market has grown by an unprecedented 1,800% in five years.

The debt market is dominated by the government. Last year, the Rouhani administration and government-affiliated companies sold 1,500 trillion rials in bonds, including treasury bills and Islamic bonds to plug the budget deficit. The share of bonds issued by the government has increased from 10% in 2014 to 90% now.

Think tanks have warned about excessive reliance on selling debt to fund the budget. The Majlis Research Center affiliated to the parliament, welcomed the previous government’s policy to sell bonds and avoid printing money for deficit spending.

However, this would not be effective in the long term because "it only postpones inflation to the future. The best way forward at this stage is to control spending and increase revenue streams,” Katouzian said.