The decision was made during a Cabinet meeting on Wednesday attended by First Vice President Es’haq Jahangiri.
Based on the measure, the government will clear its debts to seven companies, including Touss Power Generation Management Company, Mapna Parehsar Power Plant Company, Gohar Energy Sirjan Company, Pasargad Energy Development Company, Shiraz Mechanic Company, Etemad Mehr Kish Energy Development Company and Oil Industry Pension Funds.
The debt swap mechanism was first introduced in articles 2 and 3 of “removing obstacles to competitive production and improving the country’s financial system” law ratified in May 2015, Financial Tribune reported.
Jahangiri mandated IPO and INTA to stop any legal action against the debtors and put them off the no-fly list as soon as the swap is undertaken.
The measure also stipulates that the government can issue Islamic Treasury Bills and transfer them to contractors, if the swap deal fails to clear the total debt amount.
According to a report by the research arm of the parliament (Majlis Research Center), the government and public companies ran up a total of 6,250 trillion rials ($142.04 billion) by the end of the first quarter of the current fiscal year (June 21, 2017), down from 6,570 trillion rials ($149.3 billion) by the end of the previous quarter.
State-run companies accounted for 43% of the total sum, the Persian daily Etemaad reported.
According to Economy Minister Masoud Karbasian, the government has cleared 330 trillion rials ($6.87 billion) of its outstanding debts to contractors during the eight months of the current fiscal year (March 21, -Nov. 21, 2017) by issuing ITBs.
“The exact volume of government debts to contractors is not known, but it is estimated to be more than 5 quadrillion rials ($121.95 billion),” the deputy head of Public-Private Dialogue Council, Hossein Selahvarzi, said.
This is while the banks’ debt to the government, having nearly doubled in the last four years, stands at 1.24 quadrillion rials ($30.34 billion), according to the Central Bank of Iran’s latest data. The private sector’s debt to the banking system is estimated to stand lower than this figure.
According to Selahvarzi, the government has already attempted to address the colossal debt figure by issuing Islamic Treasury Bills and different types of sukuk, and also swapping the private sector’s debt to governmental bodies such as the Social Security Organization.
Private firms seem to prefer the debt swap method, said Selahvarzi, considering that it is a faster and more direct way of debt clearance compared to purchasing long-term ITBs and sukuk.
The next fiscal year’s (March 21, 2018-19) budget bill will see the government and the Oil Ministry issue 95 trillion rials ($1.97 billion) of ITBs and $3 billion of foreign-currency denominated bonds to clear another chunk of their debt to contractors, farmers, health insurance companies and electricity producers.