The bonds sold, however, only make up about half of the total volume issued, as municipalities had 25 trillion rials ($314 million) of Musharaka sukuk with 20% yield to maturity on their hands.
As part of the budget plan for the current fiscal year (March 2018-19), the Iranian Parliament has allowed municipalities to issue up to 55 trillion rials ($688 million) of Musharaka bonds. Municipalities are mandated to use at least half of the funds raised to expand urban rail transportation.
According to IRNA, metropolises of Tehran and Mashhad have each issued 7 trillion rials ($87.6 million), Isfahan 5 trillion rials ($62.58 million) and Ahvaz and Qom each 3 trillion rials ($37.5 million) in spring, Financial Tribune reported.
Only Mashhad has been able to sell all its bonds with Isfahan tailing with 4.9 trillion rials ($65.57 million). Other municipalities have sold only a fraction of their issued volume.
“Parliamentarians have allowed the government to issue up to 778 trillion rials ($9.7 billion) of debt securities this year. This is while nearly 740 trillion rials ($9.26 billion) worth of bonds will mature this year,” Tahmasb Mazaheri, a former governor of the Central Bank of Iran, said.
Throughout the process of reviewing the budget bill last year, the MPs repeatedly raised concerns that the government is becoming increasingly dependent on raising money by issuing debt to cover widening budget deficits while showing no signs of cutting expenditures.
The ratio of debt to GDP in the Iranian economy is larger than 60%, while the gross financing needs to GDP stand at 30%, according to a parliamentary study.
This means that the debt balance, combined with the financing required to pay the current debt, is high compared with the government’s financial capabilities.