The parliament late on Tuesday approved parts of the 2022-23 budget bill that sets government revenue from bonds.
Accordingly, state-owned companies can issue a maximum of 100 trillion rials ($386 million) in debt for projects "that are technically, economically, financially and environmentally viable."
Companies issuing the bonds must guarantee the reimbursement, the parliamentary news website ICANA reported.
The figure proposed by the government in the initial bill was 80 trillion rials (307m). In the outgoing year the amount was 65 trillion rials ($250m).
In addition, the government is allowed to issue 30 trillion rials ($115m) bonds for the construction, completion and equipping educational centers. The government’s projected target was 20 trillion rials ($76m).
Similarly, the Ministry of Higher Education has been allowed to sell 20 trillion rials in bonds for the maintenance, strengthening and repairing of ageing educational centers. An additional 20 trillion rials will be issued for the rural development.
Bonds to help plug budget deficits account for a big segment of the government’s bond program. As per provisions of the budget bill, the government is allowed to sell 860 trillion rials ($3.3 billion) bond in next fiscal that begins in March.
The figure, however, is 445 trillion rials ($1.7b) or 33% lower than the 1,325 trillion rials ($5b) projected from the sale of securities.
Treasury bills account for 360 trillion rials ($1.4b) or 40% of the government income from selling debt. Treasury bills are used as an instrument to reimburse the government’s ballooning debt to contractors.
Tapping into the bond market gained traction in 2018 when the former government struggled to find alternative sources of income to offset shrinking revenue from oil export income following the imposition of new US economic sanctions by Donald Trump.
The government has generated income mainly through Murabaha bonds sold during the weekly auctions held by the Central Bank of Iran.
The auctions are held on weekly basis where the CBI sell bonds to banks, investment funds and retail and institutional investors at stock market.
Municipality Bonds
The Majlis also allowed municipalities in big cities to issue a maximum of 120 trillion rials ($460m) bonds subject to approval by the Interior Ministry.
Municipal bonds (aka known as participatory bonds) are debt securities issued by municipalities to fund public projects, namely urban rail networks, expanding pathways, rehabilitating urban structure, developing the Bus Rapid Transit (BRT) networks, urban waste management and the likes.
Law stipulates that the repayment of bonds sold for helping transportation projects is guaranteed jointly by municipalities and the government.
As per available data, municipalities in big cities issued 89.3 trillion rials ($340 million) bonds in the first nine months of present fiscal year to Dec. 21.
The MPs also agreed to exempt buyers of government bonds from tax both in the primary and secondary markets, apparently to encourage debt trade.
