The government sold 906 trillion rials ($3.5 billion) bonds in 36 weekly auctions during the last fiscal year that ended on March 20.
Compared to the year before, the amount was down 27%, according to data released by shada.ir, the news agency affiliated to the Economy Ministry.
The auctions started in May 2020 in line with government policy to raise funds for its huge budgetary deficits.
Unlike the year before when banks and capital market investors were almost on par in their contribution to the bond purchase, data indicate a bigger role of capital market investors, namely investment funds, in the debt market.
As per the ministry data, retail and institutional investors purchased 74% of the bonds and banks 26%.
Observers ascribe lenders aversion to the debt market to the shortage of liquidity despite the fact that banks are required to allocate a portion of their money to bonds.
Apart from selling debt, the government generated 810 trillion rials ($3b) from treasury bills last year.
The Economy Ministry said that reimbursed bonds outweighed total government income from selling new debt.
The ministry said it reimbursed the principal and interest of bonds worth 966 trillion rials ($3.6b) as of March 20. Of this amount, 621 trillion rials ($2.3b) was to reimburse principal and 345 trillion rials ($1.3b) went in interest payments.
Selling bonds to cover budget deficit is seen by some economists as a better option who argue that it helps in controlling inflation arising from the budget deficits.
The government says it prefers sell debt instead of borrowing from the CBI, which is apparently ill-advised and one of the main drivers of exploding money supply and inflation in recent years.
However, bond offers also have their own critiques. Academia and economists note that selling debt should be a temporary solution and the government cannot, and should not, depend only on bonds. They stress that selling debt is tantamount to postponing governments’ unmet financial liabilities to the unknown future.
Selling debt to cover budget deficits account for a big segment of the government’s bond program in the 2022-23 budget. As per provisions of the new budget, the government is allowed to sell 860 trillion rials ($3.2b) bonds during the fiscal year.
