Sustainable economic growth policies are often a broad spectrum in setting macroeconomic adjustments and maintaining the progressive trend without transferring the pressure or burdens for future generations.
One major indicator of such policies is transparency and cooperative act of governments with foreign aid and influence at the least potency.
With effectively designed and executed approaches, transparency can serve as a powerful disinfecting driver of development and accountable governance.
It can also promote responsible practices that directly and indirectly support a broad range of policy objectives, such as exposing government corruption, reducing the scope for government revenues to be siphoned offshore, increasing the collection of domestic tax revenues, increasing the accountability and effectiveness of government spending, and reducing dependency on foreign aid.
Transparency and accountability are critical factors for the efficient functioning of a modern economy. This has been reiterated numerously by high-ranking Iranian officials and authorities. Transparency ensures that information is available to measure the authorities’ performance. In that sense, transparency serves to achieve accountability, which ultimately encourages economic growth.
In the case of oil-producing countries like Iran, these concepts take on even greater importance. Oil revenues create major opportunities. The government plays an important role in managing these opportunities.
Typically, oil and gas production generates very large and sudden revenue inflows. Adequate transparency and accountability are, therefore, critical for ensuring that resource wealth is managed for the benefit of the whole population.
This objective has recently been identified for financing the government of Iran while providing an opportunity to redistribute direct revenues from Iranian government major resource generators into public investors.
Back in March 2018 (the yearend in the Iranian calendar), the Central Debt Management Department of the Ministry of Economic Affairs and Finance decided to issue the very first type of innovative sukuk called Manfa’a in two tranches worth a total of 5 trillion Iranian rials (around $1 billion). The underlying asset for this type of sukuk is net future earnings of the issuer from services that would be provided in the future.
In this case, the Economy Ministry, as part of the government, would share net future earnings from its major revenue generators like National Iranian Gas Company (100% of government net future earnings from this company have been securitized as an underlying asset), Central Bank of Iran (59% of government net future earnings have been securitized as an underlying asset), National Iranian Oil Refining and Distribution Company NIORDC (100% of government net future earnings have been securitized and would be shared with sukuk holders), Telecommunications Infrastructure Company (100% of government net future earnings have been securitized and would be shared with sukuk holders).
The total period is 42 months and the Management and Planning Organization of Iran will settle coupons semiannually with all investors, which is guaranteed by the State Treasury of the Islamic Republic of Iran.
Providing detailed forecast earnings based on previous performance and the next four years to settle this debt to investors obviously promote transparent governance that could be held accountable for its sustainable economic growth policies. Such allocations consequently would enhance organizational performance, increase liquidity of large assets and government enterprises.
Transparent government operations are widely regarded as an important precondition for macroeconomic fiscal sustainability and overall fiscal integrity. Advocating more financing through regulated capital market from the government makes fiscal discipline and control of spending easier to achieve. In this case, the government of Iran could interact more efficiently with both domestic and international investments to balance budget deficits.
It is always the case that once economic management improves considerably, reformed public financial management and accountability produces a more stable macroeconomic environment, which is a beginning to yield accelerated growth rates.
Transparency would provide more information, which means less uncertainty associated with doing business, leading to positive impact on foreign direct investment and growth. Utilizing transparent methods helps to have access to information about the current economic situation, as well as the rules of the game, which is crucial to international investors.
Transparency allows a clearer assessment of the past fiscal performance, current fiscal position, fiscal risks and the future direction of fiscal policy. As transparency is known to play a key role in enhancing the well-functioning financial markets, capital allocation and the efficiency of investment decisions, it has also been proven that investments and efficient regulations, along with transparency, are positively and significantly correlated with economic growth.
Manfa’a is a novel form of sukuk in debt financing that would allow the borrower to exchange the net future value of its earnings with public investors at the current point in time and manage its current cash flow to achieve its organizational goals.
Major service providers such as telecoms companies, airlines and hotel complexes could consider such fund-raising methods to manage their cash flow more efficiently.
