Islamic bonds worth 63 trillion rials ($331 million) were bought by lenders and non-bank financial institutions on Tuesday during the fifth bond auction held by the Central Bank of Iran.
CBI hosts the auctions every Tuesday for Islamic bonds issued by the government to lenders and non-bank financial institutions. Results are released by the CBI a day after the auction.
The initiative aims to help the government raise funds for budgetary needs as it struggles with rising deficits.
As per earlier an announcement, the government had offered two packages of Murabeha bonds with a collective value of 65.5 trillion rials but with three-year and five-year maturity dates.
According to the CBI public relations office, this time eight banks and seven non-bank financial institutions put in bids worth 117.7 trillion rials ($619 million) but the Economy Ministry accepted 63 trillion rials.
As per auction procedures, banks and non-bank financial entities’ bids are processed by a CBI brokerage and sent to the Economy Ministry for approval. The brokerage settles the payment in one working day.
The next auction will be held on July 7 and bonds valued at 60 trillion rials are to be offered.
Apart from banks, other buyers of the bonds include investment funds, insurance companies and government creditors as well as contractors of development projects.
The government has sold 233 trillion rials ($1.2 billion) in bonds via the CBI since May. Raising funds through the debt market is critical for the government saddled with deep budget holes that have become bigger due to high and rising cost of imports, tough US economic sanctions, near total loss of oil export revenue and decline in tax income.
Economists say funding budget deficits via the bond market is a better option than the government borrowing from the central bank or the CBI printing presses working round the clock, which in turn increase the monetary base.
The monetary base increased 8.8% over the past three months to reach 3,834.7 trillion rials ($20 billion) by the end of the first quarter of current fiscal year on June 21.
Citing monetary and banking experts, the Persian-language economic newspaper Donya-e-Eqtesad said the government should sell minimum 50 trillion rials in bonds every week to avoid overloading the monetary base.
The results of the fifth bond auction shows that the Economy Ministry has slowly increased yields to attract buyers.
Interest on bonds rose from 15% in the first round of auctions in May to as high as 17.5% in Tuesday’s bond auction.
The government expects to make 1,000 trillion rials ($5.1 billion) from bond sales.
Apart from the amount permitted in the budget, the government wants to secure approval for an additional 1,500 trillion rials from the High Economic Coordination Council -- an ad hoc economic decision-making body comprising the heads of the three branches of power -- to fix the gaping budget hole.
Economy Minister Farhad Dejpasand said earlier in the month that “the government may not be able to realize 1,400 trillion rials ($7.2 billion) of its revenue projected in the March 2020-21 budget.”
