A member of the High Council of Securities and Exchange, the capital market policymaking body, criticized the government predominant role in the debt market that is depriving the private sector of much-needed financial opportunities.
"The debt market is [and should be] a venue for helping manufacturing and infrastructure projects by private companies and the government. But it is only the government that sells bonds to fund its spending needs," Shahin Cheraghi said in a note on his Twitter account.
Iran's bond market has grown exponentially thanks to government moves to tap debt instruments to help cover the bulging budget deficits.
Market size was estimated at 2,860 trillion rials ($11.4 billion) by mid-February. The market has grown by an unprecedented 1,800% in five years, according to a report released by the Securities and Exchange News Agency.
The bourse expert criticized cumbersome rules that impede listed companies access to the debt market to finance their business.
A glance at the composition of participants in the market indicates visible government supremacy. In the course of eleven months to Feb 18 1,381 trillion rials ($5.5b) in bonds were issued of which 1,290 trillion rials were issued by the government and its affiliated companies.
Treasury bills were worth 252 trillion rials, accounting for about 20% of the government bonds. Corporate bonds issued by private sector and participatory bonds issued by municipalities too had a meager share with 92 trillion rials and 7 trillion rials of the total, respectively.
The share of bonds issued by the government has increased from 10% in 2014 to 90%. Widespread presence of the government has resulted in a crowding out effect on the economy suggesting that rising public sector spending indeed drives down private sector spending.
One of the common forms of crowding out takes place when the government increases its borrowing and sets in motion a chain of events that results in the curtailing of private sector spending.
Most of the government earnings from the debt market was through weekly bond auctions started in May 2020, where banks and investment funds were forced allot a significant portion of their financial resources to buying government bonds.
The government earned a total of 1,257.4 trillion rials ($5b) via 42 auctions held regularly by the Central Bank of Iran, according to data published on the bank's website.
Pointing to the bulk of debt sold by the government, Cheraghi predicted the bond market would still be dominated by the government in the years to come as it will have to continue selling bonds to pay the principal and interest on sold bonds.
