Bonds issued by municipalities across the country declined 45% in the last calendar year that ended in March compared to the year before.
Big municipalities issued bonds worth 55.4 trillion rials ($240 million) by March 20, down from 101 trillion rials ($440m) the year ago, according to data released by the Central Bank of Iran.
Municipal bonds (aka known as “participatory bonds”) are debt securities issued by municipalities to improve infrastructure and fund public projects. The bonds were issued by municipalities in Tehran, Mashhad, Isfahan, Ahvaz, Tabriz, Karaj and Shiraz to pay for rail network expansion, expanding pathways, rehabilitating urban structure and developing Bus Rapid Transit (BRT) networks.
Unlike municipal bonds, government and corporate bonds skyrocketed last year. Corporate bonds stood at 363.1 trillion rials ($1.57 billion) by end of the last year to post 411% increase compared to the previous year.
A corporate bond is debt issued by a company in order for it to raise capital. An investor who buys a corporate bond is effectively lending money to the company in return for a series of interest payments, but these bonds may also actively trade on the secondary market. Compared to government bonds, corporate bonds seem more risky to investors.
Bulk of the bonds were issued by the government last year with a whopping upsurge in Murabaha bonds to raise funds for plugging the deep holes in the budget .
As per CBI data, bonds issued by the government and state-run companies were in the region of 1,833.3 trillion rias ($8b), which was 107% higher than the year earlier.
The government issued Murabaha bonds worth 1,302.7 trillion rials ($5.6b), posting a whopping 1,084% growth compared with a year earlier.
Issued treasury bills were worth 437 trillion rials ($1.9b) --down 8.5% compared with 477 trillion rials issued a year earlier.
State-owned companies issued salaf standard contracts and Manfaa’t bonds. Salaf bonds were worth 43.6 trillion rials ($190m), down 19.3% annually. Manfaa’t bonds totaled 50 trillion rials ($217m) posting a sharp 79% decline in one year.
Iran’s bond market has grown exponentially following moves by the government to tap into debt instruments to help cover budget deficits. The market was reportedly worth 2,377 trillion rials ($10.3 billion) by the end of the previous fiscal year, up 90.4% on an annualized basis.
Due to the unprecedented devaluation of the national currency the value of the bond market has not grown in dollar terms. The market was worth a little less than $10 billion five years ago, according to a report published by the Securities and Exchange News Agency.
Data show the market is dominated by the government and its affiliated companies. The share of bonds issued by the government has increased from 10% in 2014 to 90% now.
Observers say the dominant presence of the government has resulted in a crowding out effect on the economy suggesting that rising public sector spending has driven down private sector spending.
One of the most common forms of crowding out takes place when the government, increases borrowing and sets in motion a chain of events that results in the curtailing of private sector spending.
