The Central Bank of Iran said it will resume selling government bonds to secure funding for budgetary needs.
In a press release posted on its website, the CBI said it will hold an auction on May 24 that will be the first of its kind in the fiscal year that started on March 21.
The Economy Ministry put up for sale two sets of Islamic bonds worth 100 trillion rials ($333 million) with nominal interest rate of 18% with one and two-year maturity dates.
Banks, non-bank credit institutions and investment funds are invited to partake in the weekly auctions as normally they are the main buyers of bonds offered by the CBI on behalf of the government.
As per the procedures, investors must put in bids for a minimum of 500,000 bonds each at par value of 1000 rials ($0.004) via the interbank auction platform managed by the CBI as well as the trade platform of the Tehran Securities Exchange Technology Management Company.
Weekly bond auctions started in May 2020 when banks and investment funds were compelled to allocate a significant portion of their resources to buying government bonds. Later institutional investors and retail traders in the stock market joined.
In the last fiscal year the government held 36 bond auctions and earned 906 trillion rials ($3 billion), down 27% from sales a year before.
The new bond sale will be in line with provisions of the fiscal budget law in which the government is allowed to sell 860 trillion rials ($2.8b) bonds by the time the current fiscal year is out in March 2023.
Bond auctions have helped governments plug the gaping holes in the fiscal budget by raising money from the interbank market without the need to approach the CBI and run the risk of increasing the money supply.
Last year the Money and Credit Council obliged banks to allocate a segment of their resources to bonds. Based on MCC rules, lenders must allocate at least 3% of their money to bonds.
Critics, however, warn that overreliance on bonds for deficit spending will only postpone government debts and saddle future governments with billions of pending debts.
There are also concerns about the detrimental impact of large bond offers in the stock market because it tempts investment companies to put their money in the bond market.
For years governments have struggled with huge budget deficits due to the US economic sanctions that has hit the economy hard across the board. The restrictions, seen as a de facto US economic blockade since 2018, have taken a toll on critical oil and non-oil export revenue which is the lifeline of the economy.
