Government borrowing from the Central Bank of Iran in the form of discretionary funding has declined sharply, the Economy Ministry said.
Based on ministry data, the government took 16.3 trillion rials ($53 million) for discretionary spending in the first two months of the current fiscal year that started in March.
“This was down 95.4% compared to the first two months of last year when it borrowed 358.8 trillion rials [$1.1 billion] from the CBI for deficit spending,” the ministry said on its news website, Shada.ir.
Under dire economic conditions due largely to the spread of Covid-19, the government was forced to borrow heavily from the CBI to pay its bills.
As per rules, the government can borrow the equivalent of 3% of the total budget spending in the form of discretionary funds in the first few months of the fiscal year and repay after it realizes revenue envisioned in the budget.
Last year, the government borrowed about 5% of the fiscal budget after the pandemic costs surged, not to mention the problems created by the US economic sanctions.
“The government was legally allowed to borrow 418.2 trillion rials [$1.3b] from the CBI for discretionary spending in the present fiscal year,” the ministry noted.
The ministry added that the government’s aversion to borrow from the CBI is because it is concerned about its impact on monetary factors and the galloping inflation.
Officials say the government has drawn on funds deposited by state companies with the central bank to meet its budgetary needs in the first few months of the current year and borrowing for discretionary spending is its last resort.
Monetary experts are of the opinion that borrowing from the CBI was one of the main drivers of the explosion of the monetary base last year.
Fiscal Discipline
The Economy Ministry said the government’s fiscal discipline has gone a long way in curbing the expansion of broad money and the monetary base.
Data released by CBI show that annualized broad money growth has lost momentum and is on the declining trajectory.
Broad money stood at 49,434.7 trillion rials ($159.5 billion) by the end of the second calendar month – up 37.3% on the twelve months ending May 21.
The figure rose 2.3% in the two-month period of the year, showing 1.3% percentage points decline on the 3.6% growth registered in the same period last year.
The monetary base expanded by 30.5% in the twelve months to reach 6,432.1 trillion rials ($20.7b). It increased 6.5% in the first two months of current fiscal year, 0.9 percentage points lower than the 7.4% rise seen in the same period last year.
Growth of the monetary base, too, has declined in recent months, down 12 percentage points from the historic annual growth in July 2021.
As per CBI data, the money multiplier was 7.686 as of May 21, increasing 5.2% on the figure in the corresponding period last year. It fell 3.9% in the first two months since the beginning of the year in late March.
The figure indicates that with each rial created by the banking system money supply increases by 8.68 rials.
Money multiplier measures the maximum amount of commercial bank money that can be created by a given unit of central bank money.
