The government can raise up to 2,000 trillion rials ($4.65 billion) from bonds based on the proposed 2023-24 budget. Lawmakers this week approved the cap for government debt.
Bonds are largely offered by the Central Bank of Iran on behalf of the Economy Ministry to raise funds for the government’s deficit spending. Buyers normally are banks, credit institutions, investment funds and institutional investors.
According to ministry data, 704.1 trillion rials ($1.46 billion) bonds have been sold since last March. In addition to bonds, the government sold treasury bills worth 350 trillion rials ($729m) during the period. Treasury bills are underwritten and given to contractors in lieu of unpaid bills.
Per ministry data, banks and credit institutions accounted for 67% of the bonds purchased since the beginning of fiscal 2022-23 while the rest was taken by institutional investors in the bourse.
The ministry said recently that it paid the principal and interest on bonds worth 1,634 trillion rials ($3.8 billion) until February 8. More than 1,224 trillion rials ($2.84b) was the principal and 409 trillion rials ($951m) interest -- it being over and above government income from new debt offered during the period.
Bond auctions have helped the government plug gaping holes in the fiscal budget by raising money from the interbank market without the need to borrow from the CBI and running the risk of increasing the money supply.
In the fiscal year that ended in March 2022 the CBI held 36 auctions generating 906 trillion rials ($3b) down 27% from the year before.
Parliament also allowed for the allocation of 1,750 trillion rials ($4.069) for the settlement of government debt until March. It also approved a proposal in the budget bill allowing state-owned banks to issue 500 trillion rials ($1.6 billion) bonds in the next fiscal year. The bonds will mature in five years and the government will guarantee the principal and the interest.
Allowing lenders to issue bonds gives them leeway to secure funds when facing a liquidity crunch. When in dire need of liquidity, lenders usually borrow from each other via the interbank market or CBI.
Moreover, lawmakers allowed state companies to issue bonds to the tune of 1,000 trillion rials ($2.325 billion).
President Ebrahim Raisi submitted the March 2023-24 budget to parliament on January 11. The highlights of the proposed budget include 19,840 trillion rials ($49.6 billion) as operating budget (including revenue mainly from tax and export tariffs) plus 1,800 trillion rials ($4.5 billion) for ministries and government institutions.
The budget of state companies, banks and for-profit organizations has been put at 30,976 trillion rials ($77.4 billion).The ceiling for the total budget is 52,616 trillion rials ($131.54 billion).
