Economy Minister Ehsan Khandouzi says that the role and contribution of the capital market in the national economy has increased four times in the last calendar year that ended in March.
“Semi-private and private companies listed in the capital market collectively raised 1,240 trillion rials ($2.53 billion) by using capital market instruments. Last year the figure was 320 trillion rials,” Khandouzi was quoted Tuesday as saying by IBENA.
“Our plan for this year is to further improve and enhance the contribution…banks are also set to make better use of their instruments.”
Share of the capital market in funding the economy reached 20-25% in the previous year, taking into account bonds and funds raised by private companies and the government. Banks still account for almost 80% of the funding.
Data show that the capital market share in the economy was a meager 5% in 2011-12 while banks accounted for 95%. The increased interaction of the capital market and businesses in the past decade shows that it indeed has more scope to play a bigger role.
Majid Eshqi, the head of the Securities and Exchange Organization, recently referred to the challenges lenders face in supporting the economy. "We need to increase the role of the capital market to help ensure business needs for funds are met."
The SEO is working on plans to expand the role of the debt market and devise new instruments to help boost its role. "Issuing bonds by newly-listed firms, entry of new companies into the market and raising the capital of already-listed companies are expected to help."
In recent years governments resorted to the capital market raising more than 2,800 trillion rials through a variety of tools like issuing securities and shares in fiscal year that ended in March 2021, he recalled.
However, this amount declined last year. "Approximately 1,200 trillion rials of government securities were issued in year to March 2023."
The senior official emphasized the need to increase the amount of corporate securities along with participatory securities by firms listed with the Tehran Stock Exchange and Iran Fara Bourse.
Companies that are ranked do not need a bank guarantee to issue securities or raise funds from the capital market. "This process will take less than 10 days in the SEO, which is specific to companies accepted in the bourse."
*** Inflation
Inflation has long been a major concern for the country, affecting various sectors and the general public. Khandouzi acknowledged the importance of implementing measures to control prices and ensure stability.
"Though we are not in a favorable situation, we are on a defensible path of reform, and the government and central bank insist on controlling long-term variables. We are facing a high inflation rate, which apparently demands more effective price control mechanisms. Regarding the monetary base, we need proactive measures that should be added to the policy of controlling bank balance sheets."
In addition to price control measures, the economy minister emphasized the need for new and effective measures to control the monetary base. "Resolving the problems of troubled banks is paramount and the central bank has taken steps in this regard," he added.
Khandouzi emphasized the need for financial support for production units during the implementation of contractionary monetary policies. "Demand need for working capital this year is expected to be higher than last year," he said without elaboration.
"We need to expedite funds for the supply chain through banks to be able to facilitate the process of extending credit. This will help prevent the diversion of bank resources."
In January the CBI unveiled the supply chain finance (SCF) program to help improve lending to manufactures. SCF is a set of solutions to curb funding costs and improve business efficiency for buyers and sellers in a sales transaction.
It operates by automating transactions and tracking invoice approval and settlement processes from initiation to completion. Under the paradigm, buyers agree to approve supplier invoices for payment by a bank or other outside financiers.
It was geared to foster economic growth by facilitating the financing process of manufacturing companies in non-inflationary ways. It will focus on “credit instruments” rather than direct borrowing, reduce bank resources flowing into non-production and speculative markets and increase oversight.
Banking and financial experts say the mechanism will go a long way in easing pressure on banks and help control the explosion in money supply.
The economy minister’s remarks were made during the 30th Annual Conference on Monetary and Exchange Rate Policies, where policymakers, economists, and financial experts met to discuss the current economic situation and strategies to move ahead.
Mohammad Reza Farzin, the governor of the Central Bank of Iran, said Monday the steep fluctuations in forex rates are to blame for the ongoing economic instability and the regulator is doing its best to stabilize the rates to be able to control runaway inflation.
"Stabilization policy is government and CBI-designed policies and actions during a period of economic instability (recession, inflation, unemployment, debt crisis…) to restore economic stability. Our ultimate goal is to tame inflation," Farzin said.
Farzin emphasized the effective measures taken to combat inflation, and said that there has been a significant decline in the consumer price index (CPI) from 62.4% in the month to April 21 to 50% in the month to May 21. Furthermore, “it is projected that there will be a substantial drop in this index in the coming months reaching our target of 30%.”
Economic conditions will improve this year and “we are committed to stabilization and controlling liquidity and inflation.”
