Spokesman of the Majlis Joint Commission said Tuesday that the government has been allowed to issue Islamic bonds up to 290 trillion rials ($2.5 billion) in rials and foreign exchange for the next fiscal (March 2019-20).
According to the Islamic Consultative Assembly News Agency, Mehdi Mofatteh said earnings from bonds are to be allocated for completing unfinished national and provincial development projects as well as help complete projects in universities.
“The total value of issued bonds plus pending (unsettled) bonds shouldn’t exceed 290 trillion rials. This is the ceiling for government debt,” he was quoted as saying by ICANA.
He said municipalities and affiliated entities are allowed to issue up to 80 trillion rials ($689 million) in Islamic bonds after approval by the Interior Ministry. They are also required to back the bonds with their own assets. “Sixty percent of earnings from bonds should go to urban subway projects, urban renovation and transportation,” the lawmaker said.
In the original budget the proposed ceiling for Islamic bonds by municipalities and affiliated organizations was set at 55 trillion rials ($474 million), obliging them to spend at least 50% of the total from bond sales for expanding urban transportation and subway projects.
Foreign Finance Approval
This is while budget planners had originally suggested in the draft that guarantee for repayment of bonds should be the joint function of municipalities and the government (Plan and Budget Organization). But according to Mofatteh, the joint commission exempted the government from putting up its assets as collateral for municipality bonds.
The joint commission is a legislative body responsible for reviewing the budget bill as well as five-year economic development plans proposed by the government.
Mofatteh said members of the commission also approved the budget plan’s proposal to allow $30 billion in foreign finance for development projects. He said the commission agreed that $1 billion of the loan should be spent on equipping workshops and laboratories in universities and $2 billion on municipalities to complete urban subway projects.
Regarding the issue that foreign lenders that finance development projects demand the project head (usually the government) pay 15% of the total cost of the project, Mofatteh said, "For this reason the commission allowed the government to borrow the 15% for railroad projects from the National Development Fund of Iran (the sovereign wealth fund).”
