The government will issue 20 trillion rials ($172.4 million) in treasury bills to settle its debt to cooperatives and private companies. According to the 2019-20 budget bill, the amount pertains only to debt that should be repaid by the end of current fiscal in March.
Note 5 of the proposed budget stipulates that debts of the mentioned entities held by the government (that have been transferred to state companies as per the provisions of Law for Removing Obstacles to Competitive Production and Promoting the Financial System) could be swapped with government debt to the same companies through treasury bills.
Likewise, private and cooperative demands from the government could be bartered with banks and non-bank credit institutions’ demands of them. Subsequently, debts of banks to the government could be settled using treasury bills.
The government is allowed to issue treasury bills to be able to settle debts of private firms and cooperatives, non-government bodies, public companies and banks by the end of 2017-18 fiscal to lenders and non-bank credit institutions. Consequently, the debts of these entities to CBI will be settled through the remaining treasury bills.
The Majlis Research Center has supported this manner of debt swap among government entities, saying that in this way banks’ debt to CBI will be adjusted and rewritten as government debt to the CBI and would reduce lenders’ mountain of debt to CBI.
The government can issue treasury bills to settle debts of private firms and cooperatives, non-government bodies, public companies and banks by the end of fiscal 2017-18 to lenders and non-bank credit institutions
Reckoning the merit of such debt adjustment, the MRC says reduced government debt should contribute to business improvement, boost investment, create jobs and improve the performance of banks that have been under mounting pressure for poor management, inefficiency and questionable lending practices.
The parliament’s research arm says as the treasury bills that are issued for the mere purpose of debt settlement don’t incur any financial cost and there is no legal restriction on the volume of such bonds, the envisaged amount should be increased up to 50 trillion rials ($431 million).
MRC takes note of the government's proposed 30 trillion rials ($258 million) in the draft of the current budget that was later increased to 50 trillion rials by the Majlis. It regrets the government proposal to reduce the amount to 20 trillion in the new budget.
However, referring to past experiences, the parliamentary think tank warns that cumbersome rules enshrined in the budget bill could render the plan futile and proposes some tweaks in the budget text.
MRC refers to the emphasis in the budget to use treasury bills for settling debts by the end of 2017-18 fiscal “within legal frameworks” as one example of cumbersome rules. It notes that part of the difficulty in using treasury bills goes back to the obligation on applicants to acquire special CBI permission.
According to the bill, the debt of banks and credit institutions would be seen as government debt to the CBI and by extension not expand the base money.
The budget bill allows the government to allocate a maximum 20% of the treasury bills for settling its final debt to the Social Security Organization.
