The minister of roads and urban development said Monday Iran will have to rely on foreign investment for at least the next ten years if it wants to reach its infrastructure targets, as a pile of government debt to the private sector has restrained the government’s room for maneuver.
“The amount of foreign investment needed is much higher than generally thought,” Abbas Akhoundi declared, arguing that the large debt to the domestic private sector coupled with depressed revenues have incapacitated government investment in sectors including oil, petrochemicals, infrastructure, urban development and transport. Akhoundi estimates the foreign investment needs in these sectors at several hundred billion dollars, while putting the needs of his ministry alone at $70 billion.
Akhoundi made a passionate plea to his ministry to adapt a discourse to fit in with the dominant global business culture in order to attract foreign investment. “The international market players should be convinced that Iran has plenty of investment opportunities, and for that reason I call on all deputies, advisers and all senior and middle managers at the Ministry of Roads and Urban Development and its subsidiary organizations, to consider the attraction of investment as a working strategy.”
Need for foreign investment comes as the government struggles to find a legal, non-inflationary way to refinance its commitments to the private sector. In particular, the government has so far failed to pay the army of private contractors, who have increasingly stood side-by-side the government in times of need.
There are no reliable reports on how large the government debt pile to the private sector is, partly because the Parliament approved a bill under which banks were allowed to finance government debt to private contractors, fuelling an often intractable trade in IOUs.
Generally, government debt to the private sector is estimated at between 100 to 940 trillion rials ($3 billion - $24.8 billion) but higher figures abound. President Hassan Rouhani claimed a figure of 550 trillion rials in his 100th day-in-office speech. The head of the Audit Organization calculated a higher 940 trillion rial. Abbas Akhoundi believes the debt stands at 2,000 trillion, with at least 50 trillion owed by his own ministry. Alireza Khosravi, a member of the Parliament’s Development Commission, even puts it at staggering 5,000 trillion rials ($151 billion). This latter figure seems less extraordinary taking into account comments made by the CEO of the National Iranian Oil Company that his organization’s debt amounts to at least $50 billion.
Despite the mounting pressure the sharp fall in oil prices has put on state coffers, the government seems bent to prevent refinancing techniques that were common during former president Mahmoud Ahmadinejad’s administration, such as money printing by the central bank to deliver government debts. Instead, First Vice-President Es’haq Jahangiri has composed a team to tackle the problem of repayment in a more economically sound way. The team consists of high-ranking officials including the presidents of the Management and Planning Organization and Central Bank of Iran.
Jahangiri believes in the negative impact of money printing and government default on its outstanding debts. While the former threatens to fuel inflation, the latter will create a “domino effect” of defaults that would severely affect the entire private sector. On the other hand, “paying off debts would have a positive chain-effect on various sectors and would significantly spur production,” said the VP.
The domestic private sector is not seen as independently strong enough to weather a government default, laying bare the centrality of state investment in an oil-dependent economy depressed by sanctions. “[Private] contractors don’t have the financial ability to survive without getting back the money […] the government owes them. This debt will have very serious economic consequences,” former head of Tehran Chamber of Commerce, Industries, Mines and Agriculture Yahya Al-e-Es’haq told Eghtesad News.
Another plan under review in Parliament is to earmark the funds currently used for cash subsidies for debt repayments, although it is not yet clear to what extent it has the support needed to become government policy.
