Domestic Economy

Economy Ministry to Issue $3.5b Worth of Debt

Economy Ministry to Issue $3.5b Worth of DebtEconomy Ministry to Issue $3.5b Worth of Debt

The Ministry of Economy and Finance has been given the go ahead to repay its overdue debt based on this year's budget plan. The ministry will offer 'Treasury Settlement Securities' to contractors to whom the government owes money, Mehr News Agency reported Wednesday. The ministry will issue the securities and give them to creditors in lieu of it long-pending dues.

Parliament had sanctioned the repayment of government debt incurred before the end of the Iranian fiscal year 1393 (ended March 2015) in the 1395 fiscal year's budget (started March 2016). The repayment is capped at 125 trillion rials ($3.5 billion).

Last year the administration sold 50 trillion rials ($1.4 billion) of sokuk to investors and used the proceeds to repay debt owed by the Energy Ministry and the Ministry of Roads and Urban Development.

The government plans to sell sokuk, Islamic bonds, in various forms to settle part of its estimated 3.8 quadrillion rials ($109.7 billion) debt to contractors and lenders. The long delays in paying government dues has run many contractors to the ground and added to the burden of troubled credit  in the banking system.

According to the 1395 budget, the government, its companies along with municipalities and other state bodies are to issue 670 trillion rials ($19.3 billion) in various Islamic bonds this year to fund their operations.

The state is increasing its use of debt securities for financing its spending. The Rouhani administration raised 105 trillion rials from issuing debt last year, the newly appointed head of the Securities and Exchange Organization, Shapour Mohammadi, said last week.

This new-found love for debt securities has been the main driver of expansion of Iranian securities markets in the past couple of years. Debt is the new norm for now as equity offerings are scarce due to the slump in markets.

However,  economic activity is still predominantly financed by banks. Iranian securities markets handle between 13% to 20% of all financing in the country, Hossein Abdoh-Tabrizi, a member of the Bourse High Council, said on August 3.