The Iranian government will issue Islamic bonds in the near future to help repay its debt to banks, Ali Akbar Komijani, deputy governor of the Central Bank of Iran, said on Friday.
“Although Islamic government bonds are common financial instruments, they have never been used by the [Iranian] government in the past. The economy ministry is working to issue bonds to help diversify government’s sources of financing,” the official said.
Komijani expects the new bonds to be welcomed by the financial markets, Mehr News Agency reported.
The bonds will have a maturity of one to three years and are tradable, a feature that allows the holder to sell the bond before its maturity. The government is committed to repay the principal amount of the bond at maturity in addition to interest payments.
In financial literature, a government bond is a type of security issued by the state as a debt instrument. These bonds are more liquid compared to other instruments in the financial markets and are issued to help the government settle its debts to banks, contractors, insurance companies and social security organizations.
The government’s debt to banks rose 29.5 percent to 980 trillion rials ($35 billion at official exchange rate) during the 11 months to Feb. 19, central bank data show.
The government’s debt to the banking system, coupled with roughly the same amount in non-performing loans and the operation of unauthorized financial institutions, has crippled Iran’s financial system and led to poor business performance.
