The government is moving ahead with the plan to launch a debt market through a cooperative partnership involving the Central Bank of Iran, Economic Coordination Council and Management and Planning Organization of Iran to sell government's debt to the public.
Deputy Economy Minister Shapour Mohammadi announced on Monday at a news conference that sukuk or Islamic bonds will be the main security to be traded at the forthcoming debt market along with treasury bills and short-term government bonds.
Mohammadi said banks could benefit from the debt market as a form of collateral, if the central bank gives its approval, the news website Banker reported.
"We intend to introduce a law in 2016-17 to enable executive enterprises to accept these securities as credit or trade them at the bourse," he said. "The private, public and cooperative sectors can also use these tools to tap into government debt in a transparent and straightforward way."
Mohammadi stressed that the plan has been endorsed by President Hassan Rouhani and said the Ministry of Economic Affairs and Finance would oversee the scheme.
Iran's total government debt was just 11.4% of gross domestic product last year, according to estimates from the CIA’s World Factbook. That’s lower than 91% of the countries tracked by the CIA.
But the government’s debt to banks rose 29.5% to 980 trillion rials ($35 billion at official exchange rate) during the 11 months to Feb. 19, central bank data show.
The government’s massive debt to the banking system and government contractors, combined with roughly the same amount in non-performing loans and the operation of unauthorized financial institutions, has taken a heavy toll on Iran’s financial system and led to poor business performance.
Analysts in the past had recommended that the government set up a debt market to sell its debt, a move considered as the most efficient and hassle-free way to address official debt.
An analysis last month by Bloomberg predicted that Iran can also benefit greatly from the international bond market. Renaissance Capital, a London-based investment bank, described Iran as the most important economy closed to institutional investors, and predicted interest will climb dramatically over the next year, according to a July 13 report.
Before Iran can access overseas markets, the US and European Union will need to lift a complex web of sanctions, which mainly include a ban on its lenders from dealing with Iran and Iranian banks’ access to the leading global financial-messaging system known as SWIFT. Iran reached a historic nuclear accord with major world powers on July 14, which will result in the lifting of sanctions.
Mohammadi announced a plan by the Economy Ministry to crack down on entities causing market instability. He said a technical team comprised of representatives from the ministry, CBI, Central Insurance of Iran, and Securities and Exchange Organization is drafting the law.
"The proposed law seeks to clamp down on all rogue elements of the market, including unregistered leasing companies, illegal pyramid schemes, shady online financial schemes and illegal insurances," he said, adding that the plan is to be carried out in close cooperation with the judiciary.
