Economy, Business And Markets

$2b Gov’t Sukuks To Reduce Debt

$2b Gov’t Sukuks  To Reduce Debt $2b Gov’t Sukuks  To Reduce Debt

First Vice President Eshaq Jahangiri has informed President Hasan Rouhani in a letter that 60,000 billion rials worth of Ijara sokuks (sale and lease-backed bonds) were issued to pay a portion of government debts to banks. The veep hoped the measure would help reduce interest rates.  

In the letter Jahangiri said the total amount of Ijara sokuks equaled 60,000 billion rials ($2 billion) and is divided into two parts: the first is worth 50,000 billion rials and is allocated to repaying government debts to the banking. The second, worth 10,000 billion rials will be channeled into the capital market, Fars News Agency reported on Wednesday.

Sokuks are financial certificates like bonds that comply with Sharia and Islamic law and are emerging as a key economic paradigm in many Muslim and non-Muslim countries.

The first vice president expressed hope that issuing bonds would help cut bank interest rates as banks can use them as collateral with the Central Bank of Iran for loans and new funding facilities.

On the other hand, issuing securities will also grease the wheels of the capital market, stimulate trade and generate a bond market.

Issuing sokuks would also enhance banks' dealings with companies and enable them to further tap into CBI sources, reduce the fierce competition in hunting for new deposits and bring down interest rates.

"If the multiplier rate of newly-issued bonds stands at 5.7, the banks' liquidity would rise by 300-340 trillion rials ($10 -$11.3 billion at the official exchange rate), generating a cash flow for the business sector."

In the letter to the president, Jahangiri said even though the invested money is relatively small, it could help revive large projects inside the country in the long-run.   

He elaborated that the latest economic was important for two reasons: Demonstrate the government's commitment to promptly pay the returns on the sukus, and prevent the expansion of money base in the wake of CBI recognition of sukus as collateral for lenders.

Government debt to the banking sector grew by 7% to 920 trillion rials ($28.2 billion) in the first half of last fiscal year (March 21-September 22), according to CBI data. Of the sum, 20 trillion rials were owed by state-owned companies and the rest by the government itself.

First Vice President Eshaq Jahangiri