In a bid to address the liquidity problem faced by the manufacturers, a new production fund will be established to provide loans to the manufacturing units through a new line of credit, the head of parliament’s special committee for supporting national production, Hamidreza Fouladgar, in interview with Tasnim news agency.
In the wake of growing problems faced by the manufacturing sector due to a shortage of funds and cash flow, the parliament proposed an urgent bill last year to establish a special fund to support national production. Discussions regarding the fund, aimed at financing the manufacturers and regulating the excess liquidity in the market, have regenerated a year and a half later while reviewing the government’s plan of action to exit recession.
Experts in favor of the proposed fund (currently being reviewed by the government and the parliament simultaneously) say it would help regulate the excess liquidity in the country, which according to experts is the main problem facing the national economy. The liquidity problem coupled with the economic mismanagement could lead to an inflation hike and a deepening recession in the long run. Another problem is the low profits and high risks associated with production activities as compared to the profitable foreign trade, which prompt the loan borrowers to use the money for purposes other than production.
Latest figures by the Central Bank of Iran (CBI) show that liquidity increased to 6,538 trillion rials ($245 billion) in the month of Shahrivar (ending September 22), indicating a 29.2 percent growth compared to the same month last year. Annual liquidity growth was 31.3 percent in the month of Tir (ending July 22) and 30.1 percent in the month of Mordad (ending August 22), showing a declining pattern in the three consecutive months but is still far beyond the 25 percent limit set by the CBI.
In a bid to address the liquidity problem, a new production fund will be established to provide loans to the manufacturing units through a new line of credit, the head of parliament’s special committee for supporting national production, Hamidreza Fouladgar, in interview with Tasnim news agency.
Fouladgar said the proposed amendments, which could solve many problems facing manufacturers, will be approved if they prove to be financially viable for the government. Noting that half of the government subsidies for manufacturers would be offered through this fund, Fouladgar expressed hope that the approval of this bill and its amendments would alleviate manufacturers’ problems related to the shortage of liquidity and working capital.
The loans received from this fund will then be channeled by the manufacturing sector towards their energy costs, tax liabilities, insurance premiums and personnel salary (the running costs) as reported by Donya-e- Eghtesad newspaper. Industry experts criticize the decision on the ground that using bank incentives to pay for the day-to-day costs of manufacturing units would use up valuable bank resources for nonproductive and unjustified purposes, a trend which could otherwise be utilized for long term investments and financial activities in the country.
According to the proposed amendments, all traders holding a permit from the ministry of industry, mine and trade or the agriculture ministry are eligible for receiving the bank loans. With the large number of people falling in this category, the experts are concerned about the cumbersome administrative procedures required for validating the credibility of borrowers’ and opening special bank accounts for each individual. Timely repayment of these loans is another issue the experts are concerned about.
