Economy, Business And Markets

Budget Amendment to Fast-Track Production

Budget Amendment to Fast-Track ProductionBudget Amendment to Fast-Track Production

The governor the Central Bank of Iran and lawmakers discussed the government’s proposed amendments to 2016-17 annual budget law. The amendment, if passed, would allow the government to recapitalize banks by clearing its debts to lenders by drawing on foreign currency resources.

Valiollah Seif said the passage of the amendment by the Parliament would give the government more space to implement its reform plans.

“It will also create the conditions for the banking sector to offer extra support to the production sector,” the Majlis news website quoted him as saying after a meeting with the Majlis Budget Commission on Tuesday

Requests for credit from the moribund production sector and the struggling SMEs have grown in recent months. The manufacturing sector is in a very difficult situation with an estimated 60% of the SMEs on the verge of closure.

The CBI has ordered banks and credit institutions to allocate a minimum 10% of their loans to small and medium-sized businesses to help create jobs and lift the beleaguered manufacturing sector.

CBI data shows banks lent 4.2 quadrillion rials ($317 billion) during the previous fiscal year. While the share of SMEs of the loans is  not specified, it is estimated that 10,000 SMEs are active in the country, many of which are in dire straits.

Noting that non-performing loans account for 45% of banks’ total assets, Seif said, “Banks are short of credit and incapable of lending to businesses. Their capital adequacy ratio is also very low."

 Banks should support the production sector in a transparent and efficient manner, the senior official added.

MPs Unconvinced

 Meanwhile Mohammad Mehdi Mofatteh, a lawmaker, said that the commission has rejected the proposed amendments to the budget law.  

“During the meeting Mohammad Baqer Nobakht, head of Management and Planning Organization, provided us with details about the importance of passing the amendments, but the commission members were unconvinced and voted against it.”

Mofatteh added that the case could be debated in a plenary session of the Parliament if the government or lawmakers make a request.

The government is trying hard to clear some of its debts to banks by using the forex resources through the amendment which the previous parliament had rejected. Lawmakers in the previous legislature had argued that the government becoming accustomed to using forex resources would set a bad precedent and harm the economy.