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Budget Amendment Allows Gov’t to Clear Debts to Banks

Majlis has allowed the government to issue up to $12.8 billion of treasury bonds or other Islamic debt instruments with five-year maturity.Majlis has allowed the government to issue up to $12.8 billion of treasury bonds or other Islamic debt instruments with five-year maturity.

Lawmakers on Tuesday passed the amendments to 2016-17 annual budget law, allowing the government to settle its debts to the banking sector by using the Central Bank of Iran’s foreign exchange resources.

The amendment permits the government to repay up to 450 trillion rials ($14.5 billion) of debts to the lenders through CBI’s forex resources, IRNA reported.

Through the provision which proved controversial in recent weeks, the government wants to revalue the Central Bank of Iran’s forex assets and have the proceeds wired to its coffers.

The assets are owned by CBI, as the government sold them to the bank in the past. The government was paid in rials for these assets, mostly proceeds from crude oil exports and at different exchange rates.

Now that rial has lost much of its value in the wake of the 2012 currency shock, the government wants to use the difference in exchange rates to settle its debts and empower public-sector banks at the same time.

Lawmakers decided that the resources for the unification of foreign exchange rates and banks’ debts to the CBI should be prioritized.

Majlis also allowed the government to issue up to 400 trillion rials ($12.8 billion) of treasury bonds or other Islamic debt instruments with five-year maturity, in order to clear debts to banks, contractors, municipalities and farmers.

The government has had a difficult time convincing the parliament 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 is becoming accustomed to using forex resources, which would set a bad precedent and harm the economy.

According to Economy Minister Ali Tayyebnia, the government’s total debts inherited from the previous administration amount to 5 quadrillion rials ($165 billion).

Financialtribune.com