Gov’t Oversupplies Bonds

The government sold only 41.4% of the bonds it offered in the first five months of the current Iranian year (started March 20).

The IRNA report showed Iran’s small money market overflowed with bonds in the government’s quest to cover the gaping hole in its finances.

Out of the 52.9 trillion rials ($1.47 billion at current market exchange rates) of various government bonds put on offer, only 21.9 trillion rials ($609.6 billion) of the bonds found buyers.

Municipalities were slightly more successful in raising money. They offered 11 trillion rials ($306.2 million) of Islamic bonds and managed to sell 4.9 trillion ($136.4 million), or 45% of them.

The government has overestimated market appetite for bonds and outstepped its own credibility, leaving it with a pile of unsold bonds. The fervor to borrow is of course justified, given how empty state coffers are.

First quarter central bank data showed a widening deficit, bulging state debt and surging money supply. The government’s first quarter operational deficit came in more than expected, as the administration overshot its own target by 16.7% and came short of 223 trillion rials ($6.2 billion at market exchange rate) in the first quarter of the Iranian year.

The first quarter deficit is nearly half of last year’s total deficit of $13 billion, which fuels worries about this year’s fiscal balance and how the administration will pay for its expenses.

Even the privatization of government property is not of much help anymore. The government is scraping the bottom of the barrel and selling whatever odd company is left. Finding buyers for such companies is difficult and they cannot command high prices.

From the start of the year till the beginning of October, Iranian Privatization Organization sold 6.4 trillion rials ($180.5 million) of government corporate stakes.

The latest offering of government companies in September to the public did not find adequate buyers, leaving most of the shares unsold. The Iranian Privatization Organization managed to sell only 740 billion of its planned 15-trillion-rial ($418.5 million) offering. It was to be the largest initial public offering of the year, but the bearish market and the poor quality of the businesses on sale left most of the shares on the counter.

With bond and stock sales going sour and crude oil sales and foreign investment less than expected, the question of how the deficit will be financed comes to the fore.

Will the administration print money, or as they say in government lingo “borrow from the central bank”, just like its predecessor, and run the risk of inflation, or will it cut costs?