Government’s debt in each country leads to economic challenges which harden economic situation so people earn less and companies’ revenues decline. If the proportion of debt to GDP goes beyond 100 percent, the GDP growth will decrease. In theory, many reasons could be declared for this occurrence, for example if the government’s debts increase significantly, there will be two alternatives for financing. The first one is issuing debt securities and the second one is borrowing from the central bank. Using the first method leads to increase in interest rate which decrease desire for investment. However, using second method causes significant increase in taxation. Therefore, the second method has negative effect on economics activities.
The debts of Iran’s government could be divided into three major parts: Debt to contractors, debt to banks and foreign debt.
According to statistics which has been published recently by Central Bank of Iran, the total foreign debt of Iran’s government is about USD 11 Billion which contains around USD 2.8 Billion overdue debt. Thus, the proportion of foreign debt to GDP in Iran is around 2.7 percent and this shows Iran could borrow more money from foreign banks in order to improve economic situation.
The government’s debt to banks is one the most important problems of Iran’s economy. According to latest statistics, the government’s total debt to banks is about USD 70 Billion which shows 26 percent increase comparing last Persian year. The mentioned amount of debt has divided into 2 major parts: Debt to banks which is about USD 51 Billion and the rest is government’s debt to Central bank of Iran.
The government’s debt to its contractors is not that much clear as last two parts, but they plan to settling this kind of debt by issuing Sukuk. The amount of Sukuk which has been issued by the government is about USD 17 Billion and this number is 5 times bigger comparing last year.
According to aforementioned statements, total government’s debts is about USD 98 billion this shows 24 percent share of GDP. Although, this share is much lower than many countries but the increasing trend should be highlighted as an important factor for investors that need to be considered. The most important challenge facing government regarding this issue is how to settle banks debt. Since this problem leads to lack of liquidity for commercial banks, this declines the velocity of money in economy of Iran because of these expired claims.