Annual budget as a reference for country’s annual planning is of utmost importance which its revenues in case of amount and type and place of consume can have significant effects on country’s economic trend. General information about Iran’s budget was discussed in Iran’s budget structure article however, in this article, we want to address one of the most important parts of Iran’s budget about financing by issuing securities.
In current year’s budget, affiliates and subsidiaries of different ministries are allowed to issue Sukuk or Rial-based Mosharekat bonds up to 100 trillion Rials in respect to issuing Mosharekat bonds’ act. These bonds are used in order to implement plans with technical, economic and financial feasibility. Projects and plans of oil and gas fields are among top priorities.
In another clause in the budget, the government is permitted to issue Rial-based and foreign exchange-based Islamic Financial Securities up to 200 trillion Rials. It is mentioned that unsold securities can be transferred to contractors, consultants and suppliers of equipment of that plans up to outstanding claim’s amount.
The next clause is about municipals. They have the authority to issue Sukuk and Mosharekat bonds up to 50 trillion Rials. Note that at least 50% of securities referred to this clause will be dedicated to urban train projects. 50% of repayment guarantee for these projects is the government`s responsibility and the rest is on municipals. This clause shows how much the government cares about urban train’s development however we should wait to see that in reality whether this will happen or not.
Government can issue tax-exempt treasury bills with maturity of one to three years and transfer to creditors up to 75 trillion Rials. The government is also allowed to issue 100 trillion treasury bills and settle them before the end of year. These bills are also tax-exempt and are tradable in Tehran stock exchange(TSE). Settlement of them is prior to all payments of treasury.
Government is allowed to issue 50 trillion Rials financial securities with maturity of up to 5 years in order to repay principal and interest of bonds which are matured in 2017.
The Ministry of Petroleum has been allowed to issue Rial-based and foreign exchange-based Mosharekat bonds in order to invest in oil and gas projects with priority of shared fields by capital market up to 50 trillion Rials. Principal and interest repayment are guaranteed.
National Iranian Oil Company has been allowed to use financial bonds in order to repay principal and interest of matured Rial-based and foreign exchange-based Mosharekat bonds to contractors of upstream oil and gas projects up to 3 billion dollars.
Although in previous months, OPEC decided to decrease its production and Iran’s share of production has risen to 90 thousand barrel per day, the government planned on financial assets in order to reduce current budget’s dependency on oil. Issuing securities, treasury bills or Mosharekat bonds means that the government borrows from the public and this policy, not only won’t have inflationary effects in short-term but also guide wandering liquidity in community to go towards investment opportunities.
All in all, financing by issuing securities is a policy in order to steer liquidity towards production and avoiding speculation. If this action is done well and completely, decreasing budget’s dependency on oil is conceivable but note that due to primacy of treasury bills’ settlement and considering them as risk-free securities, government should try to meet predicted revenues and expected return on government’s schemes because it has significant effect on country’s financial balance.