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EghtesadOnline: The government raised 49.9 trillion rials ($232 million) by selling Islamic bonds in the debt market on Tuesday.

Out of this figure, 19.9 trillion rials ($92 million) was sold to lenders and non-bank financial institution in the weekly bond auction held by the Central Bank of Iran. 

The remaining 30.1 trillion ($140 million) was sold to institutional and retail investors in the share market and outside the auction, the CBI said in a notice on its website.  

Bond sale in phases is underway since May to raise funds for budgetary needs as the government struggles with a rising deficit. CBI hosts the auctions every Tuesday.

As per an earlier announcement, the government this time around offered Murabaha bonds worth 60 trillion rials ($279 million) and invited bidders. 

Bidders were five banks and nine investment funds who put in bids for 57.2 trillion rials ($266 million) but the Economy Ministry accepted 19.8 trillion rials.

As per auction procedures, banks and non-bank financial entities’ bids are processed by a CBI brokerage and sent to the Economy Ministry for approval.  The brokerage settles the payment in one working day.  

The CBI said it will hold the next auction for bonds worth 110 trillion rials ($511 million) 

Banks, investment funds, insurance companies and government creditors and contractors of development projects can buy the bonds. 

The government has sold 283 trillion rials ($1.3 billion) in six  bond auctions since May. Raising funds through the debt market is critical for the government saddled with deep budget holes that have become bigger due to high and rising cost of imports, tough US economic sanctions, near total loss of oil export revenue and declining tax income. 

Economists say funding budget deficits via the bond market is a better option than the government borrowing from the central bank or the CBI printing presses working round the clock, which in turn increase the monetary base and fires up inflation. 

The monetary base increased 8.8% over the past three months to reach 3,834.7 trillion rials ($20 billion) in the first quarter of current fiscal year on June 21.

The government expects to make 1,000 trillion rials ($4.5 billion) from bond sales as per provisions of budget rules for fiscal 2020-21. 

Apart from the amount permitted in the budget, the government wants to secure approval for an additional 1,500 trillion rials from the High Economic Coordination Council -- an ad hoc economic decision-making body comprising the heads of the three branches of power -- to further fix the gaping budget hole.

 

Debt government Market Bond Sale