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EghtesadOnline: The Central Bank of Iran says that rising government debt to the CBI is largely due to changes in “debt classification” of the bank and has no monetary relevance.

In a notice posted on its website, it said government debt to the central bank increased from 354 trillion rials ($1.5 billion) in July 2018 to 970 trillion rials ($4.2 billion) in June 2020. 

The upsurge is linked to the transfer of unpaid dues of state-owned companies to the CBI to government debt to the central bank. In other words, past arrears of government-controlled companies to the CBI are now categorized as government debt to the central bank.

Of the mentioned amount, 414 trillion rials ($1.8b) pertains to debts of banks and non-bank credit institutions to the government, accounting for 67.2% of the total. 

 

Big Debtors 

In addition, 108 trillion rials ($470 million) of government debt to the CBI is related to previous debts of state-run companies, namely Iran Power Generation and Transmission Company (Tavanir), the Government Trading Corporation of Iran and State Livestock Affairs Logistics Company. 

The CBI noted that the increase in government debt is due to changes in the “debt classification of the bank” as per rules. 

It said such changes should not be construed as printing new money and increasing the monetary base, addressing persistent criticism that the CBI is afflicted with financial indiscipline due to the government’s over borrowing. 

Referring to rules, the CBI said the government can borrow from the CBI for discretionary spending equivalent to 3% of the annual budget value. Government petty cash is reimbursed at the end of each fiscal year in March. 

“Discretionary spending accounts for 135 trillion rials ($586m) of the current government debt,” the CBI said. 

The CBI report on monetary data shows that growth in broad money supply picked up in one year, rising 34.2% by the end of the calendar month to June 21 compared to the same period last year.  

Broad money reached 26,571.7 trillion rials ($115b), growing 7.5% in three months from the beginning of the fiscal year in late March.

As per available data, the monetary base grew to 3,834.7 trillion rials ($16b) by June 21 or 8.8% growth since the beginning of the fiscal year.  

 

Debt Iran CBI central bank monetary